Destination Net Zero: The Urgent Need for a Global Carbon Tax on Aviation and Shipping

Staff Climate Notes, October 4, 2024

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Destination Net Zero: The Urgent Need for a Global Carbon Tax on Aviation and Shipping

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Bibliographic details

• Authors: Simon Black, Ian W.H. Parry, Sunalika Singh, Nate Vernon-Lin
• Published: October 4, 2024
• Series: Staff Climate Notes
• DOI: https://doi.org/10.5089/9798400290244.066

Overview and key findings

• Authors: Simon Black, Ian W.H. Parry, Sunalika Singh, Nate Vernon-Lin
• Publication date: October 4, 2024
• Series: Staff Climate Note No 2024/003
• Pages: 51
• DOI: https://doi.org/10.5089/9798400290244.066
• ISBN: 9798400290244
• ISSN: 2789-0600

• International aviation and maritime currently account for a small but rapidly growing share of global CO2 emissions and could rise to as much as 15 to 40 percent by 2040.
• Pricing international aviation and maritime emissions could:
  • Accelerate technological development and incentivize efficiency to kick-start the sectors’ transition to net zero.
  • Address the sectors’ previously favorable tax treatment.
  • Raise up to $200 billion a year in revenues by 2035, which could be allocated to climate finance or other uses.
• Political and distributional obstacles noted:
  • Reaching consensus on revenue allocation.
  • Managing price impacts, which are substantive for flight tickets but less so for shipped goods.

Policy instruments and design variants

• Carbon pricing on international aviation and shipping is the central policy discussed.
• Pricing variants analyzed:
  • Straight carbon tax/fee that raises broader revenues but has larger price impacts.
  • ‘Fee and rebate’ schemes (feebates) that have lower price impacts but raise fewer revenues.
• Design trade-offs emphasized:
  • Revenue generation versus consumer price impacts.
  • Equity and vulnerable-states considerations in revenue allocation and compensation.

Quantitative analysis and modeling

• The paper uses a new model to quantify impacts on:
  • Fuel use
  • Emissions
  • Revenues
  • Production
  • Economic costs
  • Vulnerable states
• Key quantitative claims preserved from the source:
  • Emissions share could rise to as much as 15 to 40 percent by 2040.
  • Pricing could raise up to $200 billion a year in revenues by 2035.

Policy implications and recommendations

• Implement global carbon pricing for international aviation and shipping to:
  • Accelerate technology development toward net zero.
  • Incentivize fuel and operational efficiency.
  • Correct favorable tax treatment currently enjoyed by these sectors.
• Address political economy constraints by:
  • Reaching international consensus on revenue allocation, including to climate finance and vulnerable states.
  • Considering feebates or other design features to reduce consumer price shocks, especially for air travel.
• Balance objectives:
  • Select pricing designs that balance revenue needs, emissions reductions, and distributional impacts across countries and consumers.

Source: Destination Net Zero: The Urgent Need for a Global Carbon Tax on Aviation and Shipping, Staff Climate Note No 2024/003

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