Many academics and policymakers agree that implicit tax subsidies for maritime fuels — which are currently granted around the world — are inefficient, but that their abolishment requires a unanimous international agreement. Such an agreement is deemed indispensable because any unilateral action would be impossible due to massive tax competition in this industry, competitiveness effects and the legal limits on regulating an industry operating mostly in international waters, thus outside of any state’s jurisdiction. However, an international agreement to solve these problems has proven impossible to reach, thus resulting in the conservation of the status quo. To break this deadlock, we propose a mechanism whereby a small coalition of countries, to start with, can abolish these implicit tax subsidies even in the absence of an international agreement. This incentive-compatible scheme solves the above-mentioned issues. The mechanism is furthermore designed to avoid locking in a sub-global scheme. Instead, it has the potential to contribute to unlocking the gridlock in negotiations over a global agreement on this matter.

Carbon taxation, International agreements, Maritime emissions, Regional action, Tax competition
Externalities; Redistributive Effects; Environmental Taxes and Subsidies (jel H23), International Fiscal Issues; International Public Goods (jel H87), International Law (jel K33), Tax Law (jel K34), Climate; Natural Disasters; Global Warming (jel Q54), Government Policy (jel Q58),
International Economics and Economic Policy
Rotterdam Institute of Law and Economics

Heine, D, & Gäde, S. (2018). Unilaterally removing implicit subsidies for maritime fuels. International Economics and Economic Policy, 15(2), 523–545. doi:10.1007/s10368-017-0410-6