UCL Energy Institute


Maritime carbon taxes have potential, working paper suggests

4 October 2018

Maritime carbon taxes are promising instruments as they provide certainty over prices compared to other pricing instruments, suggests new working paper from IMF, World Bank and UCL.

Freight shipping

A new working paper by International Monetary Fund, World Bank and UCL describes and analyses options for carbon pricing in international shipping. The authors, Ian Parry (IMF), Dirk Heine, Kelley Kizier (World Bank) and Tristan Smith (UCL) discuss the case for a tax over alternative mitigation instruments, options for the practical design issues, and then present estimates of the impacts of carbon taxation and other instruments from an analytical model of the maritime sector.

Their analysis includes scenarios where maritime carbon taxes rise to US$75 per tonne of CO2 in 2030 ($240 per tonne of bunker fuel), and $150 per tonne of CO2 in 2040, enabling significant reductions of maritime CO2 emissions and raising revenues of about $75 billion in 2030 and $150 billion in 2040. The work estimates that this could be achieved with an overall burden in 2030, on average globally, equivalent to 0.075 percent of global GDP. A revenue-neutral variant of the carbon tax is also analysed, which significantly reduces the global average burden.

The paper discusses how, unlike most alternative mitigation instruments (e.g. standards for the technical efficiency of new ships), maritime carbon taxes promote, and strike a cost-effective balance between, the full range of potential opportunities for reducing emissions (e.g. technical and operational improvements for both new and existing ships, shifting the fleet towards larger, more efficient vessels) and unlike other pricing instruments (e.g. emissions trading systems, offset schemes) a tax provides more certainty over prices and is simpler to administer and comply with.

The full paper can be accessed here: https://www.imf.org/en/Publications/WP/Issues/2018/09/11/Carbon-Taxation-for-International-Maritime-Fuels-Assessing-the-Options-46193