Investigating the impacts of introducing emission trading scheme to shipping industry

Abstract

Although international shipping is the most energy efficient means of transportation in terms of unit CO2 emission per tone-mile cargo shipped, due to enormous cargo volume and continuous growth, it still contributes a significant part of global emissions. In order to reduce the CO2 emission from the international shipping industry, International Maritime Organization (IMO) is considering possible market-based measures (MBM). One of the most promising alternatives is the Emission trading Scheme (ETS). Our study thus proposes an economic model to theoretically analyze and benchmarks two different ETS mechanisms for international maritime transport industry, namely an open ETS scheme and a Maritime only ETS (METS) scheme. The model is also calibrated using maritime industry real operational data in year 2007. Our study quantifies the differential impacts of ETS on container shipping and dry bulk shipping sectors. It is suggested that ETS scheme, whether open or maritime only, will decrease ship’s cruising speed, throughput and fuel consumption for both container and bulk sectors. Under open ETS scheme, we find that dry-bulk sector will have higher proportional output reduction and sell more (or use less) emission permits. Under maritime only ETS, the emission permit trading price is endogenously determined, and the emission reduction objective will definitely be reached. Container carriers will buy emission permits from the dry-bulk side. The collusiveness of one sector will only affect itself in open ETS, while it will affect the other less colluded sector in the METS. Specifically, when the sector that sells (buys) permits in METS is more collusive (competitive), the permit price will rise.