Synthetic control methods for policy analysis: evaluating the effect of the European Emission Trading System on aviation supply
|Tiziana D'Alfonso||Componenti strutturati del gruppo di ricerca|
In this research, we develop a novel application of the synthetic control method proposed by Abadie et al. (2010) to evaluate the causal impact of carbon pricing on aviation supply. We exploit the policy change in the European Union Emission Trading System (EU ETS), the first large greenhouse gas emissions trading scheme in the world. Aviation has been included in the ETS in 2012, thus making carbon dioxide (CO2) emissions a new input cost for the air travel industry.
In order to evaluate the effect of the EU ETS on aviation supply, we compare the evolution of the outcome between the routes affected by the EU ETS (i.e., the treatment group) and the unaffected routes (i.e., the control group). The selected aggregate outcome is expressed in terms of airline output (i.e., number of seats supplied at the airline-route level). We distinguish between low-cost and full service airlines, short and long-haul routes, routes towards (or from) hub airports vs non hub airports and, because the number of seats is a combination of flight frequency and aircraft size, we also examine the effect on average aircraft size.
In our evaluation of the EU ETS effect, synthetic control methods are particularly relevant, as each synthetic control provides the counterfactual outcome trajectory that the corresponding affected route would have experienced in the absence of the EU ETS policy. In addition, if the approximation given by synthetic controls is poor, the discrepancy (i.e., the lack-of-fit) can be computed and visualized in the time period prior to the EU ETS intervention. That is, if the fit is poor, we would know that synthetic controls are not appropriate to use in our EU ETS study. Abadie, A., Diamond, A., and Hainmueller, J. (2010). Synthetic control methods for comparative case studies: Estimating the effect of california¿s tobacco control program. Journal of the American Statistical Association, 105(490):493¿505.