Carbon Offsetting Beats Flight Cuts in US–China Route’s Post-COVID Emissions Test

The World Bank’s Office of the Chief Economist for the East Asia and Pacific Region, in collaboration with ESG UQAM and the University of Bergamo, has delivered a rigorous and timely analysis of the post-COVID collapse in US–China air travel, reframing it as an unplanned but invaluable experiment in decarbonization policy. Published by Megersa Abate, Alessandro Barattieri, Alberto Brugnoli, and Flavio Porta, the study dissects how the near-paralysis of this major aviation corridor affected prices, passenger flows, and emissions, and what it can teach about balancing environmental goals with economic and connectivity needs. In mid-2023, direct flights between the two nations were operating at just 7 percent of their 2019 capacity, with overall passenger volumes at 17 percent of pre-pandemic levels. Ticket prices had soared, more than quadrupling on some direct routes, while total CO₂ emissions on these connections had plunged by 80 percent. Unlike other long-haul markets, where links had largely recovered, US–China routes remained suppressed, hindered by the absence of an “open skies” agreement, geopolitical tensions, pandemic legacy effects, and Russian airspace closures that forced longer routes. Before the pandemic, half of all travelers took direct flights; afterwards, nearly two-thirds relied on connections, extending travel times and slightly raising per-passenger emissions despite the huge overall drop.

Unpacking the Disruption

The researchers assembled a structural econometric model using detailed data from airline schedules, passenger volumes, ticket prices, fuel costs, and operational constraints. Their demand estimates produced a price elasticity of –1.17, well within established literature, and revealed that passengers valued direct flights so highly that they were willing to pay an average premium of about $1,273 over two-stop itineraries. On the supply side, the model identified fuel costs, the right to overfly Russian airspace, and reductions in seat capacity as key cost drivers. A particularly important factor was “supply change,” a measure of how much direct flight capacity had shrunk in the post-COVID period compared to pre-pandemic averages.

Reconnecting the Skies

In the first counterfactual scenario, the authors restored pre-pandemic levels of direct connectivity to assess the potential rebound in traffic and prices. The results were striking: total passenger numbers would rise by 387 percent compared to the post-COVID baseline, with an 814 percent surge for direct-flight passengers. Average fares would plummet by 63 percent, and per-passenger CO₂ emissions would fall by 21 percent thanks to more efficient routing, even though total emissions would inevitably increase. This scenario underscored the massive economic and consumer benefits of full connectivity but also its environmental cost, reaffirming that restoring flights boosts access and affordability but raises the climate burden.

Offsetting vs. Cutting Flights

The second counterfactual flipped the policy script, holding pre-pandemic seat capacity steady but using a market-based mechanism, carbon offsetting, to match the 80 percent CO₂ reduction seen in the post-COVID reality. Assuming an offset price of $32 per ton, the model predicted passenger volumes would be 350 percent higher and fares 60 percent lower than in the actual post-COVID scenario. Although traffic would still be 25 percent below pre-pandemic levels, the loss in consumer surplus would shrink dramatically, from $4.88 billion under flight reductions to $2.86 billion under offsetting, a 41 percent improvement. The environmental outcome would be identical in both approaches, but offsetting preserved far more connectivity and consumer welfare, suggesting it is a more efficient route to decarbonization.

The Tax vs. Quota Debate in the Air

These findings feed directly into the long-standing “tax versus quota” debate in environmental policy. Capacity restrictions and flight bans can slash emissions rapidly, but they tend to cause large economic losses, undermine market efficiency, and reduce access to air travel. Market-based measures like carbon pricing and offsetting allow the same environmental targets to be met while keeping more of the economic and social benefits of connectivity intact, especially in markets like US–China air travel, where there are no realistic substitutes. In this case, offsetting emerged as a clear winner in efficiency terms, suggesting that well-designed pricing policies could help the aviation industry meet its “net zero by 2050” pledge without resorting to blunt, high-cost restrictions.

Lessons for the Future of Green Aviation

The authors note that their model treats offset prices as fixed, but future research could endogenize this variable, capturing how greater demand for offsets might push prices upward and affect cost structures. They also suggest extending the framework to Sustainable Aviation Fuel (SAF), another key technology in the industry’s decarbonization toolkit. Running similar counterfactuals for SAF adoption could reveal whether it offers a viable complement or alternative to offsetting for deep emissions cuts.

By grounding their analysis in a real-world shock rather than a theoretical construct, this study provides unusually concrete evidence about the trade-offs in aviation decarbonization. The collapse in US–China flights, shaped by geopolitics, policy, and pandemic recovery, became a live test case for climate strategy. The evidence shows that while cutting flights delivers environmental gains, it is an economically inefficient way to reconcile climate goals with the global value of air connectivity. Smarter, market-based mechanisms can preserve far more travel and affordability for the same emissions outcome. As the aviation sector confronts its projected rise to over one-fifth of global emissions by mid-century, the message from this transpacific case is clear: the scalpel of carbon pricing can cut more precisely and with less harm than the axe of capacity caps.