Carbon pricing of international transport fuels: Impacts on carbon emissions and trade activity

Abstract

We study the impacts of carbon taxation of international transport fuels on CO2 emissions and trade activity, focusing on maritime transport, which constitutes the most important international trade transport activity. Our estimated bunker price elasticities range from −0.03 to −0.42. For the current level of international trade, a global tax of US$ 40 per ton of CO2 will reduce CO2 emissions by 7.65% for the heaviest traded products (at the 6-digit HS level of aggregation) transported by sea. The greatest CO2 emission reductions are for products with relatively low value-to-weight ratios such as fossil fuels and ores. Using our estimates, we present a plan with a gradual increase in the carbon tax, including some transition to zero emissions vessels, for reaching the emissions target of the International Maritime Organization by 2050. We compare the reduction in CO2 emissions with a carbon tax policy with CO2 reductions with a feebate policy.