The International Monetary Fund (IMF) is calling for a global carbon tax on aviation and shipping to tackle climate change.

In its report, Destination Net Zero: The Urgent Need for a Global Carbon Tax on Aviation and Shipping, the IMF warns that these sectors could make up 40% of global emissions by 2050. Without swift action, the growing carbon footprint from air travel and maritime shipping threatens to undermine climate goals.

The IMF believes a carbon tax could help accelerate the shift to cleaner fuels while generating up to $200 billion annually by 2035. These funds could triple current global climate finance, supporting both research and efforts in developing nations. With emissions from these industries expected to rise sharply, the tax could cut emissions by as much as 63% by 2040.

However, implementing such a tax faces significant political and legal hurdles. Aviation agreements, like the 1944 Chicago Convention, prevent taxation of fuel already on board aircraft. Renegotiating these agreements across ICAO’s 193 member states will be a significant challenge, as will reaching a consensus on allocating the revenue.

The report also explores alternatives like feebates, where companies exceeding emissions thresholds are penalized, while those who perform better are rewarded.

Emissions trading systems (ETS), already in the EU, are another possibility, but global implementation would be more complex.

In the long term, the IMF stresses that technological innovation will be key to reaching net zero.

Sustainable aviation fuels (SAFs) for airplanes and hydrogen-based fuels for ships offer promise but remain costly. The report estimates that a carbon price of $285 per tonne is needed to make SAFs cost-competitive by 2040.

The report calls for global cooperation, noting that international bodies like the ICAO and the International Maritime Organization (IMO) must enforce carbon pricing policies. Without such action, aviation and shipping could derail the world’s efforts to meet climate goals.

The stakes are high, but the potential for progress is even more significant. The IMF’s roadmap suggests that these industries could become key players in the global push toward sustainability with the right policies and investment.