COMMISSION STAFF WORKING DOCUMENT Impact Assessment - Part 3
Date: 2013-06-28
Institutions: European Commission
Subjects: air quality, greenhouse gas, pollution from ships, reduction of gas emissions













EUR-Lex - 52013SC0237 - EN











|



52013SC0237

COMMISSION STAFF WORKING DOCUMENT Impact Assessment - Part 3 /* SWD/2013/0237 final */









 || 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 than
2 degrees Celsius above pre-industrial levels, other sectors will have to
compensate the growth of emissions in the international maritime transport. This
contribution is estimated at up to 78MtCO2 by 2030, i.e. almost the
2010 emissions of Austria. Consequently, impacts on other sectors may be
significant. However, the nature of these impacts will depend on the way
international maritime sector is included into the EU commitments.  

5.3.2.    
Economic impacts

The costs of the operation of ships within
the EU scope related to the baseline scenario are given in the table below. The
cost increase can be explained by the expected growth in maritime transport.
Table 13: Costs in the maritime sector in
2030, €bn, 2010 prices, undiscounted
   || 2030 (€bn) || Compared to 2010 
 Investment costs || 49.4 || +42% 
 Operational costs[96] || 22.9 || +23% 
 Fuel costs || 60.0 || +162% 
Source: AEA Technology and others 2012
The increase of fuel
costs will increase the costs per tonne of goods traded by 20% by 2030, which will
either be passed through to the customers by increasing freight rates and/or be
absorbed by the maritime sector reducing their profit margin. As this would
impact all sectors and regions inside and outside the EU[97],
no specific impacts are expected on average for the competitiveness of the EU
economy, even if some specific regions or sectors particularly dependent on
shipping are likely to face specific difficulties. Prices for end consumers on
certain commodities will be affected. 
Increasing freight
rates in the shipping sector could in principle lead to modal shift from
shipping to other modes of transport (such as rail or road). However, the
expected increase in fuel price would also affect the other transport modes and
therefore not undermine the competitiveness of shipping, in particular as in
most cases, transport by ship is more energy efficient than by other modes.

5.3.3.    
Social impacts

The shipping sector
also employs a significant number of people in various sub-sectors. Total
maritime employment in the EU is approximately 250,000 people. In addition to
seafarers, there are a number of sectors that are directly linked to the
shipping industry, such as shipping services, port services, maritime works,
shipbuilding, ship management and gas and wind energy industries. Banking and
financial services, research and development, education and marine equipment
are sectors that are indirectly linked to the maritime sector. 
There might be some
increase in employment in European ports and distribution hubs due to the
expected growth in trade and shipping activities. 

5.4.  
Option 2: Monitoring, reporting and verification
(MRV) of emissions based on fuel consumption

It should be noted that
an impact assessment on monitoring mechanisms for maritime emissions have
already been carried out within the framework of the proposal for a regulation
on mechanism for monitoring and reporting greenhouse gas emissions for
reporting other information at national and Union level relevant to climate change[98].
A supporting study was also carried out in this context[99].
However, the impact assessment or the supporting study did not quantify the
specific impact of a monitoring mechanism on shipping. The quantification is
therefore provided hereafter.

5.4.1.     Environmental impacts

Under this policy
option, the EU CO2 emissions are expected to be 2% lower than the
baseline[100] (reaching 218.5 MtCO2
by 2030), and deliver a cumulative emission reduction of 55.9 MtCO2
up to 2030[101]. Lack of access to
accurate and comparable information about fuel consumption in the maritime
transport sector is one of the market barriers to cost effective GHG emission
reductions in the maritime sector[102]. The 2% emission
reduction has been confirmed during bilateral discussion with stakeholders.
Some leading stakeholders, such as Maersk Maritime Technology for example,
consider that this figure could even be higher. 
More precisely, simply
making fuel consumption information available can trigger an improvement of the
fuel efficiency of ships. Ship operators that are directly responsible for fuel
payments (i.e. they cannot pass the cost on) would already carefully monitor their
fuel consumption and take adequate measures for the improvement of the energy
efficiency in order to reduce fuel costs.  However, other ship operators that
are not responsible for fuel payments (i.e. they pass the cost on, for example
via contract arrangements) would improve the energy efficiency of their ships
only if the energy efficiency of the ship is taken into account in the
charterer contracts.
This reduction in fuel
consumption could also result in a reduction of other pollutants, such as
sulphur dioxide (SOx), nitrogen oxides (NOx) and
particulate matter (PM), as well as other climate forcing agents such as black carbon.  

Additional
environmental benefits may be triggered by the removal of this market barrier
(e.g. the availability of information on fuel consumed at berth may increase
the pressure for port electrification). However, these additional environmental
benefits cannot be quantified, as they depend on other market barriers, such as
split incentives (e.g. in case of port electrification, most of the investment
is paid by ports, whereas the benefits are taken by the ship operators). 
The improvement
of ship efficiency may lead to the scrapping of less efficient vessels.
However, limited impacts are expected on ship
dismantling.

5.4.2.    
Economic impacts

As mentioned
previously, the lack of accurate, comparable and standardised information about
fuel consumption is one of the market barriers to cost effective GHG emission
reductions in the maritime sector and therefore to a reduction of fuel cost.
Removing this market barrier can trigger an improvement in energy efficiency of
the ships and therefore enhance innovation and research due to a better
understanding of the fuel consumption. 
Assuming that the
improvement of the energy efficiency leads to a decrease of the fuel
consumption of 2% compared to the baseline[103], the
reduction of fuel cost can be estimated at up to €9.4 billion up to 2030.
However, the operational costs will slightly increase due to the administrative
requirements related to the monitoring of emissions. 
In cases where
ship-owners and ship operators do not yet apply fuel monitoring of their emissions,
the total administrative burden for ships down to the level of 400GT may be estimated
at €52.5 million per year[104], i.e. around €2900 per
ship[105]. This represents 0.28%
of the average 2010 operational costs (excluding fuel costs). However many
ship-owners have already adopted highly sophisticated MRV standards and will
have no difficulty complying. In addition evidence of consumption is already provided
in fuel consumption log books on board for all ships. Log books contain data on
fuel purchased and consumed, ports visited, cargo loaded and distances sailed. Accordingly,
most of the additional costs are related to the familiarization of the
obligation, the collection and formatting of existing data, verification and
submission to the appropriate competent authority. If the EU monitoring scheme
requires electronic reporting, the uptake of electronic data collection tools
on board of ships may increase which could reduce the time spend by the crew on
data collection and reporting and save money for the ship operator (according
to some stakeholders, such as Norden, this would outweigh the initial
investment). As a consequence, the administrative burden calculated for the
impact assessment is probably a high estimate.
This total
administrative burden is calculated for all ships above 400GT holding an IMO
number. Using a higher threshold significantly reduces the total administrative
burden for ships without significantly undermining the environmental
effectiveness. The total administrative burden for all ships above 5000GT[106]
are estimated at €26.1 million per year, leading to a reduction of 50% of the
administrative burden while still capturing 90% of the emissions (and, as a
consequence, to large proportion of the fuel savings previously mentioned, i.e.
€11.6 billion up to 2030). Furthermore, the introduction of simplifications
(see annex VIII) could further reduce the administrative burden although this
has not been quantitatively assessed within this impact assessment. To conclude,
the administrative burden for the monitoring and reporting requirements will be
fully compensated by the fuel savings. 
Further details of the
calculation of the administrative burden are given in annex XIII.
    
Table 14: Additional costs of policy option 2 compared to the baseline,
up to 2030, private discount rate (10%)[107],
 Additional costs compared to the baseline up to 2030 || Investment costs || Operational costs (excluding fuel costs) || Fuel costs || Carbon costs || Total costs 
 Value (€bn) || - || +0.6 || -9.4 || - || -8.8 
 Percentage || - || +0.28% || -2% || - || -0.58% 
Source:
AEA Technology and others 2012
The pass through of
these savings to the final consumers will rely on the elastic demand of
maritime transport and on the elastic demand of commodities using maritime
transport. If the demand of maritime transport is inelastic, ship operators
should keep the savings, whereas, if the demand is elastic, the ship-operators
should pass-through the savings to the shippers. If the savings are
passed-through the shippers and if the demand of commodities using maritime
transport is elastic, the savings should be passed through the final consumer.  If
the savings are passed-through the shippers and if the demand of commodities
using maritime transport is inelastic, the savings should be kept by the
shippers. Such mechanisms are explained in the figure below.
Figure 1 – Pass-through of savings in the shipping sector
The analysis shows that
the impact of the measure on final consumer will be limited to commodities
where the savings are passed through to the final consumers. However, freight
costs represent only a share of the cost of a commodity (for example, up to 20%
for natural gas, but only 0.03% for IT equipment). So, the pass-through of the
savings to final consumers will have a limited impact (for example, -0.1% on
natural gas prices up to 2030 and -0.0002% on IT equipment prices up to 2030). So,
even for the commodities where the savings are passed through the final
consumer, the impact should be marginal.
No specific administrative burden on small
and medium enterprises[108] has been identified. However,
as mentioned in annex II, small and medium enterprises in maritime transport
may be more sensitive on getting accurate information on the abatement
potential of low technology and their operational impacts. Such information
should secure their uptake by companies that are operating only a few numbers
of ships and which cannot afford to test technologies on board of their ships.

