International unilateral climate policies and carbon leakage: Evidence from airline routes

Unilateral climate policies, such as the inclusion of aviation in the European Union Emissions Trading System (EU ETS), have the potential to create carbon leakage by shifting emissions to unregulated regions. This study examines the impact of the EU ETS on the carbon emissions of Chinese airlines, focusing on international routes within the EU's jurisdiction and domestic routes in China. Using route-level data from 2011 to 2019, our findings reveal that while the EU ETS significantly reduces carbon emissions on Chinese airlines' international routes within the EU jurisdiction, it simultaneously increases emissions on domestic routes in China, demonstrating the carbon leakage effect. Mechanism analysis shows that the EU ETS causes Chinese airlines to reduce flight frequency and passenger volume on EU routes while increasing these metrics on domestic routes. The leakage effect is more pronounced among non-alliance airlines and on non-monopolistic routes. This study provides micro-level evidence supporting the carbon leakage effect of unilateral climate policies and offers important insights for addressing climate unilateralism and enhancing international climate cooperation.