Impacts of global carbon pricing on international trade, modal choice and emissions from international transport

Highlights: • I analyze changes in transport emissions under global carbon pricing. • Economic emission intensities of transport services are high in developing regions. • Emission taxation of transport affects modal choice and global transport emissions. • I find larger decline in global emissions when including transport in regulations. • Results are consistent with the expected reduction in global emissions. Transportation is one of the significant sources of global anthropogenic emissions, generating about 14% of global Greenhouse Gas Emissions (GHG) with the largest contribution from ground transportation followed by air and water transport. However, international climate agreements such as the Kyoto Protocol or Paris Agreement focused mostly on the regulation of production emissions without considering transport emissions in policy regulations. In this paper I analyze the effects of global carbon pricing on international trade and modal choice in the transportation of goods between countries, and resulting changes in international transport emissions. For this purpose I modify the Energy-environmental version of the Global Trade Analysis Project (GTAP-E) model to allow for substitution among different modes of transport. I find that a global GHG tax increases the competitiveness of transport services exports from the most developed countries which exhibit relatively low economic emissions intensities, while having a negative effect of services exports from most developing regions, which have relatively higher emissions rates per dollar of transport services. The findings also indicate that when international transport emissions and modal substitution are considered in global emissions regulation policies there is significant impact on the expected reduction in global emissions and global warming.