Does international coordinated industrial policy stimulate regional low-carbon aviation development? Evidence from CORSIA and the APEC developing economies

For Asia-Pacific Economic Cooperation (APEC) developing economies that are experiencing rapidly growing carbon emissions in the aviation industry, the effectiveness of their participation in an international coordination framework will be crucial for future decision-making and regional carbon reduction. Our paper investigates the effectiveness of participation in the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) framework on carbon emissions reduction in the aviation industries of APEC developing economies. Based on high-frequency daily panel data from the year 2017 to 2023, such effectiveness is examined through the difference in differences (DID) model and the time-varying DID model. Our baseline results show that CORSIA failed to reduce the aviation carbon emission by inducing reverse incentives among the APEC developing economies. Surprisingly, the pilot activities before officially joining in CORSIA are more effective in emission reduction. Mechanism analysis reveals that the insufficient green innovation in the aviation sector, subsidies for fossil fuels, and changes in airline circumstances are key mechanisms that effect this reverse incentive. Our period heterogeneity analysis suggests that the CORSIA mechanism exhibits short- and long-term ineffectiveness, while the emissions reduction effect is significant only in the medium term. Furthermore, country and airline level heterogeneity tests show that CORSIA exerts stronger reverse incentives in economies with higher per capita income, while higher carbon emissions and carbon capture and storage capabilities or more mature aviation industries can alleviate this reverse incentive. Our findings place valuable policy implications that balancing the development of the aviation innovation and industry, and reducing fossil fuel subsidies are expected to enhance the long-term effectiveness of the CORSIA mechanism.