|| EUROPEAN COMMISSION

Brussels, 28.6.2013

SWD(2013) 237 final

Draft COMMISSION STAFF WORKING DOCUMENT

Accompanying document to the

PROPOSAL FROM THE COMMISSION TO

THE EUROPEAN PARLIAMENT AND COUNCIL

for the inclusion of GHG emissions from maritime transport in the EU's reduction commitments

Impact Assessment

{COM(2013) 480 final} {SWD(2013) 236 final}

Disclaimer:

This report commits only the Commission's services involved in its preparation and does not prejudge the final form of any decision to be taken by the Commission.

Glossary

CDM || Clean Development Mechanism

CER || Certified Emissions Reductions

EEA || European Environment Agency

EEDI || Energy Efficiency Design Index

EEOI || Energy Efficiency Operational Index

EIB || European Investment Bank

EMSA || European Maritime Safety Agency

EUA || European Union Allowances

GT || Gross tonnage

GHG || Greenhouse gas

HFO || Heavy Fuel Oil

IMO || International Maritime Organization

IPCC || Intergovernmental Panel on Climate Change

MARPOL || International Convention on MARitime POLlution

MEPC || Maritime Environmental Protection Committee

MDO || Marine Diesel Oil

MGO || Marine Gasoil

MRV || Monitoring, reporting and verification of emissions

NGO || Non-governmental organisation

SEEMP || Ship Energy Efficiency Management Plan

SOLAS || International convention for Safety Of Life At Seas

toe || Tons of oil equivalents

UNCLOS || Untied Nation Convention on Law Of the Seas

Table of content

1. Procedural issues and consultation of interested parties. 1

1.1. Impact assessment steering group (IASG) 1

1.2. Consultation of the IAB. 1

1.3. Consultation and expertise. 1

1.3.1. External support 1

1.3.2. Consultation of maritime experts and Member States. 2

1.3.3. Public on-line consultation. 2

2. Problem definition. 3

2.1. EU related CO2 emissions from maritime transport are significant, leading to negative impacts on climate change 3

2.2. What are the drivers of the problem?. 5

2.2.1. EU sea transport is experiencing growth , leading to an increase of its CO2 emissions. 5

2.2.2. Market failures prevent the uptake of low carbon technologies. 6

2.3. Who is affected, in what ways and to what extend?. 7

2.3.1. The EU and its EU Member States. 7

2.3.2. EU ship-owners and ship-operators. 8

2.3.3. Third countries. 8

2.4. How the problem would evolve, all things being equal? (baseline scenario) 8

2.5. International and EU policy approaches. 10

2.5.1. International negotiations. 10

2.5.2. EU approach. 10

2.6. Industry approaches. 12

2.7. The right of the EU to act. 13

2.7.1. Legal basis. 13

2.7.2. Analysis of subsidiarity. 13

2.7.3. Analysis of proportionality. 14

3. Objectives. 15

4. Policy options. 17

4.1. Choice of policy options. 17

4.2. Consideration of the baseline and credit option. 18

4.3. Enforcement of the policy options assessed. 18

4.4. Description of the policy options assessed. 19

4.4.1. Option 1: Baseline scenario. 19

4.4.2. Option 2: Monitoring, reporting and verification (MRV) of emissions based on fuel consumption 20

4.4.3. Option 3: Levy on emissions. 21

4.4.3.1. Sub-option 3a: Levy on bunker fuel sales. 21

4.4.3.2. Sub-option 3b: Tax on emissions from fuel consumed. 23

4.4.3.3. Sub-option 3c: Contribution-based compensation fund. 24

4.4.4. Option 4: Maritime emission trading scheme. 27

4.4.5. Option 5: Target based compensation fund. 29

5. Assessment of impacts. 31

5.1. General elements on the model used. 31

5.2. General considerations. 32

5.2.1. Impacts on consumers and households. 32

5.2.1. Transport modal split 33

5.3. Option 1: Baseline scenario. 34

5.3.1. Environmental impacts. 34

5.3.2. Economic impacts. 36

5.3.3. Social impacts. 36

5.4. Option 2: Monitoring, reporting and verification (MRV) of emissions based on fuel consumption 36

5.4.1. Environmental impacts. 37

5.4.2. Economic impacts. 37

5.4.3. Social impacts. 40

5.4.4. Administrative burden for public authorities. 40

5.4.5. Specific impacts outside the EU. 42

5.5. Option 3a: Levy on bunker fuel sales. 42

5.5.1. Environmental impacts. 42

5.5.2. Economic impacts. 43

5.5.3. Social impacts. 45

5.6. Option 3b: Tax on emissions from fuel consumed. 45

5.6.1. Environmental impacts. 45

5.6.2. Economic impacts. 46

5.6.3. Social impacts. 49

5.7. Option 3c: Contribution based compensation fund. 49

5.8. Option 4: Maritime emission trading scheme (ETS) 50

5.8.1. Environmental impacts. 50

5.8.2. Economic impacts. 51

5.8.3. Social impacts. 55

5.9. Option 5: Target based compensation fund. 55

6. Comparison of options. 56

6.1. Introduction. 56

6.2. Effectiveness. 57

6.2.1. Removal of market barriers. 57

6.2.2. Environmental effectiveness. 58

6.2.3. Vulnerability. 59

6.2.4. Enforceability. 60

6.3. Efficiency. 61

6.3.1. Shipping competitiveness. 61

6.3.2. Maintaining and enhancing competiveness. 62

6.4. Consistency. 62

6.4.1. Stimulating actions by others, including through the IMO.. 62

6.4.2. Consistency with EU related policies. 62

6.5. Concluding remarks. 63

7. Monitoring and Evaluation. 64

Annex I - Overview of the shipping sector. Error! Bookmark not defined.

Annex II - SMEs in the shipping sector. Error! Bookmark not defined.

Annex III - Summary of results of the on-line consultation. Error! Bookmark not defined.

Annex IV - Minutes of the ECCP meetings. Error! Bookmark not defined.

Annex V - Participants and conclusions from the technical workshop hold by AEA Technology in London on 9 March 2012. Error! Bookmark not defined.

Annex VI - Methodology for modelling.. Error! Bookmark not defined.

Annex VII - Identified regions reliant on shipping.. Error! Bookmark not defined.

Annex VIII - Analysis of possible technical scope of an EU measure. Error! Bookmark not defined.

Annex IX - List of IMO proposals (24 May 2011) Error! Bookmark not defined.

Annex X - Description of market barriers. Error! Bookmark not defined.

Annex XI - Graphical representation of the comparison of the policy options. Error! Bookmark not defined.

Annex XII - Annual compliance cycle for monitoring, reporting and verification of emissions Error! Bookmark not defined.

Annex XIII - Administrative costs and administrative burden. Error! Bookmark not defined.

Annex XIV – Specific elements of option 2 – Monitoring and reporting based on fuel consumed Error! Bookmark not defined.

Annex XV – Specific elements of option 4 – Emissions trading schemes. Error! Bookmark not defined.

1. Procedural issues and consultation of interested parties

Lead DG: DG CLIMA in close cooperation with DG MOVE being in agreement with this impact assessment.

Agenda planning /WP reference: 2012/CLIMA/005

1.1. Impact assessment steering group (IASG)

Work on the impact assessment was carried out by a European Commission Inter-Service Steering Group (ISG) set up by DG CLIMA which met six times. The following Directorates-General (DGs) of the European Commission participated in the work of the group: DG ENV, DG ENTR, Secretariat-General (SG), Legal Service (SJ), DG TAXUD, DG MARKT, DG COMP, DG JRC, DG RTD, DG MOVE, DG TRADE, DG MARE, the European Maritime Safety Agency (EMSA) and the European Environment Agency (EEA).

1.2. Consultation of the IAB

Following the IAB's first opinion and its recommendations, the draft impact assessment has been substantially revised. These changes concern the section on problem definition which has been re-arranged describing the policy context, market failures as well as expected market dynamics until 2020 (e.g. ship overcapacity, the need to generate fuel savings, new technologies, slow steaming) more in detail. Furthermore, within the limits of a reasonable page volume for the Impact Assessment, the intervention logic has been re-enforced, the objectives more streamlined and the policy options have been described more in detail. Regarding the assessment and comparison of options, more elements have been added (e.g. a dedicated section on modelling, cost figures for all actors involved, administrative costs for Member States, a dedicated annex on SMEs and a dedicated annex describing costs for each individual option according to size of ships, type of competent authorities and type of recycling of revenues where relevant). Future monitoring and evaluation arrangements have been further clarified. Furthermore, more references to stakeholder views have been introduced all over the document including a dedicated section on "industry approaches" (section 2.6). The balance in the distribution of relevant information between the different annexes and the main text has only been partly modified as the draft Impact Assessment's main text already exceeded the recommended number of pages by around 50%.

In its second option, the IAB suggested providing more robust evidences on the magnitudes of the underlying market failures. Additional evidence based on the studies analysing these aspects has been added. Moreover, following the recommendation of the board, the results of the public consultation, instead of a synthesis of these results, have been added to the annex of the impact assessment to substantiate stakeholder views and to present them in a more differentiated way. Finally, following the IAB recommendation, the impact assessment also better explains the two stage approach. In particular, the fact that additional discussions are required once the MRV will be in place is now explicit.

1.3. Consultation and expertise

1.3.1. External support

The underlying econometric modelling and analysis was carried out by a consortium led by AEA Technology. The consortium consisted of senior experts consultants in the maritime sector: IHS Fairplay, AMEC and Marintek. The data on environmental, economic and social impacts used in this impact assessment have been provided by this study if not stated differently. A study on market barriers for the uptake of cost-efficient mitigation technologies carried out by Maddox consulting (particularly as regards the Monitoring, Reporting and Verification - MRV option) and a study carried out by IHS Fairplay on ships visiting EU ports, as well as industry expert consultations were also used to complement the analysis.

AEA Technology report, Maddox Consulting study and IHS Fairplay study are available on the Commission website[1].

