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Market-Based Instruments for International Aviation and Shipping as a Source of Climate Finance

67 Pages Posted: 20 Apr 2016  

Michael Keen

International Monetary Fund (IMF) - Fiscal Affairs Department; CESifo (Center for Economic Studies and Ifo Institute); Institute for Fiscal Studies (IFS)

Ian Perry

International Monetary Fund (IMF)

Jon Strand

World Bank

Date Written: January 1, 2012

Abstract

The international aviation and maritime sectors today enjoy relatively favorable tax treatment, as their fuels are not taxed and the sectors are not subject to any value-added tax or turnover tax. Nor are these fuel uses subject to any global measures to reduce their associated CO2 emissions, even though they represent at least 5 percent of the global greenhouse gas emissions. A carbon charge on fuels for international aviation and shipping equal to $25 per tonne of emitted CO2 could raise about $12 billion from aviation and about $26 billion from shipping by 2020. Market-based instruments ought to be used to raise such revenue, preferably charges based on the carbon contents of fuels. Such charges would also scale back emissions by at least 5-10 percent. Developing countries ought to be able to keep their own tax revenue, and additional compensation to them for the economic burdens of these carbon charges may be warranted. Such compensation would constitute at most 40 percent of the raised global revenue. Implementing these charges can be a challenge, especially for aviation, where a large number of bilateral air-service agreements would need to be rewritten.

Keywords: Transport Economics Policy & Planning, Climate Change Economics, Climate Change Mitigation and Green House Gases, Environmental Economics & Policies, Energy Production and Transportation

Suggested Citation

Keen, Michael and Perry, Ian and Strand, Jon, Market-Based Instruments for International Aviation and Shipping as a Source of Climate Finance (January 1, 2012). World Bank Policy Research Working Paper No. 5950. Available at SSRN: https://ssrn.com/abstract=1988038

Michael Keen (Contact Author)

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Ian Perry

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Jon Strand

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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