The Effect of Carbon Tax in Aviation Industry on the Multilateral Simulation Game

With the end of the grace period (2016) of the aviation carbon tax (ACT) proposed by the EU, the EU is likely to restart the ACT. Hence, it becomes increasingly urgent to propose a feasible and effective scheme to restrict emissions in the aviation industry. We develop a two-stage game model to analyze three possible strategies (non-resistance, refusal of payment and ACT retaliation) in nine scenarios for three groups (the EU, developing countries and non-EU developed countries). The theoretical analyses and numerical simulations reveal that the EU will continue to impose the ACT. Simultaneously, imposing retaliatory ACT constitutes an ideal choice for non-EU developed countries. At present, refusing to pay the ACT is a practical strategy for developing countries; however, after the transitional phase, this group will tend to impose the ACT as developed countries by paying attention to increasing climate change. With optimal strategies for the above three groups, the ACT can be imposed effectively and efficiently by multilateral agreements within the framework of the market-based measure (MBM) scheme. This paper develops a game framework to simulate the ACT effect and to solve emission problems in the aviation industry by a multilateral perspective to achieve sustainability, which is of practical significance for nations and economies.