1.3.2. Consultation of maritime experts and Member States

In order to review the policy options mentioned in the second International Maritime Organisation (IMO) greenhouse gas study 2009[2] and in the 2009 CE Delft study[3], a working group (WG6) was established under the European Climate Change Program II (ECCP). This group has also allowed for a formal technical stakeholder consultation and provided input for the external support, especially by narrowing down the policy options, by addressing the issue on regions heavily dependent on shipping and by understanding the positive and negative aspects of an EU proposal for delivering an IMO action.

A one-day and three two-day meetings were organized on 31 August 2010, 8-9 February, 22-23 June and 15-16 November 2011. They brought together more than 100 participants from national administrations, from the EU shipping organizations and associations, from international shipping organizations and from other associations and NGOs. Representatives from the European Maritime Safety Agency (EMSA), the European Environment Agency (EEA) and the European Parliament also attended. The minutes, the background papers and the presentations of these meetings are available on the Commission website for public information[4].

Furthermore, Commissioner Hedegaard and Vice-President Kallas met with high level experts in the maritime transport sector. These meetings took place on the 3 February 2011, 28 June 2011 and 7 November 2011.

1.3.3. Public on-line consultation

An online public consultation was held from 19 January to 12 April 2012, i.e. 12 weeks. A press release announced the launch of this public consultation. The public consultation was carried out using the “General principles and minimum standards for consultation of interested parties by the Commission”. Results from the consultation are given in Annex III.

The results of the consultation confirm that a global agreement in the IMO is perceived as the best long term option to achieve GHG emissions reduction of the shipping sector. The results show agreement that, in absence of a global measure, any European measure should be a level playing field for all ships using ports in the EU. It is also a generally shared view that any market-based measure, whether adopted at EU or IMO level, needs to be accompanied by transparent and robust monitoring of emissions. This monitoring should be established with the view of avoiding undue administrative burdens and ensure accurate reporting results.

In parallel to this internet public consultation, a technical workshop was organised on 6 March 2012 with relevant stakeholders in order to discuss in concrete terms how the possible EU measures could be implemented. The list of parties consulted and the main conclusions are given in Annex V.

In addition, a one-day broad consultation meeting with more than 120 participants was held on 5 December 2012 to discuss in more detail the monitoring and reporting of CO2 emissions in the shipping sector.

2. Problem definition

2.1. EU related CO2 emissions from maritime transport are significant, leading to negative impacts on climate change

Emissions of the shipping sector have been recognised as a fast growing environmental problem as they affect climate, have direct impacts on human health, and they contribute to ocean acidification and eutrophication[5]. Background information on the shipping sector, especially regarding the various shipping segments and their energy efficiency, is given in Annex I.

EU related CO2 emissions from maritime transport reached 179.6Mt in 2010[6]. By a way of comparison these EU related maritime sector emissions are higher than the total 2009 emissions of 20 Member States, taken individually[7].

Greenhouse gas emissions from shipping, which are closely linked to the development of the world economy, have increased strongly in the past few years. Although, the EU has reduced its greenhouse gas (GHG) emissions by 379,8MtCO2eq between 1990 and 2007[8], during the same period, the CO2 emissions from international shipping related to the EU, i.e. emissions related to intra-EU routes, incoming and outgoing voyages, have increased by 66MtCO2[9], undermining the EU efforts to tackle climate change.

International shipping is the only sector and transport mode not covered at the EU level by emission reduction target. All other transport modes, including domestic shipping[10], are covered by emission reduction targets in result of the revised directive 2003/87/EC which set the European emission trading scheme (EU-ETS) and the Decision (EC) n°406/2009 on the effort of Member States to reduce their greenhouse gas emissions to meet the Community’s greenhouse gas emission reduction commitments up to 2020. Moreover, some specific measures are used to help the internalisation of the carbon cost, such as the regulation (EC) n°443/2009 and 510/2011 setting CO2 emissions standards for cars and vans, but none of them apply to international shipping.

Although the EU continues to consider global approaches central in developing its policy, in view of the significance of the problem it was agreed between the European Parliament and the Council of the EU in 2008 that in the absence of an international agreement, the Commission should make a proposal to include international maritime emissions into the Community reduction commitment[11].

The EU related maritime emissions have two distinct dimensions. Firstly, the emissions relating to intra-EU traffic by EU operators which are not expected to increase significantly by 2050, and secondly, those emissions relating to sea transport into and out of EU where significant growth is projected. Accordingly an appropriate regulatory measure should – in addition to addressing how EU does maritime business – contribute to how business is done in Europe and promote further action internationally.

Considering the importance of international progress on developing a global measure, this impact analysis covers a measure aimed at increasing availability of comparable and transparent emissions data through Monitoring, Reporting and Verification (MRV – option 2), which would allow for better informed decision making within sector, as well as a range of so called Market Based Measures (MBMs – options 3-5). For the purposes of this analysis it has been considered that although a robust MRV scheme is the foundation of most MBMs, it can in certain circumstances deliver significant results as an interim stand-alone measure.

Trade activity was the basis of the calculation of the projected CO2 emissions in the shipping sector used for this impact assessment. More precisely, variations of seaborne trade of more than 80 commodities between two EU regions (Northern EU and Southern EU) and 13 extra-EU regions[12] defined the maritime transport activity up to 2050. Such variations were calculated using the IHS Global Redesign Scenario[13]. It was therefore possible to estimate the future CO2 emissions on EU related routes considering a frozen technology scenario.

Based on this frozen technology scenario and using IMO data and Marintek and IHS Fairplay expertise, emissions reductions, due to economies of scale related to the increase of ship size (which is a significant trend in the shipping sector), fuel switch (in particular due to low sulphur requirement) and mandatory improvement of the implementation of the EEDI[14], were integrated. This led to the projected EU related CO2 emissions under the baseline scenario.

The EU is strongly committed to achieve the climate objective of limiting global average temperature increase to less than 2 degrees Celsius above pre-industrial levels. To this end, the Europe 2020 Strategy for smart, sustainable and inclusive growth[15] includes five headline targets. One of the headline targets is to reduce GHG emissions by at least 20% compared to 1990 levels or by 30%, if the conditions are right[16]. In the view of contributing to the EU 2020 Strategy, the 2011 Commission White Paper on Transport[17] states that EU CO2 emissions from maritime transport should be reduced by 40% (if feasible 50%) from 2005 levels by 2050. Therefore, the projected increase of CO2 emissions from shipping is not in line with the EU objectives, leading to negative impacts on climate change.

2.2. What are the drivers of the problem?

2.2.1. EU sea transport is experiencing growth , leading to an increase of its CO2 emissions

CO2 emissions in maritime transport are related to shipping activity, which is closely related to the growth of the word trade. It can be assumed that the relative weight of major economies outside the EU, such as China, India or Brazil in the global GDP will increase[18] resulting in an increase in the trade activity of the EU with these countries. More than 90% of EU trade is seaborne[19] and this share is expected to increase[20]. Although in absolute terms emissions from intra EU maritime transport are not expected to increase significantly and may even decrease from 78.5MtCO2 in 2005 to 70MtCO2 in 2030 (-11%)[21], EU related maritime transport activity is expected to increase as a result of increase in trade with third countries leading to an increase of CO2 emissions on EU related routes. Under a frozen technology scenario, the EU related CO2 emissions could reach 280MtCO2 by 2030 (+43% compared to 2005). The intra EU emissions from maritime transport will therefore drop from 40% of the total EU related CO2 emissions in 2005 to 26.6% in 2050.

These projections have been estimated according to a trade model, the IHS Global Redesign Scenario, integrating strong underlying assumptions related to interalia geopolitics, monetary issues, environmental issues or economical policies. However, projected CO2 emissions are sensitive to the variation of these assumptions. For example, a higher/lower GDP growth in major economies outside the EU may lead to higher/lower CO2 emissions on EU related routes. A quantification of the projected CO2 emissions different than the one used in this impact assessment would have required the use of another trade model. Further details, especially on the trade flows considered by the model, can be found in annex VI.

2.2.2. Market failures prevent the uptake of low carbon technologies

Greenhouse gas emissions (GHG) of maritime transport are directly related to fossil fuel consumption and fuel can be considered up to 33 to 63% of ship's operational costs. In theory, the increase of fuel prices (particularly due to global low-sulphur requirements[22]) should trigger the adoption of technological means to increase of the energy efficiency of ships and ultimately to a decrease of GHG emissions compared to a business as usual scenario.

However, recent research by the International Maritime Organisation (IMO), CE Delft, Det Norske Veritas (DNV) and others has identified CO2 reduction measures in the maritime transport sector that are not being implemented on large scale, such as slow steaming, weather routing, contra-rotating propellers, propulsion efficiency devices, etc. The total cost of many of these measures is negative – i.e. they deliver more fuel savings than the investment required. These measures could deliver substantial reductions in fuel consumption and emissions. However, they are not implemented in part due to market barriers which have to be considered as a major problem driver. Three main market barriers can be underlined[23]:

1. lack of information: Ship-owners, ship operators and charterers may not be aware of the energy efficiency of a ship, may not be able to compare this energy efficiency amongst other ships or may not be aware of technologies delivering cost-effective emissions reductions;

2. split of incentives: Several entities are involved in the operation of ships. As a result of this, a coherent long-term strategy to improve of the energy efficiency is difficult to implement as neither owner nor operator or charter can expect full pay-back of their investments.

3. access to finance: Ship-owners or ship operators do not have adequate access to private finance to invest in low carbon technologies.

A detailed description of the market barriers is given in Annex X.

If all market barriers were removed, the EU related CO2 emissions from maritime transport could be stabilized 5% below 2005 levels up to 2030[24]. This means that, with the current fuel prices projection[25], the uptake of low carbon technology with negative costs could fully compensate the growth of the transport activity. Such results have been confirmed by recent study of Det Norske Veritas (DNV), which demonstrates that global maritime emissions can be stabilised at today's level up to 2050[26].

