Analyzing the EU ETS, Challenges and Opportunities for Reducing Greenhouse Gas Emissions from the Aviation Industry in Europe

Abstract

The aviation industry’s contribution to global greenhouse gas (GHG) emissions has been on an unsteady rise for the past few decades. This paper aims to identify the determinants of increasing GHG emissions in Europe in a dynamic panel setting, paying specific attention to the role of the European Union Emissions Trading System (EU ETS). Unlike previous studies, this paper proposes business tourism spending and capital investment in the tourism and travel industry as explanatory factors together with GDP per capita and jet fuel consumption. Unexpectedly, the EU ETS coverage is found to have an increasing role for GHG emissions from international aviation in countries where the system is put into effect. The results suggest that a more targeted emissions reduction policy needs to be implemented in order to mitigate aviation emissions in the region.