The impact of carbon pricing on tourist destinations: Shifts in demand, supply and emissions in the European aviation market

This paper provides novel evidence of the impact of the European Union Emissions Trading System (EU ETS) as applied to the aviation sector on tourist destinations. We use annual data at the route level for the period 2010–2022 and consider a sample comprising a large set of European cities of origin, on the one hand, and tourist destinations in Europe, North and West Africa and the Middle East, on the other. We apply a difference-in-differences analysis to a matched sample and find that the EU ETS has led to less emissions, less flights and to a lower extent less seats. In contrast, we do not find a negative impact of the EU ETS on passenger numbers. While the attractiveness of tourist destinations in Europe does not seem to have been affected by the EU ETS, our results suggest that it has promoted greater efficiency in airline operations. • Novel evidence of the impact of the EU ETS on tourist destinations. • We use a difference-in-differences analysis on route-level data from 2010 to 2022. • The EU ETS reduced emissions, flights, and, to a lesser extent, available seats. • No significant negative impact of the EU ETS on passenger numbers was found. • The EU ETS improved airline efficiency without harming Europe's tourism appeal.