The IMF Notes Series aims to quickly disseminate succinct IMF analysis on critical economic issues to member countries and the broader policy community. The IMF Staff Climate Notes provide analysis related to the impact of climate change on macroeconomic and financial stability, including on mitigation, adaptation, and transition. The views expressed in IMF Staff Climate Notes are those of the author(s), although they do not necessarily represent the views of the IMF, or its Executive Board, or its management.
The IMF Notes Series aims to quickly disseminate succinct IMF analysis on critical economic issues to member countries and the broader policy community. The IMF Staff Climate Notes provide analysis related to the impact of climate change on macroeconomic and financial stability, including on mitigation, adaptation, and transition. The views expressed in IMF Staff Climate Notes are those of the author(s), although they do not necessarily represent the views of the IMF, or its Executive Board, or its management.
The need to decarbonize international aviation and maritime has long been overlooked. The two sectors 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 these emissions could help global climate policy in two ways. First, it could accelerate technological development while incentivizing efficiency, kick-starting the sectors’ transition to net zero while addressing the sectors’ hitherto favorable tax treatment. Second, pricing could raise up to $200 billion a year in revenues by 2035, which could be allocated to climate finance or other uses. There are significant political obstacles, however, notably reaching consensus on revenue allocation and managing price impacts, which are substantive for flight tickets but less so for shipped goods. Pricing variants, like ‘fee and rebate’ schemes (feebates), have lower price impacts but raise fewer revenues. This paper discusses these policies, using a new model to quantify impacts on fuel use, emissions, revenues, production and economic costs, and on vulnerable states.