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

We study impacts of carbon pricing to international transport fuels on fuel consumption and carbon emissions, trade activity, focusing on sea freight which constitutes the most important international trade transport activity. We use the WITS global dataset for international trade for the years 2009-2017 to estimate the impacts of changes in the global average bunker fuel price on the weight times distance for goods transported and carbon emission from international shipping. We find quite strong but variable negative effects of fuel cost increases on weight times distance for traded goods, and on carbon emissions from sea freight, for the heaviest goods categories at the 6-digit HS levels of aggregation in global trade, with bunker-price elasticities ranging from -0.03 up to -0.52. Considering an increase in the bunker fuel price as a proxy for a fuel tax, our results then indicate substantial impacts of bunker fuel taxes on the volume of sea transport, on bunker fuel consumption, and on carbon emissions from the international shipping sector. Our results indicate that, for the current level of international trade, a global tax of $40 per ton CO2 tax will reduce carbon emissions from global shipping fleet by about 7% for the heaviest traded products; and by most so for goods with particularly high weight-to-value ratios such as fossil fuels and ores.