5.4.3.    
Social impacts

No significant impact on employment can be
expected. 
Setting requirements on
monitoring will also trigger an increase of qualification of the crew. However,
this increase is not considered as significant, as most of the tasks requested
are already performed. 
Moreover, the reduction
of fuel consumption will lead to a decrease of emissions of sulphur dioxide
(SOx), nitrogen oxides (NOx) and particulate matter (PM) and therefore have
benefits for human health. This benefits are estimated between €1.0 to 2.9
billion up to 2030[109].

5.4.4.    
Administrative burden for public authorities

Detail calculation of
the administrative burden for public authorities is given in annex XIII.
For the public
authorities, the total administrative burden will be limited to the supervision
of monitoring and reporting, and enforcement. The annual administrative burden
can be estimated at around €4 million in case of national competent authorities
and around €3 million in case of a central EU competent authority. This difference
can be explained by aggregation of resources and economies of scale. These
costs may be reduced by 40% if only ships above 5000GT are included. Furthermore,
the introduction of simplifications (see annex VIII) could further reduce the
administrative burden for public authorities. As a consequence, taking into
account these simplifications, the minimal annual costs for a central EU
competent authority could be estimated at € 0.6 million[110]
For a ship, there is no
difference between reporting the emissions to a Member State competent
authority or to a central EU competent authority, even if using a single EU
competent authority may be simpler for non EU flagged ships. Moreover, using
national or EU competent authorities makes no difference to the environmental,
social or economic impacts of the policies. The main difference between
national competent authorities and a central EU competent authority is the cost
for public authorities. 

5.4.5.    
Specific impacts outside the EU

The monitoring of fuel
consumption can trigger environmental, social and economic benefits also
outside the EU. There is little administrative burden to monitor the total
emissions of a ship on all routes instead of only the ones related to EU routes.
Therefore, the monitoring of emissions could become attractive also on non-EU
routes, especially if the monitoring of emissions on EU routes delivers fuel
savings, and progress should be made through the IMO on this respect. 
As a consequence, the
environmental, social and economic benefits mentioned previously for the MRV of
the emissions of fuel consumed related to EU routes can also apply outside of
the EU. However, it cannot be quantified with absolute accuracy, especially as the
expansion of transparent monitoring depends on the willingness of the ship
operators.  
Moreover, it can be
stressed that any market based measure adopted through the IMO would require robust
monitoring and reporting of emissions. Strong monitoring and reporting
requirements that can be used outside EU routes should therefore help the IMO
to progress on this issue.

5.5.  
Option 3a: Levy on bunker fuel sales


5.5.1.     Environmental impacts

The EU CO2
emissions are expected to be 3% lower than the baseline (reaching 217.0 MtCO2
by 2030), and deliver a cumulative emission reduction of 40.1MtCO2
up to 2030. However, the environmental effectiveness may be less pronounced, if
market barriers are not sufficiently addressed and reduced. 
Emissions of black
carbon are expected to decrease in the same order of magnitude as both, black
carbon and CO2 are closely linked to the fuel consumption.
Due to the link
between CO2 emissions, fuel consumption and emission of other
pollutants, it is expected that the emissions of NOx, SOx
and PM decrease. However, this decrease is not considered as significant. As
results of the slightly decreased emissions of NOx, SOx
and CO2, limited positive impacts on ecosystems and biodiversity are
expected. 
Limited reduction of fuel
consumption is expected: the cumulative reduction up to 2030 is expected to be 2.1
Mtoe. No major uptake of biofuels is expected by 2030.
Imposing a non-global
levy on bunker fuel sales would trigger specific negative economic and environmental
impacts due to an expected high level of avoidance. Most ships travelling on
intra-EU routes could avoid taxation using offshore bunkering. This offshore
bunker supply (i.e. beyond a 12 nautical mile zone) is already common practice
to avoid paying port fees, agency fees or being constrained by loading limits
in ports. However, offshore bunker supply has negative environmental effects as
it increases the risk of oil spills.

5.5.2.    
Economic impacts

The tax of
bunker fuel sales will only have an impact on ships performing exclusively
intra-EU routes as others will purchase the fuel outside the Union. Large ships
in particular are able to undertake long voyages on a single bunkering and can
carry additional fuel without significantly sacrificing their carrying capacity
(a process known as “tankering”). Therefore, if the purchase of fuel in the EU
requires additional costs not required in third countries, the ships will
purchase their fuel outside of the EU. As consequence, the EU maritime bunker
fuel sales would drop by 55% to 90%, without significantly reducing the GHG
emissions of ships. The range of this estimate is based on two assumptions:
Only fuels for intra-EU shipping (related emissions account for 43% of the
total GHG emissions of the maritime sector based on fuel sales) would be
purchased within the EU or only fuels for intra-State shipping (representing
11% of the total) would be purchased within the EU.[111].

Table 15 presents the
total and additional direct costs and savings for the operation of ships
generated by this policy option up to 2030 compared to the baseline in terms of
investment, operational, carbon and fuel costs as well as the net aggregated
total. 
Table 15: Additional costs of policy option 3a compared to the
baseline, up to 2030, private discount rate (10%)[112],
 Additional costs compared to the baseline up to 2030 || Investment costs || Operational costs (excluding fuel costs) || Fuel costs || Carbon costs || Total costs 
 Value (€bn) || +2.5 || +1.6 || -4.8 || +66.7 || +66.0 
 Percentage || +0.4% || +0.5% || -0.8% || - || +4.5% 
Source:
AEA Technology and others 2012
A tax on bunker fuel
would likely be passed on by suppliers to their customers i.e. ship operators,
in turn creating an incentive for them to improve fuel efficiency. As a result,
this policy option would incur additional investment costs as ship owners and
ship operators operating on intra-EU routes would invest in new vessels and /
or abatement technologies[113] to retrofit existing
ships. A small rise in overall operational cost (excluding fuel cost) may also
occur as a result of implementing these abatement measures. However, both these
impacts would be small amounting to an increase of 0.4% in investment costs and
0.54% in operation costs compared to the baseline.
Total costs under this
policy options are expected to be high, at € 66 billion compared with the
baseline out of which the cost of the tax would be of approximately €67 billion.

Administrative burden
is expected to be negligible for this policy option as the cost for monitoring
the emissions from bunker fuel purchased is estimated at €0.6 per ton of fuel
sold[114] and can be considered
as small[115]. Detail calculation of
the administrative burden is given in annex XIII.
The free movement of goods is unlikely to
be affected as no change in volume of goods traded within and outside the EU
has been identified. Moreover, no impacts are expected on extra-EU trade (as
ships will bunker outside the EU to avoid the tax), as the costs will only be
supported by ships performing intra-EU routes. As a consequence, no impacts on
the general economy are expected on third countries, a part from an increase of
fuel sales.
Regarding ships
performing exclusively intra-EU routes, cargo ships may have the possibility to
change their route to bunker outside EU territorial waters. Alteration of
routes and/or modal shift could be expected, with specific concerns with
regions heavily dependent on shipping. Ferries will not change their route. So,
the impact will be limited to certain type of ships. These ships are mostly
performing land-bridge routes, which are particularly sensitive for isolated
regions and may face strong competition with other modes of transports.
The introduction of
a levy on bunker fuel sales would not have any negative impacts on the
competitiveness of the EU shipping operators compared to non EU shipping
operators as any policy option will be flag-neutral. A competition distortion
may be triggered between ships performing exclusively intra-EU routes and
others, as ships performing exclusively intra-EU routes will have limited
possibility to purchase their fuel outside the EU. 
Small and medium enterprises will be
affected in a similar manner as large enterprises. More precisely, a levy on bunker
fuel sales does not allow distinguishing the impact regarding ship size.
However, as mentioned in annex II, for small enterprises, the size of
enterprises is related to the size of ships this enterprise is operating. As a
consequence, the levy on bunker fuel sales prohibits possible implementations
of SMEs related provisions. 
The impacts on public
authorities remain very limited for this policy option as for monitoring and
reporting of emission, internalization of costs of emissions and enforcement,
existing structure could in principle be used. The total administrative burden
for public authorities are estimated around € 100 000 per year. Detail
calculation of the administrative burden is given in annex XIII.
The major economic
impact is related to the distortion of competition between ships performing
exclusively intra-EU routes and others that can avoid the scheme. It appears
that there are no options to reduce avoidance. This was demonstrated by
California’s 1991 decision to lift the fuel tax exemption and to tax interstate
bunker fuel sales. Within a year, Californian bunker sales had collapsed as
ships bunkered elsewhere especially in Panama.

