The Impact of the EU Emissions Trading System on Air Passenger Arrivals in the Caribbean

Abstract

We estimate the impact of additional costs imposed on airlines by the European Union (EU) Emissions Trading System (ETS) on tourist arrivals in 26 Caribbean states. At an EU emission allowance price of €10, we find that the policy will, on average, increase return airfares from Europe to the Caribbean by $17 for indirect flights and $21 for direct flights. These price changes reduce region-wide arrivals to the Caribbean from the EU by between 1.4% and 2%, and decrease total arrivals (from all regions) by less than 0.4%. The decrease in total arrivals is the largest for Martinique (1.7%), and relatively large decreases are also predicted for Antigua and Barbuda, Bonaire, Barbados, Curacao, and Suriname. We conclude that the EU ETS will have a moderate impact on visitor arrivals relative to the United Kingdom’s Air Passenger Duty (APD) and the European financial crisis.