Role of Air Travel Demand Elasticities in Reducing Aviation's Carbon Dioxide Emissions

This paper develops a new set of European air travel demand elasticities with data from the International Civil Aviation Organization; a new database was constructed in the context of examining the role for dynamic demand management in reducing aviation carbon dioxide (CO 2 ) emissions. The results indicate that air travel demand appears to be fairly price inelastic, with a fare elasticity of 20.29% in the short run and 20.44% in the long run. As a result, demand management strategies focused solely on increasing air fares may do little to curb demand growth. In contrast, supply restrictions in the form of reduced service frequencies may offer a more effective means of reducing aviation CO 2 emissions—a 10% reduction in frequency levels is found to reduce passenger demand by 5% in the short run and 7.6% in the long run—although such restrictions can create negative economic consequences. A combination of supply restrictions and pricing may offer a more balanced solution.