5.5.3.    
Social impacts

A levy on bunker fuel
sales in the EU would lead to increased expenditure on energy efficiency
measures, new ships and/or engines and would contribute to the growth of the
global market for these products with positive impacts on employment in Europe.
Compared to the baseline, the expected additional investment in technical energy
efficiency measures is expected to contribute to the creation of additional jobs. 

Shipping activities
are projected to remain constant for this policy option compared to baseline. The additional operating cost of €100 million due to speed reduction is expected to
create a limited number of additional jobs on ships relative to the baseline.
The expected
drop of bunker fuel sales under this policy option would lead to the loss of
jobs in bunker facilities in ports. Other job loss may be expected in
refineries in the EU. However, as this job loss is highly dependent on the
strategies of the petroleum companies (producing bunker fuels in the EU and
then exporting or producing directly outside the EU), it is not possible to get
an accurate estimate on this potential job loss.
The impacts of the tax on bunker fuel sales option on
emissions of SO2, NOX and PM emissions are estimated to
be small. This translates to a small (but not negligible) benefit for human
health and crop damage impacts. The total estimated cost to human health and
crops due to decreases in SO2, NOX and PM emissions
following the methodology set out for the other policy options is €0.1 to 0.4
billion.

5.6.  
Option 3b: Tax on emissions from fuel consumed


5.6.1.     Environmental impacts

Under this policy
option, EU CO2 emissions are expected to be 16% lower than the
baseline (reaching 186.8MtCO2 by 2030) and deliver a cumulative
emission reduction of 335.4MtCO2 up to 2030. However, the
environmental effectiveness may be less pronounced, if market barriers,
especially related to access to finance, are not sufficiently addressed and
reduced.
Emissions of black
carbon are expected to decrease in the same order of magnitude as both, black
carbon and CO2 are closely linked to the fuel consumption. Due to
the link between CO2 emissions, fuel consumption and emission of
other pollutants, it is expected that the emissions of SOx and PM
decrease by 3% and of NOx by 8% up to 2030 compared to baseline[116].
As results of the slightly decreased emissions of NOx, SOx
and CO2, limited positive impacts on ecosystems and biodiversity are
expected.
Fuel consumption is
expected to be less than the baseline: the cumulative reduction up to 2030 is
expected to be 113.8 Mtoe. More precisely, the consumption of fossil fuel
(heavy fuel oil – HFO –, marine diesel oil – MDO – and liquefied natural gas -
LNG) is expected to be less than the baseline, even if the share of LNG within
these fossil fuels will be greater. This can be explained by the fact that up
to 2030, it is less costly to reduce the fuel consumption than to switch to low
carbon fuel.  There remains no commercial basis for  major uptake of biofuels
by 2030.

5.6.2.    
Economic impacts

5.6.2.1.  Direct impacts on the ship owners and ship operators
The table below
presents the total and additional direct costs and savings for the operation of
ships generated by this policy option up to 2030 compared to the baseline in
terms of investment, operational and fuel expenditure as well as the net
aggregated total. 
Table 16: Additional costs of policy option 3b compared to the
baseline, up to 2030, private discount rate (10%),
 Additional costs compared to the baseline up to 2030 || Investment costs || Operational costs (excluding fuel costs) || Fuel costs || Carbon costs || Total costs 
 Value (€bn) || +2.9 || +0.03 || -55.9 || +26.1 || -26.9 
 Percentage || +0.5% || +0.01% || -9.6% || - || -1.8% 
Source:
AEA Technology and others 2012
Most of operational measures, such as slow
steaming or weather routing, can be implemented immediately after the entry
into force of the measure. The implementation of new technologies, such as
engine or propeller upgrade, may require being in dry dock. Therefore,
ship-owners and ship-operators will probably anticipate the entry into force of
the measure by investing in low carbon technologies when they have planned dry
dock repairs[117]. Finally, it can be
assumed that technical and operational measures with negative abatement costs
will be implemented first. 
As a consequence, considering that the
implementation of low carbon technology start 3 years before the entry into
force of the tax on emissions, the carbon costs paid during the first year
after the entry into force of the tax, i.e. 269M€, will be fully compensated by
the fuel savings, i.e. 1473M€. Moreover, annual investment costs will increase
progressively from 11M€ in 2016 to 297M€ in 2030.   
The implementation of a
tax on emissions from fuel consumed would encourage additional investment costs
as, in order to reduce tax contribution, ship owners and ship operators would
invest in new vessels and / or abatement technologies to retrofit existing
ships. Furthermore, a small increase of the overall operational cost (excluding
fuel cost) is expected. Indeed, some specific abatement measures may trigger
additional operational costs (e.g. hull cleaning), whereas others can lead to a
decrease of the operational costs (e.g. slowing down reduce engine maintenance
costs) or are neutral (e.g. weather routing). Therefore, even if there is a limited
increase of the costs for the entire fleet, a more significant increase of
costs may be possible, especially for less efficient ship level, depending on
the abatement strategy followed individually.
The most important
decrease of costs comes from the fuel savings. In addition to the fuel savings
directly related to ship journeys from and to EU ports, it can be expected that
the policy options also trigger fuel cost savings outside this scope as ships
becoming more efficient in reaction to the EU measure (spill-over effect). However,
it has not been feasible to quantify these additional costs savings and the
related emission reductions.
Overall, the additional
costs are compensated by reduced fuel costs leading to significant net savings of
around €27 billion until 2030 for the sector.
The total
administrative burden for ship-owners and ship operators is estimated at €140
million per year, if all ships above 400GT are included in the scope. This
means €7600 per ship per year and represents annually 0.75% of the average 2010
operational costs (excluding fuel costs). Detail calculation of the
administrative burden is given in annex XIII.
5.6.2.2.  Functioning of the internal
market and competition
Free movement of goods is unlikely to be
affected. Indeed, this policy option would not lead to a decrease of the volume
of goods traded within and outside the EU as the assessment of key commodities
shows that their prices are not affected by a tax on emissions (see preamble of
section 5).
The issue of
competition between the maritime sector and other transport modes may be raised
in the event of changing shipping costs. Even if a detailed assessment of
possible model shift is not feasible within the context of this impact assessment,
some modal shift from road and rail to shipping cannot also be excluded due the
significant cost reduction for shipping (see section 5.2.1).
5.6.2.3.  Competitiveness and trade
investment flows
This option is not expected to have
negative impacts on the competitiveness of the EU shipping operators compared
to non EU shipping operators. As any policy option will be flag-neutral, the policy
will apply equally to all ships calling into EU ports. Ships calling more often
into EU ports may have the advantage of shorter pay-back periods for
investments into their efficiency leading to high fuel cost savings. 
Regarding the
competitiveness of the EU economy, the detailed analysis of eleven
representative commodities shows that the prices of the
commodities are not affected by the possible change of freight rates with the
exceptions of natural gas (increase of up to 0.5%) and iron ore (up to +0.3%).
Therefore, no significant impacts are expected on the EU economy. 
5.6.2.4.  Impacts on Small and Medium
Enterprises
No specific administrative burden on small
and medium enterprises[118] has been identified. However,
as mentioned in annex II, small and medium enterprises in maritime transport
may be more sensitive on getting accurate information on the abatement
potential of low technology and their operational impacts. Such information
should secure their uptake by companies that are operating only a few numbers
of ships and which cannot afford to test technologies on board of their ships.
Large companies account for half of the
turnover in Water Transport, but for 1% only of number of companies. This
suggests that large firms undertake higher added value tasks and have higher
productivity than SMEs. This is likely to be the result of economies of scale
which apply strongly in shipping with research showing that firm capacity and
net profit are positively related. Therefore, facilitating access to finance is
also a key issue to ensure that SMEs will be able to invest and take the
benefits of cost savings. To this end, it has to be underlined that, under a
tax option, the recycling of revenues would need to be decided by Member
States. 
5.6.2.5.  Public authorities
Public authorities will
be affected by the control of compliance (i.e. reporting of emissions, payment
of the contribution, etc.) and the enforcement. Detail calculation of the
administrative burden is given in annex XIII.
Enforcement is already
carried out by Flag State and Port State control. So, the administrative burden
related to the enforcement should be low. The total additional burden for the
national public authorities in charge of enforcement are estimated around €100
000 per year. 
The costs borne by the
competent authority in charge of controlling the compliance will depend on the scope
considered. The table below shows the total additional administrative burden according
to the different options and according to the size of ships concerned.
Table 17: Annual additional administrative burden, in € million
   || National Competent Authority || EU competent authority 
   || All ships above 400GT || All ships above 5000GT || All ships above 400GT || All ships above 5000GT 
 Tax || 5.4 || 3.5 || 4.6 || 3.0 
Source: AEA Technology and others, 2012
5.6.2.6.  Consumers and households
Consumers and households are most sensitive
to 5 of the 11 commodities assessed: natural gas, refined petroleum products,
wearing apparels, office and IT equipment and motor vehicles[119]. The introduction
of a tax on emissions from fuel consumed would not lead to price changes for
these commodities, except natural gas, and therefore, should have no negative
impacts on consumers and households. The increase of prices of natural gas, up
to 0.5% by 2030 cannot be regarded as significant impacts on households. The
other commodities are not directly consumed by households and even in the event
of an increase in their price, the low level of increase should not be
sufficient to result in impacts on the final consumers. 
5.6.2.7.  Specific regions heavily
dependent on shipping
As the introduction of a tax on emissions
from fuel consumed would in general lead to net benefits for the shipping
sector, in principle, more intensive impacts in terms of job creation and cost
savings impact could be expected for regions dependent on shipping. No general
economic impacts on these regions can be expected (see preamble of section 5). 
5.6.2.8.  Third countries
As mentioned
previously, this policy option is not expected to lead to significant changes of
freight rates. As a consequence, major international partners should not be economically
affected by an EU regulation. 
5.6.2.9.  Risk of avoidance
If there were
no barriers to the addition of port calls, then for certain types of ships, the effect of the alteration of routes could be significant. The CO2
emissions could be up to 6% higher than the expected emission reduction by
2030. However, there are significant additional costs related to the addition
of a port call (e.g. financial interests related to longer journeys, additional
charter, logistic and administrative costs, etc.). Moreover, the impacts of
route shifting due to the addition of a port call (which are higher than the
risk of modal shift) could be significantly less pronounced if the regulation
provides for an adequate definition of a port call. Indeed, such definition
could ensure that additional port calls are not calls of convenience. The risk
of avoidance could therefore be significantly mitigated.

