Carbon Tax in the Shipping Sector: Assessing Economic and Environmental Impacts

We discuss the impact of a carbon tax on the maritime transport sector, which is responsible for approximately 3% of global emissions. The International Maritime Organization (IMO) has set long-term targets to reduce carbon intensity and achieve carbon neutrality, but the impact of the policies to achieve those targets on the global and local economies must be assessed. We use a global and multi-region Computable General Equilibrium (CGE) model - Global Trade Analysis Project Energy-Environmental augmented version (GTAP-E) – to evaluate the environmental and economic effectiveness of a carbon tax of $50/tCO2e on international shipping. GTAP-E does not provide emissions data by transport mode and accurately estimating emissions is crucial to proposing a carbon pricing measure. Therefore, we have applied machine-learning techniques to predict the share of international trade transported by sea by sector, origin and destination countries and calculate ship emissions for each bilateral flow by sector. The findings indicate that while the tax considerably reduced emissions from ships, it also had a negative impact on exports and resulted in mixed impacts on GDP, exacerbating existing inequalities across regions. Our analysis highlights the importance of considering various economic and social variables in impact assessments to identify potential trade-offs and synergies between policy objectives.