Capped Steam Ahead - A Case Study Among Ship Operators on a Maritime ETS

In 2007, international shipping emitted 870 million tons of CO2, which represents about 2.7 percent of worldwide CO2 emissions and it is expected that the emissions from ships will continue to increase significantly in the near future. Against this background, the Marine Environment Protection Committee (MEPC) of the International Maritime Organization (IMO) is currently discussing different approaches aiming at reducing emissions in the maritime sector, in particular market-based mechanisms such as a levy on bunker fuel or a maritime emission trading scheme (ETS).

In this paper, we assess potential implications of a maritime ETS on the organisation and operations of shipping companies, primarily by means of a case study involving ship operators. On the basis of our results, we discuss whether and how a maritime ETS needs to make special provisions to account for frequently raised criticisms in the context of cap-and-trade, for example high transaction costs and issues associated to a fixed cap on emissions such as high price volatility and excessive costs in times of unexpected high demand for shipping services.

Our results suggest that any additional costs for monitoring and reporting of emissions are expected to play only a minor role in the context of a maritime ETS, since for business reasons ship operators already undertake comprehensive monitoring and reporting efforts for bunker fuel usage. With regard to the costs for potential trading activities, it is to be expected that compared to other operational costs, the additional expenditures will be rather small. The issues associated to a fixed cap cannot be ruled out as easily and are also identified by the interviewed experts as potentially significant problems. However, such difficulties may be alleviated by adequate linking and/or banking provisions.

Overall, there appears to be no knock-out criterion why a cap-and-trade approach should not work in the shipping sector in practice. In fact, a maritime ETS has the potential to engage the maritime sector into cost-efficient emission reduction if designed to account for the special characteristics of the international shipping industry.

Koesler, Simon, Martin Achtnicht and Jonathan Köhler (2012), Capped Steam Ahead - A Case Study Among Ship Operators on a Maritime ETS, ZEW Discussion Paper No. 12-044, Mannheim.