Destination Net Zero: The Urgent Need for a Global Carbon Tax on Aviation and Shipping
Summary
The need to decarbonize international transportation has long been overlooked, with aviation and shipping accounting for a rapidly growing share of global carbon dioxide emissions. A global carbon tax on fuels used in these sectors can contribute to climate mitigation in two ways: incentivizing efficiency and technological development, and raising up to $200 billion a year in revenues by 2035, potentially tripling current global climate finance.
Introduction
There is a strong rationale for global carbon pricing in international aviation and shipping:
- Decarbonization: All energy-consuming sectors need to be decarbonized by mid-century to meet the Paris Agreement's temperature goals.
- Revenue Generation: A carbon price rising to $170 per tonne in 2035 could raise about $200 billion annually, which could be used to scale up international climate finance.
Key Considerations
- Emissions Growth: Without mitigation actions, emissions from international transport fuels could reach 15 to 40 percent of total global CO2 emissions.
- Global Oversight: The International Civil Aviation Organization (ICAO) and International Maritime Organization (IMO) have set decarbonization goals and established data collection procedures.
- Tax Base Mobility: The tax base for international transport fuels is mobile, especially for maritime, providing a strong rationale for a globally coordinated price.
- Fiscal Anomalies: International aviation and maritime fuels are not subject to excise taxes and are treated favorably from a broader fiscal perspective.
Policy Options
- Carbon Taxes: The simplest approach for administrative implementation and can provide long-term price certainty.
- Emissions Trading Systems (ETSs): Potentially workable at an international level but require more administrative and firm compliance capacity.
- Feebates: Apply a sliding scale of fees/rebates based on emissions rates, helping accelerate the adoption of zero-emission fuels and raising some revenues.
Design Issues and Impacts
- Impact Quantification: The note uses a new model to quantify the impacts of carbon pricing on fuel use, emissions, revenues, production costs, economic costs, zero-emission fuel use, and distributional impacts globally and across countries.
- Political Hurdles: Reaching consensus on revenue allocation, price levels, and managing impacts is a significant challenge, particularly for aviation.
Conclusion
The policy forward requires addressing political hurdles and designing effective mechanisms to ensure successful implementation of carbon pricing in international aviation and shipping.
Note: All monetary figures in this note are expressed in year 2023 US$.