Airlines’ eco-productivity changes and the European Union Emissions Trading System

Abstract

• The link between the airlines’ eco-productivity changes and the EU ETS is explored. • The airlines continuously improved eco-productivity over time, but at a slow pace. • Efficiency gain, technology progress respectively led the eco-productivity growth. • Implications are provided for promoting eco-productivity in the airline industry. • Non-convexity is used to form global Malmquist Luenberger productivity index. With the rapid traffic growth, carbon dioxide emissions from aviation have become a growing cause of climate change. Currently, the European Union Emissions Trading System (EU ETS) remains the largest cap-and-trade system tackling aviation emissions. This study examines how the eco-productivity of airlines in the European Economic Area – which are directly affected by the EU ETS – changed during 2012–2019. A non-convex global Malmquist-Luenberger productivity index was developed to provide better estimates of the changes. The study presents three major findings as follows: First, since the inclusion of aviation in the EU ETS, the airlines displayed continuous but slow growth in their eco-productivity. Second, efficiency improvement and technological innovation respectively drove the airlines’ eco-productivity growth. Third, the carbon price on the EU ETS was not a strong indicator of the airlines’ eco-productivity changes.