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Turbulence ahead: Economic policies for decarbonizing aviation

Author

Listed:
  • Rausch, Sebastian
  • Straubinger, Anna

Abstract

We study the design of climate policy for hard-to-abate sectors, focusing on global aviation. We build a spatial equilibrium model that links ticket booking data, the global airline network, and climateregulaairlines' choices in imperfectly competitive air transport markets. We find that sustainable aviation fuel (SAF) quotas outperform carbon pricing, delivering equal emissions cuts at 46-66% of the welfare cost. Ignoring market structure understates the cost of price-based Pigouvian instruments when fuel-capital substitution is limited. SAF quotas are more robust to regulatory scope, cause less carbon leakage, and - when layered with existing carbon pricing - increase abatement while lowering welfare cost. Relying on carbon offsets risks locking in fossil jet fuel, whereas cost-effective in-secto abatement hinges on substantial SAF uptake.

Suggested Citation

  • Rausch, Sebastian & Straubinger, Anna, 2025. "Turbulence ahead: Economic policies for decarbonizing aviation," ZEW Discussion Papers 25-064, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:341978
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    More about this item

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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