Up to 70% of particulate emissions are attributable to the transport sector, with particularly high levels in developing countries. Transport is the fastest growing source of GHG emissions. Without effective mitigation, GHG emissions from transport are predicted to grow 71% by 2050, threatening to outweigh climate action in many other sectors. These negative impacts are often not reflected in fiscal policy frameworks, resulting in market failures which can be addressed by green fiscal policy.
Policymakers can address these market failures and enhance the sustainability of the transport sector and related activities through a wide range of green fiscal policy instruments. Typically, these instruments are most effective when implemented as packages of measures that include regulation, standards and softer instruments, such as information. Green fiscal policies in the sector include reform of environmentally harmful subsidies and incentives, carbon-energy taxes on transport fuels, maritime fuel levies, kerosene taxes on internal flights, circulation taxes on the basis of vehicle emissions, road tolls and congestion charging, feebate systems for vehicle registration and air ticket taxes, amongst others.
Such measures can encourage modal shift to sustainable and healthy transport modes, such as walking, cycling, and public transport, and incentivize cleaner and more efficient means of transport, such as electric vehicles, hybrids and CNG vehicles. Green fiscal policies can deliver a range of co-benefits alongside reduced GHG emissions, including enhanced energy efficiency, improved air quality, better human health outcomes, and reduced noise-pollution and congestion. Revenues raised can be used to fund investment in public transport infrastructure and sustainable transport systems.
This IMF working paper reviews the conceptual case for, and appropriate design of, fiscal policies to address major externalities associated with energy use (global warming,