Presentation by Ricardo-AEA's Transport Practice Director, Sujith Kollamthodi. Presented at the Transport Research Board 92nd Annual Meeting, Sunday 13 January, Washington DC

1. European perspective: Carbon trading in maritime
transportation
TRB 92nd Annual Meeting
Workshop 174: Anatomy of a Carbon Credit: How Transportation Agencies Can
Engage in Carbon Markets
13th January 2013
Sujith Kollamthodi
Practice Director – Sustainable Transport
Ricardo-AEA Limited

2. 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)

3. 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

4. Design elements common to all
policy 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%

5. Design elements common to all
policy 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?

6. 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

7. Industry-managed GHG
compensation 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)

8. 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

9. Possible mechanisms for
allocating rebates
Allocation mechanism Advantages Disadvantages
Improvement in • Accurate reflection • High administrative burden
carbon intensity of of performance • Does not reward early action
operations improvements
• Requires a benchmarking year to measure
initial performance
Absolute carbon • Accurate reflection • Could inherently favour larger ships
intensity of of performance • Difficult to find an equitable threshold to suit
operations (e.g. achieved all ship types and operations
reaching a threshold • Rewards early
or through a “league action
table”)
Improvement in • Lower • Does not reward early action
absolute EU administrative • Rewards ships that reduce activity within the
emissions 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
legislation
Equal amount to each • Easy to administer • Does not effectively encourage efficiency
operator • 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.

10. Possible mechanisms for allocating
revenues to R&D
Allocation mechanism Advantages Disadvantages
Rebates to participants • Technology neutral • Private research may not lead to
who can demonstrate a • Allows shipping knowledge spillovers
certain level of R&D industry to determine • Could lead to duplication of effort
investment its own needs
A call for R&D grant • Technology neutral • Administrative burden to determine which
applications, without projects receive funding
strict specifications on • Submissions may not meet stakeholder
technologies/topics needs
A predetermined list of • Greater control over • Risks “picking losers” or limiting the
technologies/topics spending to ensure extent of innovation
eligible for support that environmental,
social and economic
gains are maximised
• Topics can be
selected in
collaboration with
various stakeholders

11. Possible mechanisms for allocating
revenues to support uptake of
abatement measures
Allocation mechanism Advantages Disadvantages
A predetermined list • Greater control • Risks limiting uptake of innovative
of abatement over spending to measures
measures eligible for ensure that • Risks funding measures that are not
support 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 effort
meet a certain for a variety of • Approach does not prioritize where to
expected level of measures spend funding on measures surpassing
abatement in the • No need to pre- the threshold
sector e.g. % commit to certain
reduction or % measures
reduction per Euro
Fund measures that • Allows support • High administrative effort
achieve the highest for a variety of • Could disproportionately benefit certain
scores relative to measures sectors/ship types
certain criteria • No need to pre-
(ranking options) commit to certain
measures

12. 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

13. Sujith Kollamthodi
Practice Director – Sustainable Transport
Ricardo-AEA Limited
The Gemini Building
Fermi Avenue
Harwell
Oxfordshire
OX11 0QR
United Kingdom
Tel: +44 (0)870 190 6513
E: sujith.kollamthodi@ricardo-aea.com
W: http://www.ricardo-aea.com
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