Emissions reduction of air transport and high-speed rail with policy intervention considering the modal competition in a network market: Environment and welfare implications

Reducing emissions in the transportation sector is a crucial priority for policymakers aiming to address environmental concerns. This paper builds an analytical model to investigate the environmental and welfare impacts of emissions reduction in air transport (AT) and high-speed rail (HSR), considering their competition within a network market. In particular, we incorporate key factors such as policy interventions and passenger environmental awareness into the model. Our findings show that while emissions reduction generally yields positive outcomes, they can paradoxically generate additional emissions under specific conditions due to increased air transport traffic. Notably, the participation of both AT and HSR in emissions reduction results in the most significant environmental benefits across the transport network in most cases. This scenario mitigates the potential rise in air emissions on the long-haul route via the network effect and modal substitution. Our analysis shows that HSR emissions reduction creates a net environmental improvement compared to the scenario involving only AT emissions reduction. Additionally, HSR emissions reduction enhances both social welfare and HSR profitability, highlighting the crucial role of HSR in reducing emissions, particularly amid ongoing decarbonization in the aviation industry. However, redirecting aviation emissions tax revenue to subsidize HSR, while beneficial for emissions and HSR profitability, may distort market competition, leading to potential welfare losses. Finally, we provide several policy implications.