It can be stressed that the lack of information has to be solved before removing the other market barriers. For example, in order to ensure that a long-term strategy to improve the energy efficiency of a ship is set up, ship-owners or ship operators have to be aware of the energy efficiency of their ship. Moreover, providing reliable information on the economic and environmental effectiveness of technologies improving energy efficiency will reduce the risk taken by banks to finance such technologies.

Consequently, even if fuel price could in principle be a key driver to encourage emission reductions, it cannot deliver the full potential of emissions reductions in the shipping sector due to the above mentioned market barriers.

2.3. Who is affected, in what ways and to what extend?

2.3.1. The EU and its EU Member States

As mentioned in section 2.1, international maritime transport is the only mode of transport currently not covered by an EU or international regulation (see also section 2.5 on EU and international regulations). In the absence of a policy measure there is a risk of distortion of competition between modes of transport.

Aviation is included in the EU-ETS under a law agreed in 2008[27]. The introduction of non-discriminatory carbon pricing for incoming and outgoing flights via the EU ETS has raised at times misinformed but nevertheless strong objections by key international partners. These partners have called for prioritising a global agreement on a market based measures at the 2013 International Civil Aviation Organisation (ICAO) Assembly. In response to the progress made at the latest ICAO Council meeting (9 November) and the commitment to deliver tangible results to address international aviation emissions by the 2013 Assembly, the Commission has proposed a temporary, one year derogation of the EU ETS as regards air traffic into and out of Europe. This gesture is expected to provide momentum for the ICAO discussions in the run up to the 2013 Assembly.

Other modes of transports, such as road, rail and inland waterways, are covered by the Decision (EC) n°406/2009 on the effort of Member States to reduce their greenhouse gas emissions to meet the Community’s greenhouse gas emission reduction commitments up to 2020. However, technical measures, such as regulation (EC) n°443/2009 setting emission performance standards for new passenger cars, have also been adopted to fit with the nature of the sector (e.g. the short life time of car, compared to other mode of transport, increases the accuracy of setting standards for new vehicles). Moreover, electric propulsion for railways and, increasingly, for cars, is also covered by the EU ETS.

There are also several international developments that will affect the level of emissions even in the absence of an EU measure. The work started in 2000 by the IMO led to finalising a report which represented, at the time, the most comprehensive overview and estimate of ships' emissions. On 15 July 2011 a new chapter was added on Regulations on energy efficiency for ships to make mandatory the Energy Efficiency Design Index (EEDI), for new ships and existing ships which have undergone a major conversion, progressively from 1st January 2013.

At the time of the adoption of the EEDI a further agreement was reached on all ships covered by the relevant IMO convention should carry a Ship Energy Efficiency Management Plan (SEEMP) on board. This SEEMP aims to record the operational measures taken to enhance the energy efficiency of the ship. However, the measures described in the SEEMP are not mandatory. Therefore, the impact of SEEMP remains uncertain.

Against this backdrop, and to maintain the consistency and positive impact of our environment and climate policy, a gradual approach which will still maintain maximum leverage on the international discussions on maritime emissions, will be in the interest of Europe.

2.3.2. EU ship-owners and ship-operators

In the shipping sector, the external cost of CO2 emissions has not been yet internalised. As a consequence, shipping competitiveness will not be affected in the absence of regulation on CO2 emissions from maritime transport. However, the penetration of low carbon technologies in the shipping sector, which would have reduced the shipping's dependency to fossil fuel, is currently low[28]. This leads to a strong exposure of the shipping sector to fuel price increase.

In parallel however, there is a growing demand from the shippers to improve the environmental footprint of their supply chain. For example, the Clean Cargo Working Group was established in 2003, brings together major shippers (such as IKEA, NIKE, Mark and Spencer, etc.) and major ship-operators, representing today 60% of the global container fleet by volume, to improve the environmental performance of marine container transport[29]. Despite the fact that maritime transport is still considered as the most efficient mode of transport, willingness to take action in this area is increasing among ship-operators to the extent that non-climate conscious ship-operators may face the risk of losing business opportunity.

2.3.3. Third countries

In absence of regulation of GHG emissions of shipping, the third countries will face similar negative impacts of climate change as the EU. Ship-owners and ship-operators from third countries will also continue to be exposed to fuel price increase, if no regulation at regional or international level unlocks the uptake of low carbon technologies. Consultation with third country partners shows increasing level of awareness as well as gradual but broad based willingness to eventually agree on a global measure. An appropriate EU level measure compatible with the maturity of the international discussions could contribute significantly to the analysis aimed at identifying a single global MBM.

2.4. How the problem would evolve, all things being equal? (baseline scenario)

The total CO2 emissions related to European maritime transport activities (including intra EU routes, incoming journeys to the EU and outgoing journeys from the EU) are expected to reach 210 Mt CO2 in 2020 (+8% compared to 2005), 223 Mt CO2 in 2030 (+15% compared to 2005) and 271 Mt CO2 in 2050 (+39% compared to 2005)[30].

These figures have been extrapolated according to the most reliable 2010 data[31]. However, it has to be stressed that there is a lack of accurate and consolidated monitoring, reporting and verification of CO2 emissions in the maritime transport sector. To this end, it can be recalled that the market failures will not be removed by the market.

The evolution of the problem remains also highly dependent on action taken by foreign countries. The intra-EU emissions are indeed expected to be stable at around 72 Mt CO2 up to 2050, i.e. -9% compared to 2005, although minor variations may occur (e.g. intra-EU emissions were 15% below 2005 levels in 2010 due to the economic crisis). On the contrary, the emissions from incoming (i.e. coming from ports outside the EU) and outgoing (i.e. going to ports outside the EU) journeys are expected to increase significantly (respectively +91% and +51% by 2050 compared to 2005).

The EEDI sets technical standards for improving the energy efficiency of certain categories of ships which will, in turn, lead to less CO2 emissions – approximately 23% reductions by 2030 compared to Business as Usual increase which would be 54% to 84% above 2007 levels on a global scale[32]. However, CO2 Emissions will increase globally at least by 235Mt above the 2007 levels by 2030 in the average scenario despite the implementation of the EEDI. The EEDI applies only to the new ships and there are no specific measures in place for existing ships.

Moreover, according to the impact assessment of the proposal for a directive of the European Parliament and of the Council amending Directive 1999/32/EC as regards the sulphur content of marine fuels[33], fuel prices will increase due to IMO regulation on sulphur emissions. In particular, the EMSA analysis concludes that under normal circumstances the price for Marine Gas Oil (MGO) will be in the range of €450 to €680 per tonne. Compared to Heavy Fuel Oil with a sulphur content of 1.5% (sulphur standard before MARPOL Annex VI was revised) it is predicted that MGO with a maximum sulphur content of 0.1% would on average become 65% more expensive under a fuel-based-only compliance scenario (i.e. whereby the less costly technology-based compliance is not used).

Finally, according to the stakeholders, the shipping sector is facing an overcapacity for at least a decade. It is not possible to have precise quantification of this overcapacity for each shipping segment. However, some estimates are given in annex I figure 1. In the short term, this overcapacity leads to operational responses, such as slow steaming[34], which can deliver emissions reductions. However, in the long term, due to the expected growth of the shipping sector, this overcapacity should no longer exist.

The CO2 emissions projections used in this impact assessment integrate all the elements mention above in the baseline. Further information on the baseline scenario can be found in annex VI, especially on the trade figures (section 2 of annex VI), fuel prices (table VI.2 of annex VI

2.5. International and EU policy approaches

2.5.1. International negotiations

In December 1997, Parties to the United Nation Framework Convention on Climate Change (UNFCCC) adopted the Kyoto Protocol. According to its article 2, paragraph 2, Parties included in Annex I of the Kyoto Protocol[35] shall pursue limitation or reduction of emissions of greenhouse gas emissions not controlled by the Montreal Protocol from aviation and marine bunker fuels, working through the International Civil Aviation Organisation (ICAO) and the International Maritime Organisation (IMO), respectively.

The IMO started working on the reduction of greenhouse gases in 1997 when the Conference of the Parties to the International Convention for the Prevention of Pollution from ships (MARPOL convention) agreed in its Resolution 8 that the IMO, in cooperation with the United Nation Framework Convention on Climate Change (UNFCCC), undertake a study on CO2 emissions from ships and therefore that the matter is on the agenda of the Marine Environment Protection Committee (MEPC). The progress made on the industry standard (EEDI) described above and the deliberations on technical measures to improve sector energy efficiency has been significant, however IMO recognises that further mechanisms are required to achieve the reductions of emissions from shipping sector at a meaningful scale.

Additional measures are under discussion at the IMO, but the progress in the discussion of such measures has been relatively unimpressive after a working group provided its initial report on market-based measures in July 2011. An EU level measure and an analysis of the impacts of MBMs could significantly contribute to the on-going reflections in this context.

2.5.2. EU approach

According to the Article 5 of decision n°1600/2002/EC of the European Parliament and of the Council of 22 July 2002 laying down the Sixth Community Environment Action Programme, the Commission was committed to "identify and undertake specific actions to reduce greenhouse gas emissions from marine shipping if no such action is agreed within the International Maritime Organisation by 2003".

On 5 December 2003, the IMO Assembly adopted Resolution A963(23) which urged the Marine Environment Protection Committee (MEPC) to identify and develop mechanism(s) needed to achieve limitation or reduction of GHG emissions from international shipping. The Commission postponed action.

The Council and the Parliament recalled this commitment in the Climate and Energy Package adopted on 23 April 2009 : "in the event that no international agreement which includes international maritime emissions in its reduction targets through the International Maritime Organisation has been approved by Member States or no such agreement through the UNFCCC has been approved by the Community by 31 December 2011, the Commission should make a proposal to include international maritime emissions in the Community reduction commitment, with the aim of the proposed act entering into force by 2013. Such a proposal should minimise any negative impact on the Community’s competitiveness while taking into account the potential environmental benefits."[36]

In July 2011, the IMO decided on measures setting efficiency targets for certain category of new ships (see section 2.3.1 above). These measures, while expected to reduce global GHG emissions from international shipping from business as usual scenario, are not sufficient to ensure an appropriate contribution from this sector to global efforts to maintain global temperature growth below 2°C. Consequently, there is a clear mandate given to the Commission to act now.

