An economist’s view — with one eyebrow raised and both feet on the ground

Article by Samual Hughes (Aviation/Aircraft SME)

Let’s start with an uncomfortable truth.

Most people discussing aviation and climate policy today are either:

Advocates, who want to believe the system works, or
Cynics, who dismiss it all as nonsense.

Neither position is particularly useful.

So let’s try something rarer:
An honest economic look at how aviation’s carbon systems actually function — without ideology, without slogans, and without pretending complexity doesn’t exist.

Because whether you work in aviation or not, this system is already shaping prices, behaviour, and investment.

The basic problem (in plain English)

Governments want aviation emissions to fall.
But aviation is global, competitive, mobile, and politically sensitive.

If you tax it too hard:

Airlines go bankrupt
Connectivity collapses
Public backlash follows

If you regulate it too lightly:

Emissions rise
Governments look weak
Political pressure builds

So regulators created two imperfect tools:

CORSIA – a global compromise negotiated through the UN aviation body
EU ETS – a regional carbon pricing system imposed by Europe

Both are political-economic constructs, not natural laws. And like all such constructs, they reflect trade-offs.

CORSIA: the global diplomatic compromise

CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) exists because the alternative was chaos.

Without it, you’d likely see:

National aviation taxes
Fuel levies
Fragmented regional schemes
Trade disputes over aviation emissions

CORSIA’s core idea is:

Airlines continue operating globally, but pay for environmental projects elsewhere to compensate for emissions growth.

From a political economy perspective, this is clever:

It avoids trade wars
It keeps developing countries onboard
It creates a unified global framework

But from an economic effectiveness perspective, it is fragile.

Why?

Because it depends on carbon offset markets. And offset markets suffer from three chronic problems:

Additionality – Would this project have happened anyway?
Permanence – Will the carbon saving last 10, 30, 100 years?
Measurement uncertainty – Are the claimed reductions real?

Some offset projects are genuinely high quality.
Some are marginal.
Some are borderline fiction.

An honest economist must say this:

CORSIA is better than no system at all — but it is structurally weak as a decarbonisation mechanism.

It is best understood as:

A political stabiliser
A financial transfer mechanism
A reputational shield for aviation

Less so as a true driver of structural emissions change.

EU ETS: the blunt instrument

The EU Emissions Trading System takes a completely different approach.

Instead of offsets, it says:

You emit CO₂ → you must buy a permit → fewer permits each year → price rises → behaviour changes.

This is classic economic theory:

Put a price on the externality
Let markets respond
Innovation follows price pressure

In theory, elegant.
In practice, messy.

EU ETS now creates real costs for airlines:

Permits must increasingly be purchased, not gifted
Carbon cost per flight is rising
Marginal routes become unprofitable
Airlines pass costs to consumers

This absolutely does change behaviour.

But here’s the Paxman question:

Where does the money go?

Answer: largely into government revenue streams.

Some is allocated to climate projects.
Some funds energy transition.
Some disappears into general budgets.

There is no guaranteed link between:

What aviation pays
What aviation receives in infrastructure, SAF supply, or technological acceleration

So EU ETS is effective at raising costs, but less demonstrably effective at accelerating aviation’s own transition.

How airlines actually behave (revealed preferences)

Economists don’t listen to what organisations say.
They observe what they do.

Here’s what airlines are doing:

Building carbon cost into route profitability models
Adjusting network planning to manage regulatory exposure
Marketing sustainability products primarily to satisfy corporate clients
Prioritising fleet efficiency partly for fuel, partly for carbon optics
Negotiating SAF offtake deals largely for reputational and regulatory positioning
Reporting emissions because customers, lenders and regulators demand it

This tells us something important:

Airlines are not embracing this because it is elegant policy.
They are adapting because it is unavoidable commercial reality.

That distinction matters.

Does this reduce emissions meaningfully?

Here is where intellectual honesty becomes essential.

Has EU ETS reduced aviation emissions?
Marginally, yes — by raising costs and suppressing some demand.

Has CORSIA reduced aviation emissions?
Indirectly at best, depending entirely on offset quality.

Has either system meaningfully accelerated the availability of scalable SAF, hydrogen, or electric aviation?
No. Those constraints are technological and industrial, not financial.

In other words:

These schemes manage behaviour
They redistribute costs
They signal intent
But they do not yet solve the underlying physics and engineering problem

That doesn’t make them useless.
But it does make the political rhetoric around them wildly overstated.

Is the system globally fair?

This is where Clarkson would start sharpening the monologue.

European carriers face higher regulatory costs than some competitors.
Developing nations face compliance designed by wealthy economies.
Regions dependent on aviation suffer disproportionate connectivity impacts.

Economically speaking, this creates:

Competitive distortion
Uneven burden sharing
Risk of carbon leakage (activity moving elsewhere rather than disappearing)

The policy response is often:

“It’s imperfect, but we must start somewhere.”

Which is true.
But it does not make criticism invalid.

Who really pays?

Follow the money.

Airlines pay → passengers pay through ticket prices
Cargo operators pay → consumers pay through supply chains
Governments collect → citizens fund state budgets
Offset markets grow → project developers profit

Very little of this cost is absorbed by “the airline industry” in the abstract.
It is absorbed by customers and society.

This is not a moral judgement.
It is simply how incidence of taxation works.

The uncomfortable but accurate conclusion

Here is the honest position:

CORSIA is a politically necessary compromise that stabilises global aviation governance but delivers limited structural decarbonisation.

EU ETS is an economically coherent pricing mechanism that changes behaviour but does not guarantee reinvestment into aviation solutions.

Both systems:

Shape airline behaviour
Raise prices
Change incentives
Increase complexity

Neither system:

Solves the technological barriers to decarbonising flight
Guarantees fair global burden sharing
Provides clear feedback between payment and outcome

And yet — abandoning them would likely make things worse, not better.

So we are left with a system that is:

Flawed
Politically driven
Economically imperfect
Operationally disruptive
But still shaping reality

Which is exactly why understanding it matters.

Why this matters for professionals (and why education matters)

Whether you work in:

Aviation
Supply chains
Finance
Regulation
Sustainability
Infrastructure
Government
Consulting

You are now operating inside a world where:

Carbon is a priced variable
Compliance affects competitiveness
Policy shapes markets
Ignorance creates risk

The danger is not regulation itself.
The danger is people making decisions about strategy, investment, pricing, or compliance without actually understanding the system they are operating inside.

About the author – Samual has a keen interest in aviation, sustainability and the overlooked factors relevent in consderartions fiscually as well as perceptive – do you share these views or have an alternative? Let us know and comment or check out the Linkedin page to follow us.

We offer courses, hosting, consultancy and much more www.oat.aero or **@*at.aero“>email in**@*at.aero