A Sector at a Crossroads: the Emerging Role of Carbon Pricing in Transportation

A Sector at a Crossroads: the Emerging Role of Carbon Pricing in Transportation

Much of global climate action today is focused on tackling emissions from the energy sector and industrial activities. The importance of decarbonizing transport, a sector that produces around one quarter of energy-related greenhouse gas (GHG) emissions globally, has been rather under-appreciated. In the United States, transportation has overtaken power generation as the number one emitter of carbon emissions. And with ever increasing demand for mobility and the rise of renewables in the power sector, transportation’s slice of the global emissions pie is expected to grow further, unless a concerted global effort is undertaken to buck the tide.

Photo Credit:  Izuddin Helmi Adnan / Unsplash

Today, several positive signs in global transport suggest that the industry is at a turning point, despite the sector’s inertia.

  • In April 2018, 180 country members of the UN’s International Maritime Organizations (IMO) agreed on a long-term plan to curb greenhouse gas emissions from the international shipping sector to meet the Paris Agreement targets. The goal set forth is to reduce emissions from maritime transport by 50% by 2050 from 2008 levels, while pursuing efforts to full carbon neutrality.
  • The railway transport sector, an already sustainable mode of transport, has committed to make railway passenger and freight transport even more sustainable. The International Union of Railways (UIC), an industry association representing 193-member railways from around the world, has stepped up its climate ambition. Under its Low Carbon Rail Transport Challenge, the UIC aims to reduce emissions and energy consumption by 50% by 2030 relative to a 1990 baseline.
  • In road transport, we are seeing significant developments in battery and storage technologies which have enabled electric vehicles (EVs) to become much more viable. Spurred by supportive policies, favorable public procurement programs, and financial incentives, EVs have begun a steady penetration of the car market.  More than a million EVs were sold in 2017, and IEA estimates the number of EVs on the road to reach 125 million by 2030.
  • In June 2018, the International Civil Aviation Organization (ICAO), a coalition of 191-member countries, approved a set of standards and practices on measuring and reporting emissions, a key step in the eventual implementation of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). The Scheme requires airlines to measure and report emissions starting 2019, and begin to offset growth in emissions from 2021.  With air traffic expected to double by 2030, CORSIA will be a critical mechanism for managing the carbon footprint of aviation.
Photo Credit: Arne Hoel / The World Bank

Photo Credit: Arne Hoel / The World Bank

With the transport sector responsible for a quarter of the world’s energy-related GHG emissions, achieving the temperature goals of the Paris Agreement will demand a substantial shift to low-carbon mobility options, and soon. There are various tools to reduce GHG emissions from the transport sector, but they generally fall within these 4 categories:

(1)   Fuel switching

(2)   Improving Fuel efficiency

(3)   Improving maintenance and operating practices

(4)   Reducing travel demand

As the railway, aviation, and maritime shipping industries have different characteristics and face different challenges, a strategic, sector-specific approach must be taken to tackle their emissions. Carbon pricing can complement broader mitigation strategies in the transport sector. The introduction of a carbon price on high-emitting fuels in the aviation sector, for example, will incentivize the use of alternative low-carbon fuels, and promote investments in lower-carbon and higher efficiency aircraft. These tax revenues can then be recycled to support critical Research & Development (R&D) into alternative fuels. As aviation is the fastest growing source of emissions in the transport sector, it will be critical to motivate aviation sector stakeholders to reduce emissions and use resources more efficiently—a carbon tax can help do that.  

In the railway sector, the Delhi Metro Rail Corporation is a great example of an innovative implicit carbon pricing mechanism at work. The Delhi Metro earns UN-backed carbon credits for reducing GHG emissions thanks in part to investments in regenerative breaking technologies. The rail system helps relieve traffic congestion and lowers pollutions levels.

Acting alone, carbon pricing is not likely to achieve the level of decarbonization necessary to comply with the Paris Agreement, but it can serve as the cornerstone of broader climate strategies. By attaching a cost to carbon emissions, carbon pricing induces emissions-reducing behavior and spurs emitters to continuously seek ways to reduce emissions. And the higher the carbon price, the greater the incentive to pursue low-carbon transport options.

Looking ahead, just as carbon pricing has been deployed in various jurisdictions to decarbonize energy generation and industrial activities, climate-smart leaders in the public and private sectors can look to carbon pricing mechanisms to drive the sustainable transition of the transport sector. As a global advocacy initiative, the Carbon Pricing Leadership Coalition works to support these efforts and to catalyze action towards the successful implementation of carbon pricing around the world by collecting the evidence base, benefiting from experience around the world in designing and using carbon pricing, and using this input to help inform successful carbon pricing policy development and use of carbon pricing in businesses.

About the Author


Usayd Casewit works at the World Bank Group’s Carbon Markets & Innovation unit, where he supports the work plan of the Carbon Pricing Leadership Coalition to galvanize government and business leadership and action to price carbon emissions. Since 2013, Usayd has served in a variety of communications, operations, and partnership management roles within the World Bank Group. His work has focused on strategic communications, knowledge product development, stakeholder engagement, and he has led the coordination and delivery of high-level international forums focused on climate change, carbon markets, renewable energy, energy efficiency, energy subsidies, and electricity markets.