Carbon trading in maritime transportation (European Perspective)
European perspective: Carbon trading in maritimetransportationTRB 92nd Annual MeetingWorkshop 174: Anatomy of a Carbon Credit: How Transportation Agencies CanEngage in Carbon Markets13th January 2013Sujith KollamthodiPractice Director – Sustainable TransportRicardo-AEA Limited
Overview• Global CO2 emissions from shipping are continuing to grow significantly• Ideally, action to address this should be taken at the global level, but progress has been slow• European Commission is investigating possibility of EU Source: IMO (2009) action in this area 280 260 CO2 emissions (Million Metric• Ricardo-AEA commissioned to 240 220 provide technical support in Tonnes) 200 developing policy options and 180 analyzing their impacts 160 140 120 100 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source: Ricardo-AEA / IHS Fairplay (2013)
Proposed policy measures• Four key policy measures investigated 1. Emissions trading scheme 2. Taxation scheme 3. Compensation Fund 4. Mandatory emissions reductions• Emissions trading and Compensation Fund can both be viewed as schemes involving carbon credits• Taxation policy options would place a tax on EU shipping emissions or fuel sales• Mandatory emissions reductions would place targets on individual vessels to reduce their annual GHG emissions
Design elements common to allpolicy options• Monitoring, reporting and verification of emissions • Fuel consumption measurement: could be via log books, fuel flow meters, bunker delivery notes, fuel inventories, or ship movement data • Frequency of emissions reporting: per journey or on an annual basis • Competent authority: could be a central European regulator or could be devolved to EU Member States• Scope of emissions covered • Ship types and ship sizes covered: could be selected to maximise environmental effectiveness whilst minimising administrative burden % vessels % of total CO2 Criteria in EU-27 Excluding offshore vessels, service vessels, yachts or fishing 86% 97% vessels Excluding ships smaller than 5,000 GT 57% 91% Total for combined criteria (accounting for overlaps) 56% 90%
Design elements common to allpolicy options• Scope of emissions covered • Journey types: must include all ships entering and leaving the EU as well as intra-EU voyages • For ships entering/leaving the EU, must determine start/end points for quantifying the emissions included in scope. Options include: • Time-based • Distance-based • Previous/next port of call • Based on origin of cargo being transported• Responsible compliance entity • Ship owners? • Ship operators? • Fuel suppliers? • Ports?
Design of key policy options –Emissions trading scheme (ETS)• ETS would operate by setting an overall cap on emissions from a defined group of entities• Each participant must monitor/report their emissions and submit allowances equal to their emissions• Allowances can be auctioned and/or allocated free of charge• Design options for the scheme: • Closed system (only reductions from within the maritime sector allowed) • Open system, linked to other ETSs (allows the use of most cost-effective abatement options from multiple sectors) • Open system linked to out-of-sector project credits
Industry-managed GHGcompensation Fund• Idea modelled on Norway’s NOx Fund• Fund would need to be set up as legal entity responsible for ensuring emission reductions• Responsibility for reducing overall emissions would not lie with individual vessel owners/operators• Two main options for implementation• Contribution-based Compensation Fund • Members pay into Fund in line with their emissions performance (fixed value per tonne CO2) • Revenues would be re-invested by the Fund • BUT no overall emission reduction target• Target-based Compensation Fund • Agreed reduction target • Fund would be responsible for enrolling members (penalties for non-members)
Use of revenues• Emissions trading or a Compensation Fund would both generate revenues (e.g. sale of allowances, membership fees, etc)• Options for the use of revenues include • Refunding participants • Funding R&D in maritime emissions abatement measures • Support the uptake of abatement options (grants, loans) • Investment in international emission reduction mechanisms (e.g. Clean Development Mechanism, etc)• However, clear performance metrics are required for allocating revenues to any of these uses
Possible mechanisms for allocating rebatesAllocation mechanism Advantages DisadvantagesImprovement in • Accurate reflection • High administrative burdencarbon intensity of of performance • Does not reward early actionoperations improvements • Requires a benchmarking year to measure initial performanceAbsolute carbon • Accurate reflection • Could inherently favour larger shipsintensity of of performance • Difficult to find an equitable threshold to suitoperations (e.g. achieved all ship types and operationsreaching a threshold • Rewards earlyor through a “league actiontable”)Improvement in • Lower • Does not reward early actionabsolute EU administrative • Rewards ships that reduce activity within theemissions reductions burden compared EU (e.g. by moving elsewhere) to measuring carbon intensity • Requires comparison between different years of operation – therefore will be affected by ships entering and leaving the scope of the legislationEqual amount to each • Easy to administer • Does not effectively encourage efficiencyoperator • Penalises ships that are highly active in the EU while disproportionately rewarding those that make small payments under the scheme, even if they are not efficient.
Possible mechanisms for allocating revenues to R&DAllocation mechanism Advantages DisadvantagesRebates to participants • Technology neutral • Private research may not lead towho can demonstrate a • Allows shipping knowledge spilloverscertain level of R&D industry to determine • Could lead to duplication of effortinvestment its own needsA call for R&D grant • Technology neutral • Administrative burden to determine whichapplications, without projects receive fundingstrict specifications on • Submissions may not meet stakeholdertechnologies/topics needsA predetermined list of • Greater control over • Risks “picking losers” or limiting thetechnologies/topics spending to ensure extent of innovationeligible for support that environmental, social and economic gains are maximised • Topics can be selected in collaboration with various stakeholders
Possible mechanisms for allocatingrevenues to support uptake ofabatement measuresAllocation mechanism Advantages DisadvantagesA predetermined list • Greater control • Risks limiting uptake of innovativeof abatement over spending to measuresmeasures eligible for ensure that • Risks funding measures that are notsupport environmental, suitable for the ship’s type/operational social and profile economic gains are maximized • Administrative burden to determine suitable measures and update the list periodically.Fund measures that • Allows support • High administrative effortmeet a certain for a variety of • Approach does not prioritize where toexpected level of measures spend funding on measures surpassingabatement in the • No need to pre- the thresholdsector e.g. % commit to certainreduction or % measuresreduction per EuroFund measures that • Allows support • High administrative effortachieve the highest for a variety of • Could disproportionately benefit certainscores relative to measures sectors/ship typescertain criteria • No need to pre-(ranking options) commit to certain measures
Summary• Policy options that use carbon credits for addressing EU-international shipping CO2 have been developed and analyzed• Scope of action needs to be carefully considered, regardless of the policy option• Emissions trading can be implemented in a number of ways (e.g. open vs closed schemes)• Compensation Fund offers an industry-managed alternative• Both options could generate revenues which could be used for multiple purposes• Care needs to be taken in designing suitable metrics and mechanisms for allocating these revenues to specific purposes
Sujith KollamthodiPractice Director – Sustainable TransportRicardo-AEA LimitedThe Gemini BuildingFermi AvenueHarwellOxfordshireOX11 0QRUnited KingdomTel: +44 (0)870 190 6513E: email@example.comW: http://www.ricardo-aea.comCopyright Ricardo-AEA LtdThis presentation is submitted by Ricardo-AEA. It may not be used for any other purposes, reproduced in whole or in part,nor passed to any organisation or person without the specific permission in writing of the Commercial Manager, Ricardo-AEA Ltd.