Transport costs (national and international) account for approximately 13% of global CO2 emissions (about two-thirds of emissions related to manufacturing activity). With the relocation of manufacturing activity to Asia, shipping volume has increased by 50% over the past 20 years. Shipping now accounts for about 90 percent of the volume of global trade and about 3 percent of global CO2 emissions. Also, oceangoing ships use bunker fuel and emit about 15 percent of global nitrogen oxides and between 5 and 8 percent of global sulfur oxide emissions, all contributing to respiratory illnesses, cardiopulmonary disorders and lung cancers, particularly among people who live near heavy ship traffic (70% of emissions are within 400 km of land).<sup>10</sup> Two studies give orders of magnitude of transport-related GHG emissions related to international trade. Using detailed emission for 7 sectors and 62 countries covering the period 1990 to 2000, Grether et al. (2010) compute an order of magnitude of the contribution of trade to SO2 emissions. Having defined a no-trade equilibrium, adding up emissions coming from trade-related composition effects and trade-related transport activities, they estimate that global worldwide SO2 manufacturing emissions were increased through trade by 16 percent in 1990 and 13 percent in 2000.<sup>11</sup> Cristea et al. (2011) produce a more systematic ‘bottom-up’ estimate of trade-related emissions (emissions from producing what is traded, i.e. traded goods in manufacturing activities, plus transport-related emissions from international transport disaggregated according to mode of transport. They show that world-wide, one third of trade-related emissions come from international transportation with a great variation in contribution across countries. They estimate 1.2 Gt of CO2 for 2004 or 146 grams per dollar of trade while output of traded goods generates 300 grams per dollar of trade, i.e. total trade-related emissions of 446 grams per dollar with 33% due to international transport. This implies that a $100/ton carbon tax would be equivalent to a 1.5% tariff. Comparing the contributions of output and transport emissions shows great divergence across countries. For example, their world share estimates for (output) [exports, imports] are: China (20.8%) [3.5%, 6.7%]; India (4.9%) [0.6%, 1.5%]; U.S. (12.0%) [32.5%, 10.7%].<sup>12</sup> These estimates reveal the great reliance of the US on air cargo which is the most emission-intensive mode of transport. Thus, when one takes into account emissions from international transport, the US emission per 10. The US EPA estimates that applying a 400 km buffer zone along Canadian and US coastlines would save up to 8300 lives a year by 2020 (IHT April 26,2010 “Controlling Pollution from Ships”) As expected, there was a strong opposition from Asian exporters to the proposal of a tax on fuel for shipping by the EU even though the proposal stated that the proceeds would be rebated to developing countries. There is also a strong opposition from the US when the EU announced it would impose a carbon tax on all flights in and out of the EU because US exports mostly use air transport.

11Their estimate is made in two steps. First, they define an anti-monde in which countries are forced produce what they consume in the trade equilibrium. International trade then increases emissions by 10% in 1990 and by 3.5% in 2000, the fall largely a reflection of the all-around decline in emissionintensity. Second, they consider emissions caused by international transport. Using a rough decomposition by mode of transport, they estimate that international-trade related emissions accounted for about 5-9% of total SO2 manufacturing emissions. Adding trade and transport-cost related emissions, their estimates suggest that for SO2 transport-related emissions have gone from accounting for roughly one third to three quarters of total trade-related emissions over the 1990-2000 period.

12Estimates draw on GTAP data so they include only CO2 emissions from fossil-fuel combustion, cement production and gas flaring. Differences in emissions across transport modes are substantial. Taking an estimate of their emission averages per tonnes-km (t-km) of transport services (table 3) gives (CO2 grams per t-km in parenthesis): maritime( ≈10g/t-km); land (≈70g/t-km); air(≈700g/t-km).

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