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Impact assessment for the adoption of CO2 emission trading for maritime transport (MARITIMECO2)
Start date: Jan 20, 2010, End date: Jul 20, 2012 PROJECT  FINISHED 

Background Shipping is a large and growing source of the greenhouse gas emissions that are causing climate change, currently accounting for 4 % of the EU’s total greenhouse gas (GHG) emissions. Without action, these emissions are expected to more than double by 2050, which is incompatible with the internationally agreed goal of keeping global warming below 2°C and halving emissions from 1990 levels by 2050. The MARITIME CO2 project analysed the impact on Cyprus, Denmark and Greece of a possible extension of the EU’s carbon emissions trading scheme (ETS) to the merchant shipping industry. The likely implementation of an ETS to the merchant shipping industry would have a significant impact on the financial, social and physical environment, at global, European and national levels. EU countries would experience varying impacts depending on a number of variables, such as country size, location (coastal or not), economic structure, and size of shipping fleet. Objectives The objective of the MARITIME CO2 project was to assess the environmental, social and financial impacts likely to arise from the adoption of an ETS in Cyprus, Greece and Denmark. These countries were chosen because, in shipping terms, they are representative of the majority of country 'types' found in the EU: Cyprus is a small country with a large shipping fleet; Greece is a large country with a large shipping fleet; and Denmark is an average EU country with an average-sized shipping fleet. Greece and Cyprus account for more than 40% of the EU-registered fleet, and thus provide a good basis for scaling-up the results of the project to the whole of the EU. Results The MARITIMECO2 project team made a comparative assessment of two ETS scenarios: implementation at EU level only and implementation at global level through the IMO. It was concluded that Scenario 1 (implementation at EU level only) could be implemented and adopted more easily than Scenario 2 (implementation at a global level through IMO). Scenario 2 would, however, have better results from an environmental and economic point of view. According to the reports, integrating the maritime transport sector into an ETS would probably cause restricted, yet considerable, negative impact to the shipping sector at the level of the shipping company or the vessel itself. The magnitude of the negative effects (which will be realised mostly via increased running costs of ocean going vessels) will depend on the prices for allowances. According to the assessed scenarios, if prices do not exceed the critical threshold of $35 per tonne CO2, resulting cost increases shall come at manageable rates (in the neighbourhood of 10-15% of total running costs approximately and on average), up to 2020. However, in case prices of emission allowances skyrocket to high levels (e.g $60-70 per tonne CO2 accordingly), operators of maritime transport services, especially on EU-Asia routes, may face significant decreases in the demand which in the long run might trigger a slight shrinkage of the sector. In that case, the ETS may develop in a significant barrier for entrance into the market especially for small or one ship firms and as such, may distort competition, affecting the structure of the market and negatively impacting the availability of shipping capacity. The project assessed the average impact of a possible ETS imposition on maritime transport in three EU member states: Greece, Denmark and Cyprus. As regards the Greek fleet, the ETS related cos was estimated at $1.8-2.6 billion per annum (14.4%-20.6% of the annual revenues from the shipping sector (2009 figures). The integration of shipping transport in the ETS, was also expected to have a negative impact on the Greece's coastal shipping. The Cypriot maritime registry has a relatively new fleet which acts as a counterbalance against the impact of the ETS. The estimated cost lies at between $1.2-1.7 billion per annum. The shipping industry is one of Denmark’s most significant industries, with the annual earnings of Danish shipping companies accounting for roughly 17% of the country’s total exports (annual basis, 2010 figures). Also the shipping sector is among the most significant foreign currency generators for the Danish economy. It is estimated that the enforcement of an EU-ETS would have a detrimental impact on the Danish economy with negative repercussions on trade, employment, liquidity and economic development/growth. However, since Denmark has a modern fleet, the estimated cost of ETS lies between $0.7-1.0 billion per annum. Denmark, because of the profile of its fleet and the significant leap it has made during the last few years towards cleaner ships technologies and emissions reduction technologies, has reduced costs compared to the Greece and Cyprus. According to the project team, a carbon tax (in the form of a fuel tax) is preferable to an ETS for the shipping industry as it would ensure symmetry and uniformity for the industry. The most significant advantage of a carbon tax over the ETS is that the tax would be simpler and cheaper to administer, more economically efficient, more straightforward, transparent, riskless and more equitable and thus, much more difficult to evade or avoid. The revenue would flow to the competent authority and/or the Government, which then could use the funds raised to finance climate change projects, and thus provide for a socially useful deployment of the funds. The arguments provided by the reports were in line with the arguments of the ship owners that envisaged an International Fund for Greenhouse Gas emissions from ships (GHG Fund). Offsetting activities would be financed by a contribution (tax) paid by ships on every tonne of bunker fuel purchased. The extent of contribution would be adjusted at regular intervals so as to ensure that sufficient funding is available for purchase of credits to achieve the preset target. The reports suggested that the GHG Fund could ideally be controlled by International Maritime Organisation (IMO) members (governments) and the price of CO2 would be fixed jointly at the level of a recognised organisation and not by speculators and traders. Moreover, the Fund would be easily and cost effectively administered and would apply to all vessels and all flags world-wide, thus preserving a level playing field that would avoid any distortion of the competitive market of the maritime sector. In the case of the ETS, much of the secondary market’s turnover would flow among a range of market participants (including banks, traders, investment funds, private investors) while a carbon tax, as stated above would easier to administer, more equitable and the revenue would flow to the competent authorities. Environmental benefits are expected from the project due to its awareness raising activities among key stakeholders and especially ship owners. By allowing them to estimate the fuel consumption of their ships and capturing potential benefits due to technological developments, investments in ships are expected to improve their environmental performance and alleviate the pressure on the environment. Further information on the project can be found in the project's layman report and After-LIFE Communication Plan (see "Read more" section).

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