LAUSR

Abstract The environmental impacts of transportation and industrialization are quite significant as both essentially consume a great deal of energy and fossil fuels, which increases air pollution. The carbon pricing and cap-and-trade emissions are considered sustainable policy instruments, given these are deemed helpful in reducing carbon emissions and maintaining the global average temperature well below less than 1.5 °C.This study examined the possible linkages between air transportation freight, combustible renewables and waste, and carbon pricing in the context of Arab World by using a time series data from 1975 to 2018. The study used Autoregressive Distributed Lag (ARDL) cointegration technique and innovation accounting matrix for estimating the short- and long-run relationships and inter-temporal relationships between the variables over a time horizon. The results substantiate the air cargo carbon footprints both in the short- and long-run, while combustible renewables and waste exhibit a positive relationship (negative impact) on carbon emissions in the short-run and negative relationship (positive impact) in the long-run. Foreign Direct Investment (FDI) inflows substantially increase carbon emissions, which verified ‘pollution haven hypothesis’ both in the short- and long-run. The impact of fuel imports and carbon pricing on carbon emissions is positive, which support the ‘race to the bottom’ hypothesis. The impulse response function shows that carbon emissions will be influenced by air transport freight, FDI inflows, and country’s economic growth per capita, while variance decomposition analysis shows that combustible renewable and waste and carbon pricing will exert a high variance error shocks on carbon emissions over a time horizon. These findings suggest that carbon pricing create incentives for the firms to find innovative ways to reduce carbon emissions. For instance, converting non-renewable fuel to renewable fuels investment in energy related infrastructure for achieving energy efficiency, and conservation of natural resources with fuel combustion.