5.6.3.    
Social impacts

The tax on emissions
from fuel consumed would lead to increased expenditure on energy efficiency
measures, new ships and/or engines and would contribute to the growth of the
global market for these products with positive impacts on employment in Europe.
The expected additional investment in technical energy efficiency measures which
could lead to the creation of new jobs in shipyards and equipment manufacturers
globally. The additional operating cost of €300 million due to speed reduction
is expected to create a limited number of additional jobs on ships relative to
the baseline.
 
Due to reduced
emissions of NOX, SO2 and PM, monetised benefits for
public health for the period until 2030 in the order of magnitude of €6 – 18
billion can be expected for this policy option[120].

5.7.  
Option 3c: Contribution based compensation fund

The impacts of this
policy option are in principle similar to the ones for the tax on emissions
from fuel consumed (option 3b) (see section 5.6) as a membership fee based on
emissions could be assimilated as a tax on emissions, except for the
administrative burden and the impacts of the recycling of revenues. However,
the reduction of emissions and fuel costs are higher for option 3c, if the
recycling of revenues would be done in an efficient manner and would succeed in
removing the market barriers, given that it is an integral part of the
compensation fund approach.
Detail calculation of
the administrative burden is given in annex XIII.
In the event of a privately
managed fund, the total administrative burden for ship-owners and ship
operators is estimated at €149.5 million per year, if all ships above 400GT are
included in the scope. This means €8100 per ship per year and represents
annually 0.80% of the average 2010 operational costs (excluding fuel costs).
For the public authorities, the administrative burden will be limited to the
control of monitoring and reporting and the enforcement (see table 18). 
Table 18: Annual additional administrative burden
for the public authorities in the event of a privately managed fund, in € million
   || National Competent Authority || EU competent authority 
   || All ships above 400GT || All ships above 5000GT || All ships above 400GT || All ships above 5000GT 
   || 5.4 || 3.5 || 4.6 || 3.0 
Source: AEA Technology and others 2012
In the event of a publicly
managed fund, the administrative burden for ship owners and ship operators will
be similar to the tax on emissions from fuel consumed (option 3b) (see section
5.6), but the administrative burden for the public authority will differ due to
the setting of a fund (see table 19). 
Table 19: Annual additional administrative burden
for the public authorities in the event of a publicly managed fund, in € million
 National Competent Authority || EU competent authority 
 All ships above 400GT || All ships above 5000GT || All ships above 400GT || All ships above 5000GT 
 19.1 || 11.9 || 18.1 || 11.3 
Source: AEA Technology and others 2012
A contribution based compensation fund would
allow the generation of €26.1 billion up to 2030. So, this option generates
sufficient revenues to incentivise the removal of market barriers, especially
considering that the additional investment costs requested to improve the
energy efficiency of ships is estimated at around €3 billion up to 2030. 

5.8.  
Option 4: Maritime emission trading scheme (ETS)


5.8.1.     Environmental impacts

Under this policy
option, the in-sector emissions reduction will depend principally on the linking
of the system and on the use of free allowances. Under open ETS options,
ship-owners and ship operators could purchase out-of sector emissions
reductions (offsets) to comply with the target. If these offsets are supplied
from an emission trading system where the emissions are capped, the
environmental effectiveness can be considered as similar to an in-sector
contribution.
Table 20: In-sector emissions by 2030 and cumulative emissions, MtCO2.

   || Emissions by 2030 (MtCO2) || Compared to the baseline || Cumulative emissions reductions up to 2030 
 Closed ETS[121] || 175.7 || -21%[122] || 377.1 
 Open ETS with free allocation || 186.7 || -16% || 333.8 
 Open ETS with full auctioning || 186.8 || -16% || 336.3 
Source: AEA Technology and others 2012
Emissions of black
carbon are expected to decrease in the same order of magnitude as both, black
carbon and CO2, are closely linked to the fuel consumption. Due to
the link between CO2 emissions, fuel consumption and emission of
other pollutants, emissions of SOx and PM decrease by about 3% and
of NOx by 8% up to 2030 compared to baseline. As results of the
slightly decreased emissions of NOx, SOx and CO2,
limited positive impacts on ecosystems and biodiversity are expected.
For all ETS options,
the fuel consumption is expected to be smaller than the baseline: the
cumulative reduction up to 2030 is expected to be 116.13 Mtoe under the closed
ETS, 113.51 Mtoe under the open ETS with free allocation and 113.97 Mtoe under
the open ETS with auctioning. More precisely, the consumption of fossil fuel
(heavy fuel oil – HFO –, marine diesel oil – MDO – and liquefied natural gas - LNG)
is expected to be smaller than the baseline, even if the share of LNG within
these fossil fuels will be greater (up to 11.1% in 2030 under the closed ETS
versus 9.4% in 2030 under the baseline). This can be explained by the fact that
up to 2030, it is less costly to reduce the fuel consumption than switching to
low carbon fuel.  There is no commercial basis for major uptake of biofuels by
2030.

