IMF – Climate Destination Net Zero

The urgent need to decarbonize international transportation, specifically aviation and shipping, has been largely overlooked. Implementing a global carbon tax on fuels used in these sectors can help incentivize efficiency and technological development, leading to faster decarbonization. This tax could potentially raise up to $200 billion in revenues by 2035, greatly increasing global climate finance. However, there are significant political hurdles to overcome, such as reaching consensus on revenue allocation and price levels. Alternative options such as emissions trading systems, fee and rebates, or tradeable performance standards are also explored in this note. The introduction highlights the benefits of global carbon pricing in reducing emissions and raising revenues to fund international climate initiatives. Without mitigation actions, emissions from international transport fuels are projected to grow rapidly, reaching up to 40% of global CO2 emissions if left unchecked. International oversight agencies have set decarbonization goals for the aviation and shipping sectors, making them prime candidates for global carbon pricing. The mobile tax base for these fuels and fiscal anomalies in the current taxation system further support the case for implementing a global carbon tax on aviation and shipping.