India to Receive $25 Bn Climate Finance From Aviation, Shipping Carbon Tax

Chennai: India will be one of the top climate finance beneficiaries of the global carbon tax on aviation and shipping sectors, with a potential of receiving $25 billion, finds the International Monetary Fund. However, the carbon tax can significantly raise international airline tariffs when the CORSIA scheme will cover 90 per cent of international flights by 2027.

IMF estimates that net-zero-aligned carbon tax will raise revenue of $100 billion by 2031, $200 billion by 2035 and will peak at $230 billion by 2040, after which the revenues will come down due to switching to zero-emission fuels.

“The time has come for a global carbon tax in international aviation and shipping,” said the IMF. International aviation and maritime sectors account for about 4 and 5 million barrels of oil per day (mbpd), respectively, compared with total oil consumption of 102 mbpd in 2023. Revenues of up to $200 billion by 2035 could make a substantial contribution to climate finance for developing economies.

About 60 per cent of the economic impact will be on advanced economies followed by 35 per cent in emerging markets and less than 5 per cent in low income and small developing states through 2035.

These policies could substantially increase concessionary climate finance to developing countries. The most vulnerable countries are compensated for all costs while other emerging markets are compensated for cargo costs. The remaining revenue is then allocated based on regional climate finance flows, apportioned based on GDP within a given region.

“The biggest transfers in dollar terms could go to the largest emerging market economies—for example, $25 billion for India, $18 billion for Thailand, and between $10 to $15 billion for Brazil, Indonesia, and Vietnam each,” it said.

However, the cost of flying will increase substantially whereas shipped product prices increase less than 6 per cent.

As of January 2024, 125 countries are participating in the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) by the International Civil Aviation Organization. This includes large international aviation markets such as Australia, the United Kingdom, and the United States. Countries like India, Brazil, China, and Russia are not participating in the scheme. Beginning in 2027, however, CORSIA will be mandatory for more than 90 per cent of international flights.