5.8.2.    
Economic impacts

5.8.2.1.  Direct impacts on the ship owners and ship operators
The table below
presents the total and additional direct costs and savings for the operation of
ships generated by this policy option up to 2030 compared to the baseline in
terms of investment, operational and fuel expenditure as well as the net
aggregated total. 
Table 21: Additional
costs of a maritime ETS compared to the baseline, up to 2030 (€bn), private
discount rate (10%), 
   ||   || Closed ETS || Open ETS with free allocation || Open ETS with full auctioning 
 Investment costs || €bn || +8.4 || +2.8 || +3.0 
 % || +1.4% || +0.4% || +0.5% 
 Operational costs (excluding fuel costs) || €bn || +0.07 || +0.12 || +0.01 
 % || +0.02% || +0.04% || +0.003% 
 Fuel costs || €bn || -55.8 || -55.6 || -56.0 
 % || -9.6% || -9.5% || -9.6% 
 Carbon costs || €bn || 0.0 || +0.7 || +30.4 
 Total costs || €bn || -47.3 || -52.0 || -22.6 
 % || -3.3% || -3.6% || -1.5% 
Source: AEA Technology and others 2012
For the reasons explained in section
5.6.2.1, for all ETS options, any annual increase of investment, operational or
carbon costs will be compensated by fuel savings. More precisely, considering
that the implementation of low carbon technology start 3 years before the entry
into force of the ETS, the carbon costs paid during the first year after the
entry into force of an open ETS with full auctioning, i.e. 486M€, will be fully
compensated by the fuel savings, i.e. 1491M€. Moreover, annual investment costs
under an ETS with full auctioning will increase progressively from 17M€ in 2016
to 295M€ in 2030. 
The implementation of a
maritime ETS would encourage additional investment costs and operational cost
(excluding fuel cost). If these increases are moderate at the sector level, a
significant increase at the ship level may be possible, especially for less
efficient ships, depending on the abatement strategy followed individually.
The most important
decrease of costs is coming from the fuel savings. In addition to the fuel
savings directly related to ship journeys from and to EU ports, it can be
expected that the policy options also trigger fuel cost savings outside this
scope as ships become more efficient in reaction to the EU measure (spill-over
effect, see section 5.6.2.1). 
Overall, significant
net savings of up to €52 billion until 2030 for the sector are expected as additional
costs are more than compensated by the reduced fuel costs. The savings
correspond to average annual savings of €1.57 billion (for a closed ETS), €1.73
billion (for an open ETS with free allocations) and €0.75 billion (for an open
ETS with full auctioning).  
If all ships above
400GT are included in the scope, the total administrative burden for
ship-owners and ship operators is estimated at €149.0 million per year for ETS
with full auctioning and at €178.6 million per year for open or closed ETS with
free allocations. This means between €8100 and €9700 per ship per year and
represents annually between 0.80% and 0.96% of the average 2010 operational
costs (excluding fuel costs). Detail calculation of the administrative burden
is given in annex XIII.
5.8.2.2.  Functioning of the internal market
and competition
Free movement of goods
is unlikely to be affected. This policy option would not lead to a decrease of
the volume of goods traded within and outside the EU as the assessment of key
commodities shows that the prices of the commodities are not affected by the
surrendering of allowances (see preamble of section 5).
The issue of
competition between the maritime sector and the other transport modes may be
raised in the event of changing shipping costs. Even if a detailed assessment
of possible model shift is not feasible within the context of this Impact
Assessment, due to the significant cost reduction for shipping, some modal
shift from road and rail to shipping may occur.
5.8.2.3.  Competitiveness and trade
investment flows
The maritime ETS is not expected to have negative impacts on the competitiveness of
EU shipping operators compared to non EU shipping operators. Indeed, as any
policy option will be flag-neutral, the policy will apply equally to all ships
calling into EU ports. However, ships calling more often into EU ports may have
the advantage of shorter pay-back periods for investments into their efficiency
leading to high fuel cost savings. 
Regarding the
competitiveness of the EU economy, the detailed analysis of eleven representative
commodities shows that the prices of the commodities
are not affected by the possible increase of freight rates with the exceptions
of natural gas (increase of up to 0.5% under the open ETS with full auctioning)
and iron ore (up to +0.3% under the open ETS with full auctioning). Therefore,
no significant impacts are expected on the EU economy[123].

5.8.2.4.  Impacts on Small and Medium
Enterprises
No specific administrative burden on small
and medium enterprises[124] has been identified. However,
as mentioned in annex II, small and medium enterprises in maritime transport
may be more sensitive on getting accurate information on the abatement
potential of low technology and their operational impacts. Such information
should secure their uptake by companies that are operating only a few numbers
of ships and which cannot afford to test technologies on board of their ships.
Large companies account for half of the
turnover in Water Transport, but for 1% only of number of companies. This
suggests that large firms undertake higher added value tasks and have higher
productivity than SMEs. This is likely to be the result of economies of scale
which apply strongly in shipping with research showing that firm capacity and
net profit are positively related. Therefore, facilitating access to finance is
also a key issue to ensure that SMEs will be able to invest and take the
benefits of cost savings. To this end, it is noted that revenues are generated
under the ETS options with auctioning (see section 5.8.2.10). 
5.8.2.5.  Public authorities
Public authorities will
be affected by the control of compliance (i.e. reporting of emissions, control
of the surrendering, etc.) and the enforcement. Detail calculation of the
administrative burden is given in annex XIII.
Enforcement is already
carried out by Flag State and Port State control. So, the administrative burden
related to the enforcement should be very low. The total additional costs for
the national public authorities in charge of enforcement are estimated around €
100 000 per year. 
The costs borne by the
competent authority in charge of controlling the compliance will depend on the
option considered. The table below shows the total additional administrative burden
according to the different policy options and according to the size of ships
concerned
Table 22: Annual additional administrative burden, in € million
   || National Competent Authority || EU competent authority 
   || All ships above 400GT || All ships above 5000GT || All ships above 400GT || All ships above 5000GT 
 Closed / Open ETS with free allocation || 4.7 || 3.0 || 2.9 || 1.9 
 Open ETS with full auctioning || 5.7 || 4.3 || 3.2 || 2.5 
Source: AEA Technology and others 2012
5.8.2.6.  Consumers and households
Consumers and
households are most sensitive to 5 of 11 commodities assessed: natural gas,
refined petroleum products, wearing apparels, office and IT equipment and motor
vehicles[125]. The introduction of a
maritime ETS would lead to a decrease of the freight rates of these
commodities, except natural gas, and therefore, should have no negative impacts
on consumers and household. The increase of prices of natural gas, up to 0.5%
by 2030 is not sufficient to trigger significant impacts on households. The
other commodities are not directly consumed by households. In the event of an
increase in their price, the low level of increase should not be sufficient to
result in impacts on the final consumers. 
5.8.2.7.  Specific regions heavily
dependent on shipping
As the introduction of a
maritime ETS would in general lead to net benefits for the shipping sector, in
principle, more intensive impacts in terms of job creation and cost savings
could be expected for regions dependent on shipping. No general economic
impacts on these regions can be expected (see preamble of section 5 and annex
VII). 
5.8.2.8.  Third countries
As mentioned
previously, this policy option is not expected to lead to significant changes of
freight rates. As a consequence, major international partners should not be economically
affected by an EU regulation. 
5.8.2.9.  Risk of avoidance
The risk of
avoidance for this policy option is similar to the one for option 3b (see
section 5.6.2.9).
5.8.2.10.          Recycling of
revenues
A maritime ETS with auctioning would
generate important financial flows, some of which could be recycled back into
the sector. Similar mechanism is already foreseen under the current EU-ETS at
the EU level under the NER 300[126]. A maritime ETS with
full auctioning would generate around €30 billion up to 2030. So, this option could
generate sufficient revenues to incentivise the potential removal of market
barriers, especially considering that the additional investment costs requested
to improve the energy efficiency of ships is estimated at €3 billion up to
2030. 

5.8.3.    
Social impacts

A maritime ETS would
lead to increased expenditure on energy efficiency measures, new ships and/or
engines and would contribute to the growth of the global market for these
products with positive impacts on employment in Europe. The expected additional
investment in technical energy efficiency measures could lead to the creation
of up to 21 600 new jobs (for a closed ETS) and 5800 (for an open ETS) in
shipyards and equipment manufacturers globally[127].
The additional operating cost of €300 to €400 million due to speed reduction is
expected to create a limited number of additional jobs on ships relative to the
baseline.
 
As shown in the table
below, the emission reductions of NOx, SO2 and PM due to the reduction of the
fuel consumption will lead to substantial benefits for public health[128].

Table 23: Total estimated benefits (health and crop damage) due to
reductions in emissions of NOx, SO2 and PM (€ billion) under each scenario for the period
2010-2030, 2010 prices, discounted using a discount rate of 4%
   || Benefits: low – high (mean) (€bn) 
 Closed ETS || 6.5 - 18.3 (11.3) 
 Open ETS – free allocation || 6.2 - 17.6 (10.9) 
 Open ETS – auctioning || 6.4 - 18.0 (11.1) 
 Source: AEA Technology and others 2012 

5.9.  
Option 5: Target based compensation fund

The purpose of a target
based compensation is to mutualise the achievement of the target set for the
sector. The achievement of the target can be done through in-sector investments
or through the purchase of offsets. These actions (in-sector investments or
purchasing of offsets) are similar as the one a ship has to perform under an
ETS. Therefore, from a modelling point of view, a target based compensation
fund can be seen as a single entity under an ETS. 
Assuming that the
compensation fund functions as intended, ship-owners and ship-operators will not
pay a membership fee to a target based compensation higher than the price of
allowances they would have paid if they were directly involved in an ETS. 
A target based
compensation fund can require a membership fee covering all CO2 emissions in
the shipping sector or only CO2 emissions above the target. 
If the membership fee
is set to cover all CO2 emissions, considering that the level of membership fee
will not be higher than the price of allowances ships would have paid if they
were directly involved in an ETS, the impact of a target based compensation
fund can be considered as similar as an open ETS with full auctioning (see
section 5.8).
If the membership fee
is set to cover only CO2 emissions above the target, considering that the level
of membership fee will not be higher than the price of allowances ships would
have paid if they were directly involved in an ETS, the impact of a target
based compensation fund can be considered as similar as an open ETS with free
allocation (see section 5.8).
The only difference
with an open ETS with full auctioning or with free allocation is related to the
administrative burden, as investments are required to setup and manage the
fund. The administrative burden are in principle similar to option 3c
(contribution based compensation fund). Detail calculation of the
administrative burden is given in annex XIII.

