Carbon regulation and competition in the European airline industry

Ertian Chen, Lichao Chen and Lars Nesheim

No 20/26, CeMMAP working papers from Institute for Fiscal Studies

Abstract: The European Union Emissions Trading System is set to substantially increase the effective carbon price faced by airlines. We estimate a two-stage model of airline competition with endogenous product entry, direct departure frequencies, and pricing. Impacts are highly asymmetric across carrier types and market segments. Consumer surplus declines by up to 34% overall and up to 95% in medium- and long-haul markets. Short-haul markets gain welfare as airlines reallocate capacity toward shorter routes. Airline profits decline by 1–42%, but carbon tax revenue of $1.9–2.9 billion and the social value of avoided emissions of $2.7–4.0 billion more than offset private-surplus losses.

Date: 2026-10-28
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cemmap.ac.uk/wp-content/uploads/2026/10/CW ... industry_Page_01.jpg (image/jpeg)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:azt:cemmap:20/26

DOI: 10.47004/wp.cem.2026.2026

Access Statistics for this paper

More papers in CeMMAP working papers from Institute for Fiscal Studies Contact information at EDIRC.
Bibliographic data for series maintained by Dermot Watson ().