MEPC 82: Higher CO2 levy better for global GDP in the long run – UNCTAD

A carbon levy of $150-300/mtCO2eq will reduce global GDP by 0.08% by 2050, while a lower levy of $30-120/mtCO2eq could reduce GDP by 0.14%, compared to a business-as-usual scenario, a comprehensive impact assessment report submitted to the IMO found.

PHOTO: Headquarters of the International Maritime Organization in London. Getty Images

The International Maritime Organization (IMO) concluded its Fifth GHG Expert Workshop on the Further Development of the Basket of Mid-term Measures (GHG-EW 5) last week.

The GHG-EW 5 reviewed key findings from the comprehensive impact assessment (CIA) submitted by the United Nations Conference on Trade and Development (UNCTAD) in June. The CIA analysed the impact of IMO's potential mid-term measures on global economies based on various scenarios proposed by the classification society DNV.

These measures may include an economic component, such as a global pricing mechanism for GHG emissions from ships, alongside a technical measure, like a global fuel standard for marine fuels.

High CO2 levy = higher revenues

The shipping sector could generate total revenue of $776-982 billion between 2027-2050 through mid-term measures, according to a DNV study conducted as part of the CIA.

These measures could include a global fuel standard with targets to gradually reduce the well-to-wake (WtW) GFI of marine fuels, along with a carbon levy of $150-300 per mt CO2-equivalent (mtCO2eq). In this scenario, the measures would be supplemented by a revenue disbursement system, but without flexibility or feebate mechanisms, DNV noted.

In comparison, a GFI standard based on tank-to-wake (TtW) emissions, paired with a carbon levy of $30-120/mtCO2eq, could generate around $139 billion between 2027-2050. If the GFI standard is based on WtW emissions, the sector could earn even higher revenue, up to $244 billion.

In this case, the measures would include revenue disbursement and flexibility mechanisms but no feebate system, DNV added.

Near-term pain, long-term gain

The UNCTAD assessment of DNV’s study found that a high CO2 levy of $150-300/mtCO2eq could lead to the largest reduction in global GDP, at 0.07% by 2030, compared to a business-as-usual scenario. In contrast, a lower CO2 levy of $30-120/mtCO2eq could reduce global GDP by 0.03-0.04% by the same year.

In the long run, however, if the revenue generated is disbursed solely to small island nations and least-developed countries, the global GDP reduction would be 0.08% by 2050 with the higher levy. Conversely, the lower levy could result in a more significant global GDP reduction of 0.14%, even with revenue focused on these under-developed economies.

The UNCTAD report also noted that implementing only a technical measure without an economic measure like a carbon levy, will have the most significant negative impact on least-developed economies, with minimal effects on developed countries.

This approach would result in the highest reduction in world GDP, at 0.16% by 2050, compared to a business-as-usual scenario, the study concluded.

By Konica Bhatt

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