6.     
Comparison of options


6.1.   Introduction

A set of specific criteria to select the
most suitable policy option was developed based upon the general criteria set
in the IA guidelines. They aim to assess the achievement of the specific
objective of the policy option, while considering the 9 IMO principles for the
design of market-based measures[129]   
These criteria were submitted to
stakeholders during the online consultation carried out from January until
April 2012 (see section 1.3.3). The consultation results showed that the
environmental effectiveness of a possible EU measure is considered most relevant
by 65% of the respondents. Other criteria to determine the choice of the policy
option considered to be most relevant or relevant by a majority of respondents
are the vulnerability of the legislation, its enforceability and the
competitiveness of the EU. The other proposed criteria (timeliness,
competitiveness of the EU maritime sector and consistency with the related EU
measures) are regarded as less important for the choice of the policy option. However,
the consistency with EU related policies and shipping competitiveness are
nevertheless regarded as relevant for the evaluation and should be maintained
as criteria. The timeliness was not considered as relevant for the evaluation,
as any policy option can be adopted in consistency with its interaction with
policy progress in international fora.
 General criteria || Specific criteria for this Impact Assessment 
 Effectiveness || Environmental effectiveness (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 – Specific objective 1) 
   || Vulnerability: Exposure to/Risk of evasion 
   || Enforceability (Ensure appropriate monitoring, reporting and verification while keeping administrative burden to the minimum) 
 Efficiency || Shipping competitiveness (Promote technological improvement of ships, with respect of flag neutrality principle, and 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 – Specific objective 2) 
 Maintaining and enhancing competiveness of the EU 
 Consistency || Stimulating actions by others, including the IMO  (Specific objective 3) 
 Consistency with the related EU policies 
 Timeliness (Consistency with timing of application of measures and interaction with policy progress in international fora) 
In addition to these criteria, the policy
options were also assessed considering their ability to remove market barriers,
which are the key driver of the increase of CO2 emissions in the shipping
sector, as mentioned in section 2.
Using these criteria, the comparison of
options is based on the results of the quantitative and qualitative assessments
of the economic, environmental and social impacts (see section 5). 

6.2.  
Effectiveness


6.2.1.    
Removal of market barriers

All market barriers are
addressed by just two of the options analysed: the contribution based
compensation fund (option 3c) and the target based compensation fund (option 5).

In theory two further
options could address all market barriers, including the market barrier
relating to access to financing, notably the tax on emissions (option 3b) and an
open ETS with full auctioning (option 4c). However, this would only be the case
if Member States would agree on the recycling of national revenues or if
alternative instruments/interventions are setup. 
Other ETS options (4a –
closed ETS) and (4b – open ETS with free allocation) are not generating revenues
and therefore no revenues can be recycled in the sector to address the market
barriers related to access to finance. However, these options do not prevent
the implementation of alternative instruments/interventions to address the
market barrier related to access to finance. These alternative instruments will
be in any case independent of the policy options and cannot therefore be
considered as part of the evaluation of these options. 
The monitoring based on
fuel consumed (option 2) will only address the market barriers related to the
lack of information. At the same time robust MRV regime should contribute to
increasing awareness of the environmental consequences and economic
opportunities of efficiency measures within the sector thereby stimulating
early action and investment. 
The levy on bunker fuel
sales (option 3a) could only address the market barrier related to access to
finance if Member States agree on the recycling of national revenues or if
alternative instruments/interventions are setup to address this market barrier.

Finally, the baseline (option
1) is not expecting to address any market barrier.
Table 24: Key market barriers addressed,
 Options || Key market barriers 
 Lack of information || Split incentives || Access to finance 
 Option 1 – Baseline ||   ||   ||   
 Option 2 – Monitoring based on fuel consumed || ü ||   ||   
 Option 3 – Levy on emissions ||   ||   ||   
       3a - Levy on bunker fuel sales ||   ||   || ü* 
       3b - Tax on emissions from fuel consumed || ü || ü || ü* 
       3c - Contribution based compensation fund || ü || ü || ü 
 Option 4 – Maritime ETS ||   ||   ||   
       4a - Closed ETS || ü || ü ||   
       4b - Open ETS with free allocation || ü || ü ||   
       4c - Open ETS with full auctioning || ü || ü || ü* 
 Option 5 – Target based compensation fund || ü || ü || ü 
*if Member
States agree or if other instruments/interventions are established

6.2.2.     Environmental effectiveness

A closed ETS (option 4a) delivers the
highest in-sector emission reductions followed by the tax on emissions from
fuel consumed (option 3b), the contribution based compensation fund (option 3c),
the open ETS with free allocation (option 4b), the open ETS with full
auctioning (option 4c) and the target based compensation fund (option 5) which have
similar positive results. However, for options the contribution based
compensation fund (option 3c), the open ETS with full auctioning (option 4c)
and the target based compensation fund (option 5), the in-sector CO2
reduction is more certain than for the tax on emissions from fuel consumed (option
3b)and the open ETS with free allocation (option 4b) as revenues could be used
to remove market barriers. The monitoring based on fuel consumed (option 2) and
the levy on bunker fuel sales (option 3a) deliver the lowest in-sector emission
reduction compared to the baseline, both with a rather high level of
uncertainty.
Table 25: In-sector emission reduction by 2030,
   || In-sector emissions by 2030 (MtCO2) || Compared to the baseline || Cumulative in-sector emissions reductions up to 2030 (Mt CO2) 
 Option 1 – Baseline || 223 || - || - 
 Option 2 – Monitoring based on fuel consumed || 218.5 || -2% || 55.9 
 Option 3 – Levy on emissions ||   ||   ||   
       3a - Levy on bunker fuel sales || 217.0 || -3% || 40.1 
       3b - Tax on emissions from fuel consumed || 186.8 || -16% || 335.4 
       3c - Contribution based compensation fund || 186.8 || -16% || 335.4 
 Option 4 – Maritime ETS ||   ||   ||   
       4a - Closed ETS || 175.7 || -21% || 377.1 
       4b - Open ETS with free allocation || 186.7 || -16% || 333.8 
       4c - Open ETS with full auctioning || 186.8 || -16% || 336.3 
 Option 5 – Target based compensation fund || 186.8 || -16% || 336.3 
Source: AEA Technology and others, 2012
The emission reduction
delivered by the closed ETS (option 4a) is in line with the Commission's White
Paper on Transport target, i.e. 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, as the reduction achieved by 2030 is in accordance with the internal
reduction scenario for the 2050 target (-40%/ -50% if feasible compared to
2005) modeled for the purpose of this impact assessment.
The emission reductions
delivered by the contribution based compensation fund (option 3b), open ETS
options (4b and 4c) and the target based compensation fund (option 5) could
also be in line with Commission's White Paper on Transport target, if ship-owners
and ship operators are purchasing out-of sector emission reductions that are
supplied from an emission trading system where the emissions are capped in
addition to the in-sector emissions reductions of -16% compared to the baseline.
All other options – baseline
(option 1), monitoring based on fuel consumed (option 2) and levy on bunker
fuel sales (option3a) – fall short of delivering emissions reductions in line
with Commission's White Paper on Transport target.
The other environmental
impacts are proportional to the reduction of CO2 emissions, especially
air quality.

6.2.3.    
Vulnerability

Except for the levy on
bunker fuel sales (option 3a), where the risk of avoidance is estimated around 55%
to 90% of the scope, no policy option is expected to trigger significant risk
of avoidance or evasion. The alteration of routes and a switching of ship size
of type are very unlikely. Furthermore, no modal shift to road or rail can be
expected as the net savings for the shipping sector are more likely to trigger
a shift towards shipping.
 