The Climate change and energy package of 2008 and the EU ETS are considered major achievements of the EU. EU ETS remains a flagship policy has served as an example for actions by our third country partners (China, Korea, Australia, etc.). Since its launch in 2005 the EU ETS has delivered significant CO2 reductions. By generating a uniform carbon price across countries and sectors, it has created a level playing field and guaranteed a cost-effective approach. The EU ETS has functioned as foreseen but, due in large part to the wider economic situation, emissions have reduced to such an extent that many stakeholders consider that a stronger signal is needed to generate low-carbon investments. In the 2012 Carbon Market Report[37], the Commission analyses this issue in more detail. On the short term, the Commission has recently proposed the 'backloading' of 900 million allowances[38], i.e. the delay of planned auctions, in order to reduce surpluses on the market. It has also identified six structural measures which could tackle the structural supply-demand imbalance, and sought stakeholder feedback on these options. While monitoring aviation emissions in 2010 has taken place, the actual pricing of emissions from incoming and outgoing flights in ETS has been opposed by a number of third countries.

The Commission remains firmly committed to support the progress towards a global agreement in the IMO. Accordingly, although this analysis looks at a range of measures including MBMs, the Commission announced on 1st October 2012 a step-by-step approach. As mentioned in section 2.2.2, the removal of the market barriers related to lack of information is a prerequisite for the removal of any other market barrier. Therefore, the Commission will consider, in the interim, setting a strong monitoring, reporting and verification system first. Such monitoring and reporting system will be aligned with forthcoming international monitoring and reporting system, if available, and will be closely coordinated with the on-going discussion on the proposal for a regulation of the Council and the Parliament on a mechanism for monitoring and reporting greenhouse gas emissions and for reporting other information at national and Union level relevant to climate change[39] (called Monitoring Mechanism Regulation). Therefore, it is expected that this approach will accelerate and support international process.

2.6. Industry approaches

Several existing initiatives seek to classify ships according to their environmental performance and other indicators, such as the Clean Shipping Index (CSI)[40], the Environmental Shipping Index (ESI)[41], Shippingefficiency[42], Rightship[43] or Green Award[44]. However, the variety of indicators might become an obstacle for their wider application.

Voluntary offsetting schemes have also been developped, such as Carbon Positive[45] or Yacht Carbon Offset[46], and an important mumber of major companies have taken action. For example, Maersk Line, the world leader in container transport, committed itself to reduce its GHG emissions per tonne nautical mile by 25% by 2020 compared to 2007. More precisely, the stakeholder consultations showed that the container vessel operators are at the forefront of tackling climate change. This can be explained by the fact that this shipping segment is significantly concentrated: the world top 10 containers operators represent approximately 60% of the global vessel capacity[47]. But containers represent only 31% of the 2010 EU related GHG emissions[48].

Some other liners (e.g. ferries, Ro/Ro) are also taking action. For example, Wallenius Wilhelmsen Logistics commits itself to be carbon neutral by 2050. Finaly, in tramp shipping (i.e. bulk carriers, tankers, general cargo, etc.), Norden, a Danish company, commits itself to reduce its CO2 emissions by 25% by 2020 compared to 2005, or Star Bulk, a Greek company, have joined a voluntary offseting scheme.

These examples show that numerous of EU ship operators have already taken actions. However, except in the container vessel segment, the sector is heavily fragmented (see annex II) and no general assumption on how shipping companies are reducing greenhouse gas emissions can be drawn regarding the size of operators or the type of ships operated. Therefore, the impacts of such action is difficult to quantify, in absence of common monitoring and reporting strandards.

2.7. The right of the EU to act

2.7.1. Legal basis

The legal basis for acting at the EU level is the environmental legal basis enshrined in Article 192 of the Treaty on the Functioning of the European Union, as the principal objective of the measure is the protection of the environment through the reduction of GHGs; this legal basis has already previously served as the legal basis to regulate GHG emissions.

2.7.2. Analysis of subsidiarity

The maritime sector is operated globally and a regulation at the international level remains the best way to address the reduction of CO2 emissions of this sector. As previously mentioned, the IMO adopted technical and operational measures, which will only partially contribute to the necessary emission reduction of GHG from international shipping. Additional measures, such as MBMs, are under consideration in the IMO on the basis of a specific working group report on MBMs in July 2011.

Action at the EU level could significantly reduce CO2 emissions from global maritime transport. CO2 emissions related to journeys from and to EU ports represented 180 Mt CO2 in 2010[49], i.e. around 1/5th of global maritime emissions[50]. This covers intra-EU journeys (including domestic traffic[51]), journeys from EU ports to the first port of call outside the EU and journeys from the last port of call outside the EU to the first EU-port. The total emissions of ships calling into EU ports are estimated to be significantly higher when taking into account the entire journey (e.g. a route from Melbourne to Rotterdam via Singapore) as the scope only covers the last leg of routes related to EU (e.g. only the route between Singapore and Rotterdam).

Acting at the EU level will be more efficient than acting at the Member State level. Indeed, the single market in maritime transport is a key goal for the EU, even though there is still some on-going work for its full achievement. On average, 90% of calls in EU Member State ports are from ships coming from or going to a port located in another EU Member State. Moreover, the hinterland of EU ports goes far beyond national borders. Furthermore, acting at the EU level could avoid competitive distortion in the internal market by ensuring equal environmental constraints on ships calling into EU ports.

Finally, acting at the EU level will ensure that the information provided on greenhouse gas emissions is harmonised at the EU level, contributing to the removal of the market barrier on lack of information.

2.7.3. Analysis of proportionality

According to the EU's climate and energy legislation[52], all sectors of the economy should contribute to achieving these emission reductions, including international maritime shipping. International shipping is the only sector and transport mode so far not covered at the EU level by the emission reduction target.

Article 191 of the UN Convention of the law of the seas (UNCLOS) encourages cooperating, as appropriate, at a regional basis, directly or through competent international organisations in the interests of protecting and preserving the marine environment by way of international rules, standards and recommended practices. GHG emissions from ships qualify as pollution of the marine environment[53]. No other international regulation prohibits regional action to address GHG emissions from ships, as long as any measure introduced respects international law, including IMO, WTO and UNFCCC rules.

As there is a clear mandate given to the Commission to act and as there exists no international rules prohibiting such action, an EU proposal is fully legitimate to take action on GHG emissions of the maritime transport sector.

The proportionality of a specific measure is also highly dependent on the categories and the size of ships concerned by the measures. About 19000 vessels above 300 Gross Tons (GT) have called in EU ports in 2010[54]. There is a significant diversity of types (at least 18 categories and size of ships. Therefore, the same measure may not be proportionate for small fishing vessels, whereas it will be for very large crude carriers. In order to reduce the administrative burden while ensuring a high environmental impact, the measure should aim at high coverage of emissions with a minimum number of ships covered. At least small ships below 400 GT should be excluded to ensure consistency with international regulation[55]. However, the threshold for small ships could also be set at a higher level) and/or certain ship types may be excluded. For example, setting a size threshold at 5000GT would reduce the number of ships covered by 44% while covering 90% of the EU related CO2 emissions (see Annex VIII). Such threshold could also exclude around 99% of maritime transport SMEs from the scope of the regulation (see annex II). Therefore, the administrative analysis was done for both thresholds 400GT and 5000GT.

Finally, CO2 emissions due to fuel combustion represent about 98% of the GHG emissions of the shipping sector[56]. The possible measure should therefore focus on CO2 emissions from fuel combustion, noting that a regulation on CO2 emissions from fuel combustion may in any case trigger emission reduction of other climate forcers, such as black carbon[57] [58].

3. Objectives

EU action against climate change has been translated into a GHG reduction target as adopted in the Climate and Energy Package, and included in the headline target of the EU 2020 Strategy. The target set in the EU 2020 Strategy is to reduce GHG emissions by at least 20% by 2020 compared to 1990 levels, or by 30% in the context of a global deal[59].

Moreover, in order to keep climate change below 2ºC, the European Council reaffirmed in February 2011 the EU objective of reducing GHG emissions by 80-95% by 2050 compared to 1990, in the context of necessary reductions according to the Intergovernmental Panel on Climate Change by developed countries as a group[60].

Therefore, the general objective is:

General objective: 1. To contribute to reaching the relevant climate change and energy objective outlined in the EU 2020 Strategy and the 2020 flagship initiatives by taking action on international maritime emissions, as part of the ultimate goal of limiting global average temperature increase to less than 2 degrees Celsius above pre-industrial levels; 2. To contribute to the EU objective of reducing GHG emissions by 80-95% by 2050 compared to 1990.

In the context of the EU 2020 Strategy and its flagship initiatives, the Commission's Transport White Paper introduced a specific target of a reduction in EU CO2 emissions from maritime bunker fuels by 40% (if feasible 50%) by 2050 compared to 2005 levels.

Under the EU 2020 objectives, the European Council[61] has identified that action against climate change will bring opportunities for growth and employment through building expertise in eco-efficient technologies. Currently, European shipbuilders are technology leaders in the passenger ship segment, for special purpose ships (e.g. dredgers) and in large parts of the equipment industry. Shipyards and equipment suppliers will play a vital role in providing the technical solutions to meet GHG reduction targets. It is important that Europe retains its expertise in this area. The policy objectives therefore promote technological development by supporting continued innovation in the EU maritime-related industries.

Furthermore, due to the global nature of the maritime sector, international regulation is always preferred. Therefore, another important specific objective for the EU is to develop regional policies that can support the IMO process and that can take forward action to reduce maritime emissions within the EU and globally.

Specific objectives: 1. To reduce impact of EU shipping emissions on the climate by achieving reduction in CO2 emissions from maritime transport by 40% (if feasible 50%) by 2050 compared to 2005 levels[62]; 2. To promote technological improvement of ships, with respect of the flag neutrality[63] principle, and to improve the competiveness of maritime supply chains of the EU, by supporting continued innovation of the European shipbuilders, equipment manufacturers and service providers of the shipping sector 3. To stimulate actions by others, including by States in the IMO,

The above objectives can only be assessed through a precise understanding of the GHG emissions from the shipping sector. However, these emissions are not currently monitored. Therefore, introducing requirements for monitoring, reporting and verification of GHG emissions from the shipping sector is an operational objective that must be achieved by the policy options under consideration.

