57. **These estimates are again broadly consistent with those in AGF (2010b)** , which **– –** were $2.4 5.6 billion and US$4.1 9.3 billion for the $15 per tonne CO2 and US$25 per tonne CO2 carbon charge alternatives, respectively, but with the assumption that 50 percent of revenues are allocated for climate finance.

# **D.   Efficiency and Second Best Considerations**

58. **As with aviation, putting a carbon price on maritime fuels could be highly cost effective when account is taken of environmental benefits** . Alternatives, such as broader fiscal instruments, do not correct so directly for the market failure of excessive emissions.

59. **Absent a charge on fuel use, alternative instruments—that have some, albeit weaker, environmental benefit—include taxes on turnover or tonnage** . The lesser importance of final consumer demand implies a weaker case for a tax on sales to final consumers or, at the cost of including business use, turnover than in international aviation. Nonetheless, a similar argument for a tax on the use of service to correct for the absent charge on fuel use applies. Indeed if fuel use were proportional to the value of goods carried, a turnover tax would be equivalent to a charge on fuel. In practice, however, while substitution between fuel and other inputs may indeed be limited, the value of goods carried is a bad proxy for the volume and distance travelled, and hence for the underlying fuel use. Vessels‘ tonnage would likely be a better proxy. A common collective tax on net tonnage, calibrated to a reasonable estimate of distance travelled, might indeed fit well into current tonnage tax regimes. If passed on to consumers, this might be a reasonable proxy for a fuel tax. And if borne by shipping companies, though the impact on emissions would be muted, such a charge would arguably reap collective gains by to some degree rectifying the mutual harm suffered from the particularly intense corporate tax competition in this area.

60. **A charge on freight arrival (or departure), varied by weight and distance travelled, has great appeal in principle but would be problematic in practice** . A merit would be that collection of the levy would be closely tied to the benefit enjoyed from the underlying fuel use: trade to countries that it is desired to shield from damage from the charge could simply be exempted or refunded a corresponding amount on fuel use. Like a tonnage tax, however, it would take no account of vessels‘ differing fuel efficiencies. Moreover, it lacks the simplicity of a tonnage tax in that account would in principle need to be taken, for instance, not just of the port of origin but also of the route travelled.

# **E.   Incidence**

The likely impact on oil prices being small (on the order of a few percent of any charge), it is assumed from now that a fuel charge is fully passed on into maritime fuel costs.

# **_Impact on the maritime industry_**

61. **The low elasticity of demand for freight services suggests a high degree of passthrough to purchasers of freight services—and little impact on profitability** . This is likely to hold in the short run, and even more so in the long run that is most relevant here—as any 35