6.2.4.    
Enforceability

All policy options
consider appropriate and robust MRV of emissions is ensured as an integral part
of the measure with the exception of the levy on bunker fuel sales (option 3a)
which is based on fuel sales not delivering complete emission figures of
shipping activities related to the EU[130]. 
Table 26: Annual administrative burden for
ship owners and ship operators, € million
   || Total annual administrative burden 
   || All ships above 400GT || All ships above 5000GT 
 Option 1 – Baseline || 0 || 0 
 Option 2 – Monitoring based on fuel consumed || 52.5 || 26.1 
 Option 3 – Levy on emissions ||   ||   
     3a – Levy on bunker fuel sales || Negligible || Negligible 
     3b - Tax on emissions from fuel consumed || 139.9 || 80.2 
     3c - Contribution based compensation fund || 149.5[131]/ 139.0133 || 86.2132/ 80.2133 
 Option 4 – Maritime ETS ||   ||   
    4a - Closed ETS || 178.6 || 105.2 
    4b - Open ETS with free allocation || 178.6 || 105.2 
    4c - Open ETS with full auctioning || 149.0 || 87.4 
 Option 5 – Target based compensation fund || 149.5132/ 139.0[132] || 86.2132/ 80.2133 
Source: AEA Technology and others 2012
The administrative burden
is very low for all policy options compared to the net savings for the sector
of around € 25 -50 billion up to 2030 for most policy options (see section
6.3.1). Apart the baseline scenario (option 1), the administrative burden is
lower for the levy on emissions (option 3) and the monitoring based on fuel
consumed (option 2) than other options. For the other options, the
administrative burden for ships and ship operators is in the same order of
magnitude.
Administrative burden
for public authorities for all policy options are very low, in particular
compared to other costs and benefits related to the policy options. 
Overall, the
enforceability considering appropriate monitoring, reporting and verification
while keeping the administrative burden to a minimum can be considered best for
monitoring based on fuel consumed (option 2) as MRV is ensured at lowest cost.
The costs of setting benchmarks for an ETS with free allocation (options 4a and
4b) would make administrative burden the highest. The baseline (option 1) and
to a lesser extent the levy on bunker fuel sales (option 3a) cannot be
considered as effective regarding the criterion enforceability.

6.3.  
Efficiency


6.3.1.     Shipping competitiveness

All policy options
except the baseline (option 1), monitoring based on fuel consumed (option 2)
and the levy on bunker fuel sales (option 3a) would deliver substantial net
savings to the shipping sector serving the EU. ETS types with free allocation
(4a and 4b) are expected to deliver the highest absolute benefits for the
maritime sector (around €50 billion up to 2030) followed by the contribution
based compensation fund (option 3c), the open ETS with full auctioning (option 4c)
and the target based compensation fund (option 5), each of them delivering
around € 23 to 27 billion up to 2030. The tax on emissions from fuel consumed (option
3b) could in principle deliver similar reduction, but no revenues might be
available to incentivise the removal of market barriers as they go to the
general budgets of Member States. The monitoring based on fuel consumed (option
2) leads to significantly less savings whereas the levy on bunker fuel sales
(option 3a) is the only policy options leading to net costs for the sector.
Table 27: Cost and
savings up to 2030, € billion, private discount rate (10%),
   || Additional investment, operational and carbon costs (€ bn) || Fuel savings (€ bn) || Net costs (€ bn) || Ratio savings/ costs 
 Option 1 – Baseline || 0 || 0 || 0 || - 
 Option 2 – Monitoring based on fuel consumed || 0.6 || 9.4 || -8.8 || 15.6 
 Option 3 – Levy on emissions ||   ||   ||   ||   
     3a - Levy on bunker fuel sales || 70.8 || 4.8 || 66.0 || 0.07 
     3b - Tax on emissions from fuel            consumed || 29.0 || 55.9 || -26.9 || 1.9 
     3c - Contribution based compensation            fund || 29.0 || 55.9 || -26.9 || 1.9 
 Option 4 – Maritime ETS ||   ||   ||   ||   
     4a - Closed ETS || 8.5 || 55.8 || -47.3 || 6.5 
     4b - Open ETS with free allocation || 3.5 || 55.6 || -52.0 || 15.8 
     4c - Open ETS with full auctioning || 33.5 || 56.0 || -22.6 || 1.7 
 Option 5 – Target based compensation fund || 33.5 || 56.0 || -22.6 || 1.7[133] 
Source: AEA Technology 2012
In relative terms, the
open ETS with free allocation (option 4b) delivers the highest savings/costs
ratio for the maritime sector. However, it has to be stressed that an open ETS
with entirely free allocation does not bring revenues that could be used inter
alia to remove market barriers. So, this ratio would be lower in case of
partial free allocation. The monitoring based on fuel consumed (option 2) is
also an option that delivers absolute savings compared to the additional costs
requested.
Moreover, the contribution
based compensation fund (option 3c) and the target based compensation fund
(option 5) generate revenues that can be rechanneled in the maritime sector to
improve the competitiveness of the EU maritime supply chain. For the open ETS
with full auctioning (option 4c), revenues could be rechanneled as well whereas
for the levy on bunker fuel sales (option 3a) and the tax on emissions from
fuel consumed (option 3b),such use in the maritime sector would be subjected to
the initiative of the Member States. 
Overall, shipping
competitiveness could be best ensured by the closed ETS (option 4a) and the
open ETS with free allocation (option 4b) with the highest net savings for the
sector. In this context, the monitoring based on fuel consumed (option 2 with very
good savings/costs ratio, but limited absolute savings) as well as the tax on
emissions from fuel consumed (option 3b), the contribution based compensation
fund (option 3c), the open ETS with full auctioning (option 4c) and the target
based compensation fund (option 5) could be regarded as positive with – for the
four latter policy options – substantial net savings in the order of magnitude
of € 22-26 billion up to 2030 and a good savings/costs ratio. The baseline (option
1 with no savings) and the levy on bunker fuel sales (option 3a with high
additional costs) are not expected to be able to contribute to shipping
competitiveness.

6.3.2.    
Maintaining and enhancing competiveness 

The policy options are
not expected to generate major general economic and social impacts, except the levy
on bunker fuel sales (option 3a) which could lead to a closure of some bunker
fuel suppliers in Europe. Furthermore, no significant negative impacts on SMEs
have been identified.

6.4.  
Consistency


6.4.1.     Stimulating actions by others, including through the IMO

Any IMO agreement will
require a strong monitoring and reporting of emissions. Therefore, the monitoring
of emissions from fuel consumed (option 2) could serve as a catalyst for global
measure without prejudging what kind of market based measure will be
implemented. All options that generate revenues
(contribution based compensation fund (option 3c), target based compensation
fund (option 5), open ETS with full auctioning (option 4c)) could also be used to
pool financing in support of international climate action (e.g. Green Climate
Fund) or to facilitate technical assistance and cooperation in view of
efficient shipping.

6.4.2.    
Consistency with EU related policies

As under the baseline (option
1), maritime transport would remain the only transport mode or industrial
sector not covered by the EU's GHG reduction commitment, this option cannot be
regarded as consistent with EU related policy. All other options could in
principle be used to set a carbon constraint on CO2 emissions from
maritime transport (although the monitoring of
emissions from fuel consumed (option 2) is only the first step in this
direction that does not set a carbon constraint by itself), in line with the respective operational objective defined in
section 3.

