Governments are hesitant to raise carbon taxes due to rising living costs in many countries, but tax experts and economists say the costs of doing nothing will only get worse if action is not taken soon.
The shipping industry, which may be about to face higher fuel taxes, is an exception to the rule. It may be the only way to give shipping companies a strong incentive to switch to lower-carbon fuels.
When it comes to climate change, Jesper Howes, director at law firm Gorrissen Federspiel in the Netherlands, emphasizes that the market will not 'correct' itself.
"The market will not do anything about cutting emissions by itself. A carbon tax may create such an incentive to invest in green technology which will bring down emissions from the shipping industry."
"It needs to be effective and so costly that the shipping companies will have to pass on costs to the customers. That would make greener shipping companies more competitive ," he said.
The costs of the climate crisis could quickly spiral out of control if there is no taxation.
The cost of inaction, according to Aoife O'Leary, CEO of environmental consultancy Opportunity Green in the United Kingdom, is in the billions of dollars. This is before the human cost of climate change is even considered.
The cost of climate change is enormous," a ccording to O'Leary, "all economic studies show that tackling climate change saves money in the long term."
"Allowing climate change to continue unchecked would be to sacrifice the lives of the most vulnerable around the world simply so business can continue as usual. That is not a position that anyone or any business can legitimately continue to hold ," she continued.
This weekend, India and Pakistan experienced a record-breaking heatwave, with temperatures in Delhi reaching 49 degrees and Karachi 51 degrees. Around the world, extreme weather is becoming the norm rather than the exception.
This is why, ahead of its environmental protection meeting on June 6–10, the International Maritime Organization is considering a global carbon tax regime for shipping. The shipping industry is one of the largest carbon emitters, accounting for more than 2% of global emissions.
Although shipping costs have increased as a result of the global supply chain crisis, O'Leary claims that the higher costs have aided rather than hindered company profits.
"The supply chain crisis made the cost of shipping increase, but that increase solely translated into profits for private companies."
"This did nothing to reduce emissions or even ensure those companies’ long-term viability when they are facing huge climate risk," she says.
Carbon taxes are gaining traction among European governments, industry groups like the International Chamber of Shipping, and even multinational corporations. Sren Skou, the CEO of shipping behemoth Maersk, has proposed a $150 per tonne carbon emissions tax.
The cost of an effective carbon regime, according to commodity trading company Trafigura, is $200 to $300 per tonne. Few governments are willing to impose such a high cost due to rising energy costs, but the benefits of increasing costs are clear.
Green technology investments, the development of lower-carbon or zero-carbon alternative fuels, and the optimization of trade routes can be difficult and costly. One option is to increase the cost of fossil fuels, but it is not the only one.
According to Howes, regulators' only option for encouraging green investments is through subsidies.
"Some problems are better being solved by the market, and some by the regulators," he says. "In this case, I think this can only be solved via regulation."
Although there is support for a global carbon tax on shipping, national levies may be more feasible in the near future, particularly once energy prices stabilize.
"Some countries may fear that their supply chains may become even more costly," Howes says. "Others may think they have a competitive advantage by not introducing such a tax"
"I would be extremely surprised if we do not see an introduction of carbon taxes on shipping in many places in the world within the next few years," he adds.
The world has been far too slow to respond to climate change, and the consequences are already being felt in natural disasters and supply chain disruptions. Perhaps the shipping industry will serve as a good example of how taxation can be done effectively.
By fLEXI tEAM