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This paper proposes a novel aviation CO 2 emissions reduction method by introducing a market-based incentive mechanism. An aviation carbon emissions prediction model is proposed to characterize both the microscopic flight dynamics and the macroscopic air traffic demand trend. Based on emissions prediction, a linear climate response model is applied to evaluate the environmental impact of the aviation carbon emissions. Finally, a market-based framework for aviation CO 2 emissions reduction is established based on a two-phase carbon trading model, which provides a piecewise charge method through emission taxation and cap-and-trade. A case study is carried out to demonstrate the effectiveness of the proposed framework using a real-world dataset from the Hefei Air Traffic Control Zone in China. Three scenarios are defined to describe the possible development speed of sustainable aviation fuel application in the future: not applied, medium-speed development, and high-speed development. The results show that the carbon peak will be reached in 2025 in the high-speed development scenario, when the emission amount and associated environmental impact will be reduced by 23.7% and 22.3%, respectively. Thus, the market-based framework proposed in this paper can effectively reduce aviation CO 2 emissions and mitigate the effects of global warming. • An aviation CO 2 emissions prediction model is proposed considering both microscopic flight dynamics and macroscopic traffic demand. • A more efficient market-based CO 2 emission reduction framework is developed based on a two-phase carbon trading model by means of taxation and cap-and-trade. • Case study shows that the proposed method has a more optimal incentive for CO 2 emission reduction. [ABSTRACT FROM AUTHOR]