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Market-based instruments for international aviation and shipping as a source of climate finance
 
Author:Keen, Michael; Parry, Ian ; Strand, Jon; Collection Title:Policy Research working paper ; no. WPS 5950
Country:World; Date Stored:2012/01/17
Document Date:2012/01/01Document Type:Policy Research Working Paper
Language:EnglishRegion:The World Region
Report Number:WPS5950SubTopics:Environmental Economics & Policies; Energy Production and Transportation; Transport Economics Policy & Planning; Climate Change Economics; Climate Change Mitigation and Green House Gases
Volume No:1 of 1  

Summary: 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.

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