Furthermore, in order to give a clear signal and a clear incentive to achieve emission reductions in the maritime sector, internalising the external costs of climate change in the maritime sector is required. However, internalising the external costs of climate change may not be sufficient to remove all market barriers, but it could generate revenues that could also be used to contribute to the removal of market barriers.

Thus, the operational objectives of a proposal are:

Operational objectives: 1. To monitor, report and verify CO2 emissions of the maritime sector related to the EU, thereby contributing to more informed decision making and climate consciousness by sector operators 2. To set a carbon constraint on ships for their CO2 emissions to achieve emission reductions from maritime transport of 40% (if feasible 50%) by 2050 compared to 2005 levels. 3. To ensure adequate access to finance for the implementation of low carbon technologies.

4. Policy options

4.1. Choice of policy options

For any EU measure that aims to support the development of an international regulation, it is important to build on policy options developed at international level[64]. However, as they have been designed from a global perspective, some may not be suitable for a regional measure. Therefore, the number of options proposed in the IMO has been narrowed down firstly by consulting the interested parties during the ECCP and the on-line public consultation mentioned earlier and secondly by refining them as described hereafter, based on the studies carried out by AEA Technology and others[65].

The policy options should not be prescriptive with respect to technological and operational solutions to be applied in the sector in order to maintain flexibility for the sector. In July 2009, IMO recognized that technical and operational measures would not be sufficient to satisfactorily reduce the amount of GHG emissions from international shipping in view of the growth projections of world trade[66]. It was therefore agreed by overwhelming majority that a Market-Based Measure (MBM) was needed as part of a comprehensive package of measure for the effective regulation of GHG emissions from international shipping. To this extent, the policy options assessed do not include technical and operational measures (such as hull coating or weather routing) that reduce GHG emissions. An emission reduction goal-based approach was preferred, as it will trigger the implementation of technical and operational measures which reduce emissions in a cost-efficient way.

A proposal which aims to set a fixed emission reduction target per ship was not considered to be a suitable policy option (although one of the option for public consultation). This proposal, submitted by the Bahamas[67], presented an interesting approach to a GHG reduction scheme at global level. However, if implemented at a regional level, there is a high risk of avoidance of the scheme by increasing the number of ships operating in the EU.

In this context, taking into account the work done in the IMO, the following MBMs are assessed: a levy on bunker fuel sales, a tax on emissions, a contribution based compensation fund, an ETS and a target based compensation fund. Aside from the MBM options, a measure that would provide a robust MRV regime for the maritime sector was also analysed.

In light of international developments and although this analysis looks at a range of measures including MBMs, Vice-President Kallas and Commissioner Hedegaard announced on 1st October 2012 a stepwise approach for the implementation of EU measures. This first step will be the monitoring and reporting of CO2 emissions from international maritime transport. Accordingly, the impact of the monitoring and reporting of CO2 emissions has been considered as an independent policy measure in this analysis. As robust MRV is a prerequisite for any MBM policy, MRV elements are included as an integral part of the impact analyses of the other options, with the exception of the levy on bunker fuel sales option where the quantities sold are the basis of the measure.

4.2. Consideration of the baseline and credit option

A baseline and credit scheme is a MBM, where ships that are more efficient than a benchmark can sell credits to ships that are less efficient than the benchmark. The benchmark expresses an amount of CO2 per transport work (tCO2 per tkm). It is an energy efficiency standard set per ship or per ship category and size. The benchmark and its evolution over time are set by the legislator, based on its policy objectives.

One option of designing such a system is to design the benchmark so as to ensure that the CO2 emissions do not fluctuate with the transport work (i.e. CO2 emissions are capped). In this case, the baseline and credit option is similar to a closed cap and trade system with free allocations of credits. A closed cap and trade system (also called closed ETS) is assessed hereafter. Therefore, for the purpose of this impact assessment, a baseline and credit option leading to a cap on emissions was not considered as a distinct option and, as a consequence, not further assessed.

By contrast, under a baseline and crediting system of the types currently in discussion at the IMO[68], no cap is established and therefore the overall CO2 emissions will fluctuate according to the transport work coming under scope of the future measure. This means that, while such baseline and crediting system is no doubt an appropriate measure for increasing the efficiency of the fleet, it is not an appropriate tool for meeting specific objective 1, outlined in section 3. Therefore, such a system represents a sub-optimal policy option in a European context, and has been disregarded from the in-depth assessment in this impact assessment.

The Commission notes, however, that the approach described in the preceding paragraph, if applied globally[69], would nevertheless deliver significant CO2 emission reductions beyond those achieved through a regional measure, primarily due to the sheer size of the fleet covered.

4.3. Enforcement of the policy options assessed

For all options, except the baseline scenario and the levy on bunker fuel sales, the enforcement of an EU measure will focus on actions taken by ships, even if the ship itself cannot perform the required activities for compliance due to the fact that the ship is not a legal entity. This approach is already used in other EU regulations.

The maritime sector is highly fluid and involves a range of ownership and commercial arrangements that can make it difficult to identify the party ultimately responsible for the shipping activities covered by an emissions reduction scheme. For this reason, the enforcement of IMO regulations is based on actions taken by ships. Ships can be identified through their IMO number, a permanent number that every ship has and is used for registration purposes[70]. Therefore, the enforcement of an EU measure should also focus on actions taken by ships.

So, ships will be considered as the compliance entity, even if for legal purposes the regulation will define the registered owner of a ship as the entity that will perform the required activities for compliance. This registered owner can in any case delegate this responsibility (e.g. to ship operators).

EU regulations in the maritime field already consider the issue of compliance of ships with EU and international standards. Inspections, compliance checks, expulsion from ports and denial of access to ports are done in accordance with the Flag State and Port State control rules. Existing databases (e.g. vessel tracking systems, such as Safe Sea Net[71] and Thetis[72] for Port State control regime, etc.) allow to tracking and targeting of individual ships. Provided that appropriate legal provisions are set, they could be used to check whether a ship has indeed reported its emissions and is thus in compliance with EU rules. Consequently, a list of non-compliant ships could be provided to the Member States for enforcement.

4.4. Description of the policy options assessed

4.4.1. Option 1: Baseline scenario

The baseline scenario does not address the market barriers mentioned in section 2.2.

A business as usual option is developed as a reference for the determination of impacts and the comparison of policy options. It only considers existing policies and legal instruments:

· CO2 emissions from bunker fuel sales are monitored based on information provided by bunker fuel suppliers, in accordance with Decision 280/2004/EC[73]. All ships purchasing fuel in the EU are covered by the regulation.

· The verification of the emissions is done by the Member States and by the European Environment Agency.

· No internalisation of climate change externalities.

· The instruments adopted by the IMO in 2011 (EEDI, SEEMP), as well as the impact of the review of Directive 1999/32/EC on low-sulphur maritime fuel[74], are included in the baseline. No additional measures under discussion in the IMO have been considered due to the high uncertainties related to their adoption.

· The baseline also takes into account the improvement of the carbon footprint of ships, especially due to fuel switch and economy of scale[75].

· No policy to remove market barriers.

All stakeholders consulted during the ECCP and the on-line consultation considered that further action to address greenhouse gases of ships was needed. However, there are different views on the level of action. All stakeholders indicated their preference for a global scheme, but many Member States, industry associations and non-governmental associations considered that the EU action would help the IMO to move forward faster, especially by providing a strong base for a global action.

This option does not take into account the current possibility for the Member States to include activities or installations into the EU-ETS, according to Article 24 of Directive 2003/87/EC. To this end, Member States may decide to include ships or ports into the EU-ETS. However, so far, none of Member States decided to do so.

Table 1 - Summary of the main parameters of option 1

Compliance entity || Bunker fuel suppliers

Scope of emissions covered || Any CO2 emissions from maritime bunker fuel purchased in the EU

Requirements || Bunker fuel suppliers communicate to the Member States the amount of bunker fuel sold within a year for the calculation of the associated CO2 emission.

Enforcement || Decision 280/2004/EC

Market barriers addressed || None

4.4.2. Option 2: Monitoring, reporting and verification (MRV) of emissions based on fuel consumption

MRV of emissions based on fuel consumption will ensure accurate information of the CO2 emissions performance of a ship. Therefore, it will address the market barrier related to lack of information. However, it will not address the market failures associated with the split of incentives and the access to finance.

During the stakeholder meeting on 6 December 2012, most of industry representative have supported a strong MRV of emissions based on fuel consumed. Moreover, this approach is also foreseen by IMO submissions of our international partners. However, some industry representatives want to have a better clarity on the use of the data collected before having position of the monitoring scheme.

Under this option, the MRV of emissions is done by ships, based on their fuel consumption. The CO2 emissions are made publicly available to incentivise the improvement of energy efficiency.

CO2 emissions from ships relate to the emission factor associated (in CO2 per tonnes of fuel) with the type of fuel consumed and the volume of fuel consumed (in tonnes). Specific elements on the determination of fuel consumption are given in annex XIV.

Verification of processes and standard compliance is also a common practice in the maritime transport sector. The verification of emissions reports can be done in principle by current existing independent verifiers, such as Recognised Organisations[76].

The annual compliance cycle for MRV and the tasks of authorities involved are further described in Annex XII.

Table 2 - Summary of the main parameters of option 2

Compliance entity || All ships above 400GT (or 5000GT)

Scope of emissions covered || Any CO2 emissions from the last port of call outside the EU to an EU port, between EU ports and from an EU port to its next port of call outside the EU.

Requirements || Ships communicate to the relevant Competent authority the amount and the type of fuel consumed on routes within the scope for the calculation of the associated CO2 emissions.

