Carbon tax in the shipping sector: Assessing economic and environmental impacts

Abstract

The International Maritime Organization (IMO) has established ambitious long-term goals to achieve carbon neutrality within the maritime transport sector, which accounts for approximately 3 % of global emissions. In this study, we investigate the economic and environmental impacts of implementing a carbon tax on this sector. To achieve this, we employ a global, multi-region Computable General Equilibrium (CGE) model, the Global Trade Analysis Project (GTAP), as our analytical framework. We extend the GTAP model by incorporating transport mode substitution and exogenously determining maritime transport costs using machine learning techniques and rich-level dataset on ships. We assess the effectiveness of carbon taxes at $50 and $100/tCO2e on international shipping. This assessment involves calculating emissions for each bilateral trade route and product category. Our findings reveal that the proposed carbon taxes lead to a modest reduction in maritime emissions, but also modest negative impacts on exports and real GDP. However, the adverse impacts can be partially alleviated by redistributing the carbon tax revenues to climate-sensitive countries. Moreover, our results underscore that carbon pricing alone may not be sufficient to achieve deep decarbonization in the shipping sector. Complementary policies—such as fuel standards, or other energy efficiency regulations—can enhance the effectiveness of carbon taxation while mitigating its regressive economic impacts. Our analysis highlights the importance of developing comprehensive measures that not only achieve emissions reduction but also address inequalities and support decarbonization goals of the shipping sector.