Turbulence ahead: Economic policies for decarbonizing aviation

Sebastian Rausch and Anna Straubinger

No 25-064, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

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.

JEL-codes: C63 H23 L93 Q58 R48 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:341978

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