Enforcement || Existing Flag State and Port State control rules

Market barriers addressed || Lack of information

4.4.3. Option 3: Levy on emissions

This option is based on the payment of a contribution in euros per tonne of CO2 emitted. Three sub-options were developed. The subjected compliance entity and the scope are different between the sub-options.

Under option 3a (levy on bunker fuel sales), the subjected compliance entity is the bunker fuel supplier and the scope is based on emissions from bunker fuel sold in the EU, whereas under option 3b (tax on emissions from fuel consumed) and 3c (contribution based compensation fund), the subjected compliance entity is the ship and the scope is based on emissions from fuel consumed on EU related routes. The difference between option 3b and 3c comes from the legal possibility to earmark revenues, which is subjected to national laws under option 3b, but not under 3c.

4.4.3.1. Sub-option 3a: Levy on bunker fuel sales

The levy is based on the existing MRV of emissions (i.e. based on the information on bunker fuel sales reported for taxation purpose by bunker fuel suppliers to the Member States and the European Environment Agency). The level of the levy depends on the contribution of the maritime transport sector as part of the transition to a low carbon economy. The carbon constraint is set through the payment of a contribution to a fund (in €/tCO2). However, it could be suggested to recycle these revenues in an international fund, as proposed by Cyprus, Denmark, the Marshall Islands, Nigeria and IPTA in the IMO.

Any recycling of revenues would be under the responsibility of the Member States collecting the levy. If revenues are recycled, these revenues could in theory be used to remove the market barrier related to access to finance, for example by providing financial incentives reducing the risk of investment (e.g. financial guarantee) or reducing the return on investment (e.g. low-interest loans or grants). Such instruments would be especially useful to apply to SME's, which would face greater difficulties in accessing finance. SME's could further profit from technical support for the implementation of new technologies or processes. This support could therefore be used for technological improvement of ships, with respect of the flag neutrality principle. It is however important to stress that, if the recycling of revenues takes place at Member States' level, it would be in the interest of overall consistency, if Member States apply the same principles as those applicable to state aid[77] for such spending. If Member States disagree on revenue recycling, it would therefore be desirable that this option is complemented with other instruments/interventions in order to remove the market barriers, especially where access to finance is concerned. Complementary instruments would in any case be useful: for instance, information campaigns could increase the speed at which mitigation technologies are taken up by the market.

Revenues could also be used for international climate finance.

During the on-line consultation, 71% of the respondents considered that the evasion risk regarding the implementation of a tax on fuel at a regional level cannot be avoided. The respondents in favour of a tax on fuel considered that it could be applied as a measure directed to the smallest ships, as a supplementary policy instrument of an ETS or a compensation fund.

For the purposes of this Impact Assessment, the level of the levy was set in line with the European Commission’s proposal of 13 April 2011 to revise the Energy Taxation Directive (ETD)[78], which set energy taxation rules in the EU. This equates to a tax of €145.9 per tonne CO2 (i.e. €456 per tonne of fuel sold) for bunker fuels (HFO and MDO) and €189.2 per tonne CO2 (i.e. €536 per tonne of fuel sold) for LNG[79].

Any maritime bunker fuel purchased in the EU will be subjected to the levy. Fuel sold for export and offshore bunkering would not be covered by the regulation, as it is only possible to charge fuel for direct consumption[80]. As ships are able to undertake long voyages on a single bunkering and can carry additional fuel without significantly sacrificing their carrying capacity, it can be considered that the regulation will only address CO2 emissions from ships performing exclusively intra-EU routes (i.e. mainly ferries).

As the bunker fuel suppliers are fixed installations, the Member States would be in charge of ensuring the enforcement of the regulation, in line with their internal rules.

Table 3 - Summary of the main parameter of option 3a

Compliance entity || Bunker fuel suppliers

Scope of emissions covered || Any CO2 emissions from maritime bunker fuel purchased and released for consumption in the EU

Requirements || Bunker fuel suppliers communicate to the Member States the amount of bunker fuel sold within a year for the calculation of the associated CO2 emission.

Enforcement || National enforcement rules

Market barriers addressed || (Access to finance could be addressed, if Member States agree on revenue recycling)

4.4.3.2. Sub-option 3b: Tax on emissions from fuel consumed

Under this option, the MRV of emissions is done by ships, based on its fuel consumption (as for option 2). The carbon constraint is set through the payment of a tax due for every tonne of CO2 emitted to incentivise emissions reductions.

MRV of emissions based on fuel consumption, which is a prerequisite for this option, will ensure accurate information of the CO2 emissions performance of a ship. Therefore, it will address the market barrier related to lack of information.

The payment of the contribution by the ship-owners will ensure that the entity in charge of implementing technical measures on board of a ship is fully responsible for the CO2 performance of this ship and therefore remove the market barrier related to the split of incentive.

The collection of the contribution will be a Member States' responsibility. For this reason, even if revenues can be generated to tackle market barriers, any eventual earmarking may be decided by national laws. If this is the case, these revenues could in theory be used to remove the market barrier related to access to finance, for example by providing financial incentives reducing the risk of investment (e.g. financial guarantee) or reducing the return on investment (e.g. low-interest loans or grants). Such instruments would be especially useful to apply to SME's, which would face greater difficulties in accessing finance. SME's could further profit from technical support for the implementation of new technologies or processes. This support could therefore be used for technological improvement of ships, with respect of the flag neutrality principle. It is however important to stress that, if the recycling of revenues takes place at Member States' level, it would be in the interest of overall consistency, if Member States apply the same principles as those applicable to state aid[81] for such spending. If Member States disagree on revenue recycling, it would therefore be desirable that this option is complemented with other instruments/interventions in order to remove the market barriers, especially where access to finance is concerned. Complementary instruments would in any case be useful: for instance, information campaigns could increase the speed at which mitigation technologies are taken up by the market.

Revenues could also be used for international climate finance.

During the on-line consultation, the tax on emission option was considered by only 10% of the respondents as being able to promote progress at the IMO. Moreover, 44% of the respondents indicated that a tax on emissions could not achieve the emission reduction required effectively and efficiently.

For the purpose of this impact assessment, the level of the tax has been assumed to be set at the following level:

Table 4: Level of the tax used for the impact assessment, 2010 prices

|| 2020 || 2025 || 2030

Level of the tax (€/t CO2) || 9.13 || 21.37 || 35.55

This level corresponds to the carbon price with no additional action on climate change in the EU beyond policies already implemented and constitutes therefore the lower bound of the possible tax level. It is not a projection of the spot price of emission allowances under the EU ETS. A higher level may be set to deliver higher environmental output[82]. Detail on the methodology used for the assessment of impacts, especially the model used by AEA Technology, is explained in Annex VI.

Table 5 - Summary of the main parameter of option 3b

Compliance entity || All ships above 400GT (or 5000GT)

Scope of emissions covered || Any CO2 emissions from the last port of call outside the EU to an EU port, between EU ports and from an EU port to its next port of call outside the EU.

Requirements || Ships will communicate to the relevant Competent authority the amount of and the type of fuel consumed on routes within the scope for the calculation of the associated CO2 emissions. Ships will pay the tax on their CO2 emissions according to the CO2 emissions declared

Enforcement || Existing Flag State and Port State control rules

Market barriers addressed || Lack of information Split of incentives (Access to finance could be addressed, if Member States agree on revenue recycling)

4.4.3.3. Sub-option 3c: Contribution-based compensation fund[83]

Under this option, the MRV of emissions is done by ships, based on their fuel consumption (as for option 2). The carbon constraint is set through the payment of a fixed voluntary contribution (in €/tCO2) to incentivise emissions reductions. A prerequisite is the setting up of a complementary instrument (e.g. speed limits, ETS, etc.) to ensure the participation in the contribution-based compensation fund as the more attractive instrument for ships[84]. Detail on the methodology used for the assessment of impacts, especially the model used by AEA Technology, is explained in Annex VI.

MRV of emissions based on fuel consumption will ensure accurate information of the CO2 emissions performance of a ship. Therefore, it will address the market barrier related to lack of information.

The payment of the contribution by the ship-owners will ensure that the entity in charge of implementing technical measures on board of a ship is fully responsible for the CO2 performance of this ship and therefore remove the market barrier related to the split of incentive.

The revenues collected by the fund could in theory be used to address the market barrier related to access to finance, for example by providing financial incentives reducing the risk of investment (e.g. financial guarantee) or reducing the return on investment (e.g. low-interest loans or grants). Such instruments would be especially useful to apply to SME's, which would face greater difficulties in accessing finance. SME's could further profit from technical support for the implementation of new technologies or processes. This support could be used for technological improvement of ships, with respect of the flag neutrality principle. It is also important to stress that, even if the recycling of revenues may not entail state aid elements, it would be in the interest of overall consistency, if Member States apply the same principles as those applicable to state aid[85] for such spending.

Revenues could also be used for international climate finance.

During the on-line consultation, the compensation fund option was considered by 53% of the respondents as the best to promote progress at the IMO. 68% of the respondents considered that any compensation fund should be managed by a public entity. Several respondents recommended the IMO or an EU public body. Many respondents also recommended management by the industry, but this option raised oppositions from the NGOs.

The level of the contribution is assumed to be similar as the level of the tax used for sub-option 3b (tax on emissions from fuel consumed).

The collection of the contribution and the recycling of revenues in the sector could be done by an EU wide fund. It is a practice in the maritime sector to set up funds to tackle environmental problems (e.g. International Oil Compensation Funds, Norwegian NOx Fund….). Similarly, such a pan-EU fund could be set up and be in charge of the collection of contributions and revenue recycling. This fund could be privately managed or publicly managed. If publicly managed, an existing body or a European Agency could serve as fund manager.

A fund should be managed in accordance with the full cost principle (non-profit), i.e. all the financial means which the fund receives will be utilised in accordance with its purpose of reducing emissions in a cost-effective manner with the exception of necessary administrative costs. Under the supervision of the fund's board, the fund management would decide which measures shall receive support from the fund, and how (e.g. through inverse bidding processes).

Table 6 - Summary of the main parameter of option 3c

Compliance entity || All ships above 400GT (or 5000GT)

Scope of emissions covered || Any CO2 emissions from the last port of call outside the EU to an EU port, between EU ports and from an EU port to its next port of call outside the EU.

Requirements || Ships will communicate to the relevant Competent authority the amount and the type of fuel consumed on routes within the scope for the calculation of the associated CO2 emissions. Ships will pay the contribution to the fund according to the CO2 emissions declared, unless they opt to comply with a complementary instrument (e.g. speed limits, ETS, etc.)

Enforcement || Existing Flag State and Port State control rules

Market barriers addressed || Lack of information Split of incentives Access to finance

4.4.4. Option 4: Maritime emission trading scheme

Under this option, the monitoring, MRV of emissions is done by ships, based on its fuel consumption (as for options 2, and 3 b) and c)). The carbon constraint is set through the setting of a CO2 emission reduction target.

MRV of emissions based on fuel consumption will ensure accurate information of the CO2 emissions performance of a ship. Therefore, it will address the market barrier related to lack of information.

The surrendering of allowances by the ship-owners will ensure that the entity in charge of implementing technical measures on board of a ship is fully responsible for the CO2 performance of this ship and therefore remove the market barrier related to the split of incentive.

Of the ETS options analysed, sub-option 4c generates revenues due to the auctioning of allowances. These revenues could in theory be used to remove market barriers relating to availability of adequate finance. This support could be used for technological improvement of ships, with respect of the flag neutrality principle. It is also important to stress that, if the recycling of revenues takes place at Member States' levelit would be in the interest of overall consistency, if Member States apply the same principles as those applicable to state aid[86] for such spending. If Member States disagree on revenue recycling, it would therefore be desirable that this option is complemented with other instruments/interventions in order to remove the market barriers, especially where access to finance is concerned. When the recycling of revenues may not entail state aid elements, it should still comply with the same principles as those applicable to state aid for environmental protection.

Revenues could also be used for international climate finance.

During the ECCP meetings, some industry associations considered the administrative burden as an issue for the ETS, whereas some Member States considered that it is mainly an issue for public authorities. The risk of evasion was raised by industry associations. The openness of an ETS was also discussed without firm conclusions. Industry associations and Member States considered that a closed ETS would be problematic in the shipping sector. However, several Member States and some non-governmental organizations supported an ETS. UK indicated that they preferred an ETS with 100% auctioning and no earmarking. One Member State expressed its opposition to an ETS.

For the purpose of this impact assessment, an internal target has been assumed to be set up at the following level based on an internal reduction scenario to achieve the reduction target for 2050 (-40%/ -50% if feasible) provided by the Commission's Transport White Paper:

Table 7: Estimated emissions reductions compared to 2005 to reach -40% by 2050 compared to 2005

|| 2020 || 2025 || 2030

CO2 emissions reductions compared to 2005 || 0% || -6% || -10%

Source: AEA Technology and others, 2012

Detail on the methodology used for the assessment of impacts, especially the model used by AEA Technology, is explained in Annex VI.

Compliance is ensured by an obligation for each ship to surrender allowances to a competent authority according to its emissions reported for the previous year. If a ship-owner or a ship operator owns less allowances than the quantity it has to surrender, it will have to purchase allowances from other actors involved in the scheme.

The allowances surrendered can be existing units (EU allowances, Certified Emissions Reduction….) or new allowances created for the maritime sector. When the allowances authorized to be surrendered are only new allowances created for the maritime sector, the system is called a closed system. Otherwise, it is considered as an open system.

For the purpose of this impact assessment, three sub-options are considered, even if the final design of a maritime ETS will probably combine some elements of these sub-options (e.g. partial linking with other trading system, partial auctioning):

- Sub-option 4a: closed ETS (emission trading system without link to external carbon markets; free allocation of allowances to ships owners/ operators),

- Sub-option 4b: open ETS with free allocation (emission trading system with link to external carbon markets; free allocation of allowances to ships owners/ operators),

- Sub-option 4c: open ETS with full auctioning (emission trading system with link to external carbon markets; allowances are auctioned).

Details of this policy option are given in annex XV.

Table 8 - Summary of the main parameter of option 4

Compliance entity || All ships above 400GT (or 5000GT)

Scope of emissions covered || Any CO2 emissions from the last port of call outside the EU to an EU port, between EU ports and from an EU port to its next port of call outside the EU.

Requirements || Ships will communicate to the relevant Competent authority the amount of and the type of fuel consumed on routes within the scope for the calculation of the associated CO2 emissions. Ships will surrender to the Competent authority the number of allowances corresponding to the CO2 emissions declared

Enforcement || Existing Flag State and Port State control rules

Market barriers addressed || Lack of information Split of incentives (Access to finance could be addressed by sub-option 4c if Member States agree)

4.4.5. Option 5: Target based compensation fund[87]

Based on an emission reduction target defined by the legislator, a "target-based compensation fund" would be an entity which takes the responsibility for the emissions of all ships calling into EU ports. Each ship calling into an EU port would have to be member of this fund. Compliance of the fund is ensured by an obligation for the "compensation fund" to surrender offsets (for instance EU allowances or CER credits) to a competent authority in case the emissions of the maritime transport sector reported for the previous year exceed to emission target. For the emissions up to the target, it could also be required to surrender offsets. Detail on the methodology used for the assessment of impacts, especially the model used by AEA Technology, is explained in Annex VI.

The membership is defined by the payment of a membership fee. This membership fee is set per tonne of CO2 emitted in the previous year and is set in accordance with internal rules of the fund, but it has to be sufficiently high to cover the management costs, the implementation of in-sector measures to reduce CO2 emissions in line with the emission reduction target and the purchase of out-of sector allowances to be surrendered by the fund. The fee would be expected to depend on the achievement of in-sector emission reductions compared to the reduction target.

Under this option, the MRV of emissions is done by ships, based on its fuel consumption (as for option 2, 3 b) and c), and all sub-options 4). Therefore, it will address the market barrier related to lack of information.

The payment of the membership fee by the ship-owners will ensure that the entity in charge of implementing technical measures on board of a ship is fully responsible for the CO2 performance of this ship and therefore remove the market barrier related to the split of incentive.

The revenues collected by the fund could in theory be used to remove the market barrier related to access to finance, for example by providing financial incentives reducing the risk of investment (e.g. financial guarantee) or reducing the return on investment (e.g. low-interest loans or grants). Such instruments would be especially useful to apply to SME's, which would face greater difficulties in accessing finance. SME's could further profit from technical support for the implementation of new technologies or processes. This support could be used for technological improvement of ships, with respect of the flag neutrality principle. It is also important to stress that, even if the recycling of revenues may not entail state aid elements, it would be in the interest of overall consistency, if Member States apply the same principles as those applicable to state aid[88] for such spending.

Revenues could also be used for international climate finance.

During the on-line consultation, the compensation fund option was considered by 53% of the respondents as the best option to promote progress at the IMO. 68% of the respondents considered that any compensation fund should be managed by a public entity. Several respondents recommended the IMO or an EU public body. Many respondents also recommended management by the industry, but this option raised oppositions from the NGOs. Moreover, the target based compensation fund was considered as more efficient and effective than a contribution based compensation fund to achieve the emission reductions required.

The carbon constraint is set through the setting of a CO2 emissions target for the fund. For the purpose of this impact assessment, the target has been assumed to be set up at the same level of a maritime emission trading system (option 4).

The offsets surrendered are existing allowances (EU allowances, CER, etc.). The fund can be privately or publicly managed (by an existing body or a European Agency), in accordance with the same principles of full cost coverage and non-interference of Member States as in sub-option 3c.

Table 9 - Summary of the main parameter of option 5

Compliance entity || All ships above 400GT (or 5000GT)

Scope of emissions covered || Any CO2 emissions from the last port of call outside the EU to an EU port, between EU ports and from an EU port to its next port of call outside the EU.

Requirements || Ships will communicate to the relevant Competent authority the amount of and the type of fuel consumed on routes within the scope for the calculation of the associated CO2 emissions. Ships will have to pay a membership fee to the Fund corresponding to the CO2 emissions declared The fund will have to provide finance to the sector for the implementation of low carbon technologies and to purchase of out-of sector allowances to compensate the CO2 emissions of the sector (the part which will not be achieved by in-sector reductions)

Enforcement || Existing Flag State and Port State control rules

Market barriers addressed || Lack of information Split of incentives Access to finance

5. Assessment of impacts

In preamble, it can be recalled that the environmental, economic and social impacts of the emission reduction target set in the Commission's White Paper on transport (i.e. -40%, if feasible -50% by 2050 compared to 2005) was done in the impact assessment accompanying the Commission's White Paper[89], in particular regarding the general impacts on economic growth, household and transport-related sector.

For the purpose of this Impact Assessment, the economic, environmental and social assessment has been done up to 2030 due to the uncertainties of the global economy on longer term.

All impacts, except the administrative burden, have been estimated assuming that all ships above 400GT were covered by the regulation (see section 2.7.3). However, the administrative burden was calculated for both size threshold (400GT and 5000GT). Details of these calculations are given in annex XIII.

5.1. General elements on the model used

From a model perspective, the key points of interest relate to the costs of policy options, the emissions abatement profile over time, and the cost effectiveness (Euro per tonne CO2 abated) of taking action in this area. Additional areas of interest include the extent to which shipping routes may change in response to policy action, the potential for modal shift as a policy response, and the extent of in-sector abatement versus out-of-sector abatement. AEA Technology, who provided support for the impact assessment, developed a model based on the TIMES model architecture. This model is built on three building blocks: (i) a representation of shipping activity, (ii) a representation of vessels and (iii) cost assumptions.

Regarding the representation of shipping activity, the model integrates the available routes into/out of Europe and available technological and logistical choices to 2050 for 313 commodities. For each origin/destination pair (e.g. “Demand of North African crude oil in EU South”), one or two types of movements are defined. One of them is direct movement, e.g. from supply to demand region. The other type of movement defined is one that assumes a stopover on the way to/from Europe. In this case, a ship is assumed to stop in Port Said or Casablanca on its way to/from Europe. The CO2 emissions are split to represent the two journey legs. Only one movement type is defined for shorter routes, such as Intra-European trade. The TIMES model can allow for modal shift of cargo on intra-EU journeys. The costs are sourced from the DG Environment-funded project from 2010 entitled COMPetitiveness of EuropeAn Short-sea Shipping (COMPASS) report.

Six vessel categories and up to 5 sub-categories according to vessel type and size were defined. For each of these categories and sub-categories of ships, several parameters, such as daily financial costs, daily operational costs, fuel consumption, CO2 emissions per tnm, etc. were defined.

Finally, a range of possible emissions abatement options (technological and operational) have been identified and included in the modelling framework. The investment costs, operational costs and CO2 reduction potentials of the abatement technologies were sourced from MEPC 61 INF. 18[90], an IMO-funded study on the reduction of GHG emissions from ships.

Detail on the methodology used for the assessment of impacts, especially the model used by AEA Technology, the underlying assumptions on fuel prices and a sensitivity analysis on the results provided by the model, is explained in Annex VI.

5.2. General considerations

5.2.1. Impacts on consumers and households

In general, due to its central role in enabling economic activity, a change in the cost of shipping may have effects on the whole spectrum of economic agents: raw material suppliers, manufacturers and service providers, the shipping industry, retailers and consumers. However, it was not possible to assess in detail the impact on all commodities traded by sea.

Therefore, for the analyses of such economic impacts as well as of possible modal shift, the impact of policy options on the costs of transport for eleven key commodities has been assessed. The results are summarised in table 10.

The commodities have been selected according to their relevance in terms of their importance for EU competitiveness (e.g. share of exports and imports, profit margins, transport costs) and according to the technical feasibility of the analysis, in terms of readily available data on historical and predicted trade flows, freight rates, freight rate elasticities, own price elasticities, costs pass-through rates, quantities sold and market shares of domestic and overseas producers. They were chosen as a representative sample on the basis of EU's collective trading profile and the inputs of experts. Competitiveness is understood at the EU-27 level, considering all Member States as a trading bloc vs. the rest of the world. These commodities represent 58% in value of EU imports and 26% in value of EU exports in 2010.

The analysis of the 11 representative commodities is presented below. Following the public consultation and specific feedback from the pulp and paper industry, it was decided to carry out a complementary assessment on the pulp and paper sector. Due to sequencing constraints, it was not possible to include this sector in the scope of the main impact assessment. However, the preliminary findings of the specific assessment carried out by AEA Technology show similarly low impacts on cost of transport. The analysis will be available in full on the Commission's website early 2013.

Table 10: Additional variation of transport costs for key commodities by 2030 for all options, except 2 and 3a[91], in %

|| 3b Tax on emissions || 3c Contribution based fund || 4a Closed ETS || 4b open ETS – free allocation || 4c open ETS –auctioning || 5 Target based fund

Crude oil || -0.8 to 7 || -0.8 to 7 || -0.8 to -0.2 || -7 to -1 || -0.4 to 8 || -0.4 to 8

Refined petroleum products || -0.8 to 5.6 || -0.8 to 5.6 || -2.4 to -0.8 || -7 to -2 || -0.4 to 6 || -0.4 to 6

Natural gas || 6 || 6 || -2 to -1.4 || -1.5 to -1.4 || 6 || 6

Iron ores || 2 to 11 || 2 to 11 || -4.6 to 3.3 || -5.3 to 2.8 || 2.6 to 12 || 2.6 to 12

Iron and steel || 2 to 14 || 2 to 14 || -5.5 to 5.5 || -5.4 to 4.5 || 2 to 14 || 2 to 14

Steel products || 4 to 14 || 4 to 14 || -11 to 5.5 || -11 to 4.5 || -4 to 14 || -4 to 14

Wearing apparels || -26 to -3 || -26 to -3 || -31 to 15 || -33 to -11 || -26 to -2 || -26 to -2

Grain || -29 to -15 || -29 to -15 || -33 to -17 || -34 to -22 || -28 to -15 || -28 to -15

Office and IT equipment || -2.9 || -2.9 || -15 || -11 || -2.3 || -2.3

Motor vehicles || -13 to -3 || -13 to -3 || -15 to -6 || -20 to -11 || -12 to -2 || -12 to -2

Organic chemicals || 5 to 6 || 5 to 6 || -2.6 to -1.2 || -2.1 to -1.2 || 5 to 6 || 5 to 6

Source: AEA Technology and others, 2012

Freight rates to be paid by freight customers are in principle not expected to change in reaction to the changed transport costs with very limited exceptions. For the purpose of the analyses of economic impacts, it has been assumed that the few and limited transport cost increases of policy options (see table 10) are passed on by the ship operators to their customers whereas net cost savings are not passed-on due to the price building mechanism within the shipping sector.

Based on these considerations on the pass-through of costs and savings in maritime transport and on the price building mechanisms in different sectors (see Figure 1), measurable increases of commodity prices (with transport costs being only an insignificant element of the commodities' prices) are only expected for natural gas (only for policy options 3b, 3c, 4c and 5) of up to 0.1-0.5% and for iron ore (only for policy options 3b, 3c, 4c and 5) of up to 0.1-0.3%. Such price impacts are far below the usual price fluctuation for these products. In conclusion, no impacts deriving from possible increases of commodity prices are expected on the functioning of the internal market, on competitiveness and trade, on small and medium enterprises, consumers and households as well as third countries.

5.2.1. Transport modal split

Impacts on transport costs for shipping might have impacts on the modal split in case shipping is in competition with other transport modes. If shipping costs decrease under a policy option, shipping might attract new freight customers provided that shipping costs fall below the cost level of the other modes. Even if this can be expected to happen for several commodities, a quantification of this modal shift from road and rail to shipping is not feasible as the competition between transport modes is linked to specific routes. Furthermore, increased shipping costs for a commodity under a certain policy option could in principle lead to a modal shift from shipping to road and rail if shipping costs increase above the cost level of the other modes[92]. Again, route-specific assessments would be required to get reliable estimates. In the context of this impact assessment, the impact on changing maritime transport costs of the modal split cannot be quantified, even if the change in shipping costs could be used as proxy for a qualitative estimate of possible impacts of the modal split.

5.3. Option 1: Baseline scenario

5.3.1. Environmental impacts

For the baseline scenario, a further increase of CO2 emissions is expected despite the effects of the EEDI introducing minimum efficiency standards for certain types of new ships as from 2015 (see table 11). The drivers behind this increase are described in section 2.2.

Table 11: Projected EU related CO2 emissions

|| Mt CO2 || Compared to 1990 || Compared to 2005

2020 || 210 || +45% || +8%

2030 || 223 || +54% || +15%

Source: AEA Technology and others, 2012

The warming effect of CO2 dominates the global warming impacts of shipping. However, black carbon[93] can have significant regional warming impacts. Atmospheric black carbon and surface deposition is considered to produce a warming effect due to accelerated melting of ice and snow. Even quantification of the impacts in terms of black carbon emissions or climate change impacts is not exact, evidence suggests that heavy fuel oil consumption is closely linked to the amount of black carbon emitted.

As there is a direct link between the fuel consumption and CO2 emissions, the increase of CO2 emissions of the maritime sector will lead to an increase of the negative effects of fuel combustion, especially on local air quality (see table 12). The main air pollutants from shipping include sulphur dioxide (SOx), nitrogen oxides (NOx) and particulate matter (PM). However, both NOx and SOx are controlled by international and European standards that will become significantly more stringent in the future leading to substantially lower emission levels in 2020. Sulphur regulations have an indirect impact on PM emissions. For 2030, emissions increases could be expected compared to 2020 due the likely increase of fuel consumption and unchanged emission standards.

Table 12: Emissions of NOx, SOx and PM in 2030, kt,

|| 2030 (kt) || Compared to 2010 || Compared to 2020

NOx || 4224 || -5.4% || -1.7%

SOx || 539 || -79% || +12%

PM || 75 || -76% || +10%

Source: AEA Technology and others, 2012

The impacts of ship emissions on ecosystems and biodiversity are highly site-specific, but can cause damage through acidification and eutrophication. Increased acidification may affect certain organisms, particularly those with calcium carbonate skeletons and shells and the ecosystems that rely on them. Eutrophication is caused by high nutrient concentrations that stimulate the growth of algae and leads to several problems including: production of excess organic matter; increase in oxygen consumption; oxygen depletion and death of benthic organisms[94]. It has been suggested in studies of the impacts of emissions in Europe that including ecological impacts would make little difference given the magnitude of health effects. However, any increase in emissions of NOx, SOx and CO2 could be expected to have negative impacts on ecosystems and biodiversity.

With continuing monitoring and reporting by Member States based on fuel sales, increased shipping activities will lead to an increase in fuel consumption (77.1Mtoe by 2030 for the EU scope, i.e. +30% compared to 2010). Beside the use of HFO and MGO[95], it can be expected that a number of ships switch to LNG (liquefied natural gas), mainly in response of the strengthened standards for sulphur emissions (LNG can be considered almost sulphur-free). In the baseline scenario, LNG is expected to represent about 9% of energy consumption in 2030. It can be noted that this expected fuel switch will also have a positive impact on CO2 emissions (with LNG being less carbon-intensive than HFO and MGO), but this is outweighed by the growth of maritime transport.

Voluntary MRV already done today, e.g. by container vessels through the Clean Cargo Working Group, would continue to deliver emission reductions. However, due to its voluntary nature, it is not possible to estimate with sufficient accuracy the future benefits of such voluntary schemes.

Impacts on other environmental resources could be caused by an increase in dredging and infrastructure construction to accommodate larger vessels, leading to habitat fragmentation and disturbance. Construction of LNG infrastructure could also cause land use changes. It is not possible to get an accurate estimate of these impacts, although they are expected to be rather small. Moreover, if no policy is in place to require the contribution of the maritime sector to achieve the climate objective of limiting global average temperature increase to less tha