6.5.  
Concluding remarks

Table 28 summarises the comparison of
policy options based on the explanations given in the previous sections 6.2 –
6.4.
Table 28: Overview of assessment of policy options
   ||   || Options 
 General criteria || Specific criteria || 1 || 2 || 3a || 3b || 3c || 4a || 4b || 4c || 5 
   ||   || Baseline || Monitoring fuel || Levy fuel sales || Tax emissions || Contribution-based fund || Closed ETS || Open ETS allocation || Open ETS auctioning || Target-based fund 
 Effectiveness || Market barriers addressed || o || (+) || (+) || + || ++ || + || + || ++ || ++ 
 Environmental effectiveness || o || (+) || (+) || + || + || ++ || + || + || + 
 Vulnerability || o || o || -- || o || o || o || o || o || o 
 Enforceability || o || ++ || o || + || + || (+) || (+) || + || + 
 Efficiency || Shipping competiveness || o || + || -- || + || + || ++ || ++ || + || + 
 Maintaining and enhancing competitiveness || o || + || -- || + || + || + || + || + || + 
 Consistency || Stimulating actions by others, including the IMO || o || ++ || + || o || + || + || + || + || + 
 Consistency with the related EU policies || o || + || + || + || + || + || + || + || + 
                ++:
very positive      +: positive     (+): slightly positive     o: neutral     -:
negative     --: very negative
A graphical representation of this table is
given in Annex XI.
Considering the market barriers addressed, the
contribution based compensation fund (option 3c), the open ETS with full
auctioning (option 4c) and the target based compensation fund (option 5) could
be regarded as the best options as they could address all three main barriers
(lack of information, split incentive and lack of access to finance). However,
as discussed earlier the open ETS with full auctioning could be considered to
address the lack of access to finance, only if there is an agreement on revenue
spending. The tax on emissions (option 3b) could also address all market
barriers, if Member States would set up instruments removing the market barrier
related to access to finance. 
Concerning environmental effectiveness, the
closed ETS (option 4a), followed by the tax on emissions from fuel consumed
(option 3b), the contribution based compensation fund (option 3c), the open ETS
with free allocation (option 4b), the open ETS with full auctioning (option 4c)
and the target based compensation fund (option 5) could be regarded as the best.
However, for the tax on emissions (option 3b) no out-of sector emission
reductions can be expected.
Regarding efficiency, the monitoring of
fuel consumed (option 2 ) the open ETS with free allocation (option 4b) deliver
the highest benefit/cost ratio for the sector, but the contribution based
compensation fund (option 3c), the open ETS with full auctioning (option 4c)
and the target based compensation (option 5) generate revenues that could be
used for removing market barriers. However, all the highly environmental
effective policy options deliver similar benefit/cost ratio for society.   
A non-global levy on bunker fuel sales (option
3a) is not suitable, as it will trigger evasion that will undermine the
environmental effectiveness of the measure. Moreover, this option brings very
high additional costs, without providing significant savings. The baseline
option is not a suitable option, as any action will trigger environmental,
social and economic benefits for the maritime sector. 
It is also clear that all policy options
based on fuel consumed will require a strong monitoring and reporting of CO2
emissions from fuel consumed. So, even if the contribution based compensation
fund (option 3c), all three ETS types (options 4a, 4b, 4c) and the target based
compensation fund (option 5) can be considered as the most suitable options,
the implementation of the monitoring of fuel consumed (option 2) will be a
prerequisite for all policy options.  
Finally, reducing the scope of the measure
to ships above 5000 GT will have significant impacts on the administrative
burden of all policy options based on CO2 emissions from fuel
consumed, while not significantly undermining the environmental benefits of
these measures. It could also limit the impacts on SMEs. For these reason, only
ships above 5000 GT should be included in a measure for a first step. This
would reduce the administrative burden by around 40% under all options while
still capturing 90% of the emissions.
As a conclusion and in accordance with the
stepwise approach proposed by Vice-President Kallas and Commissioner Hedegaard,
the monitoring of fuel consumed (option 2) should be considered as the option  that
would be the necessary first step for other policy options leading to more
substantial benefits in terms of economic, environmental and social impacts. It
would also trigger some emission reductions and other benefits.
For the next steps following the implementation
of the monitoring and reporting, it is clear that the levy on bunker fuel sales
(option 3a) is not suitable for a regional measure. The other policy options
address problem drivers and achieve the environmental objective (although to
different degree) with economic and social impact discussed above. Any eventual
decision regarding market based measures should be aligned with the option
emerging from the relevant deliberations at the IMO. 

7.     
Monitoring and Evaluation

In order to monitor and
evaluate the progress made towards the reduction of GHG emissions from maritime
transport in view of a possible Commission proposal to included maritime GHG
emissions into the EU's reduction commitment, the following indicators are
proposed:
1.      Annual CO2 emissions from maritime transport within the
EU scope measures on ship and fuel consumption basis
2.     
Annual CO2 emissions from maritime
transport compared to the annual maritime transport activity of the EU (in
tonnes-nautical miles);
3.     
Annual turnover of European shipbuilders,
equipment manufacturers and services providers of the shipping sector;
4.     
Achievement of milestones in IMO process: IMO
expert group on monitoring and reporting established, IMO expert group on
market based measures pursued, IMO impact assessment on global market based
measures launched and measures in place in third countries
5.     
 Number and percentage of ships that are
monitoring and reporting their emissions in line with the regulation compared
to the number of ships calling into EU ports;
These indicators should
be calculated on an annual basis from relevant European Agencies based on data
provided by the Competent Authorities. The functioning of measures for
monitoring and reporting of emissions as well as for internalisation of climate
externalities and any potential revenue recycling should be reviewed periodically.
The first and second indicators are data
collected as part of the monitoring and reporting requirements necessary for
any policy options, except the tax on bunker fuel sales (option 3a), which was
discarded by the impact assessment. They aim to ensure that the first specific
objective mentioned in section 3 is fulfilled.
The third indicator is already collected by
Eurostat. It aims to ensure that the second specific objective mentioned in
section 3 is fulfilled. 
The fourth indicator aims to assess the
progress made by the IMO and by others to address GHG emissions in the shipping
sector. It therefore ensures that the third specific objective mentioned in
section 3 is fulfilled. 
Regarding the fifth
indicator, the number of ships that are monitoring and reporting their
emissions will be part of the monitoring and reporting requirements necessary
for any viable policy options. The number of ships calling into EU ports can be
provided by EMSA using their existing database mentioned in section 4.3. This
indicator aims to address the acceptance of the EU regulation by the shipping
sector.
[1] http://ec.europa.eu/clima/policies/transport/shipping/studies_en.htm
[2]The Second IMO Greenhouse gases study 2009
constitutes a significant scientific work undertaken at the global scale under
the auspices of IMO. The Study identifies a significant potential for reduction
of GHG emissions through technical and operational measures. The Study estimates
that, if implemented, these measures could increase efficiency and reduce the
emissions rate by 25% to 75% below the current level.
[3] In 2009, CE Delft provides
the European Commission with Technical support for European action to reducing
Greenhouse Gas Emissions from international maritime transport.
[4] http://ec.europa.eu/clima/policies/eccp/second/stakeholder/documentation_en.htm

[5] Corbett, J. 2003.
New Directions: Designing ship emissions and impacts research to inform both
science and policy.  Atmospheric Environment, Vol 37 Issue 33: 4719–4721
[6] AEA Technology and others 2012
[7] Austria (82MtCO2),
Belgium (152MtCO2), Bulgaria (61MtCO2), Czech Republic (134MtCO2, Denmark
(64MtCO2), Estonia (18MtCO2), Ireland (65MtCO2), Greece (134 MtCO2), Cyprus
(10MtCO2), Latvia (12MtCO2), Lithuania (22MtCO2), Luxembourg (13MtCO2), Hungary
(67MtCO2), Malta (6MtCO2), Portugal (79MtCO2), Romania (132MtCO2), Slovenia
(20MtCO2), Slovakia (44MtCO2), Finland (69MtCO2) and Sweden (69MtCO2)   
[8] Eurostat, April 2012
[9] AEA Technology and others, 2012
[10] Domestic shipping
means shipping within the territorial waters of a Member State. Intra-EU
shipping is considered as international shipping. CO2 emissions from domestic
shipping represent 22.3MtCO2 in 2010.
[11] Recital 2 of the decision n°406/2009/EC and recital 3 of the
directive n°2009/29/EC
[12] Mediterranean non
EU, Northern non EU, Middle East, North Africa, North America, Central America/Caribbean,
South America East Coast, South America West Coast, Australia/Oceania, North
East Asia, South East Asia, India, Southern Africa
[13] IHS Global
Redesign Scenario is one out of a total of three scenarios that have been
developed by IHS over the past two years.
[14] Energy Efficiency Design Index, see section 2.3.1
[15] COM(2011) 21, see:
http://ec.europa.eu/resource-efficient-europe
[16] COM(2010)2020, 3.3.2010
[17] COM(2011) 144 final
[18] IHS Fairplay, Global Redesign Scenario 2012
[19] http://ec.europa.eu/transport/modes/maritime/index_en.htm
[20] The Commission's
White Paper on Transport mentions that "30% of road freight over 300 km
should shift to other modes such as rail or waterborne transport by 2030, and
more than 50% by 2050, facilitated by efficient and green freight corridors."
[21] AEA Technology and others, 2012
[22] In 2008, the IMO
requested the use of low-sulphur fuel in specific regions (North Sea, the
Channel and the Baltic for the EU) from 2015 onwards. These requirements were
introduced in the EU legislation through the review of Directive 1999/32/EC.
The switch from heavy fuel oil (HFO) to marine diesel oil (MDO) will lead to an
increase of fuel costs for the maritime sector.  
[23] Maddox Consulting 2012
[24] AEA Technology and others, 2012
[25] See table VI.2 under annex VI for the fuel price projections.
[26] Pathways to Low Carbon Shipping - Abatement Potential Towards 2050,
DNV, 2012
[27] http://ec.europa.eu/clima/policies/transport/aviation/index_en.htm
[28] Maddox Consulting, 2012
[29] http://www.bsr.org/en/our-work/working-groups/clean-cargo
[30] AEA Technology and others, 2012
[31] Based on real
time vessel tracking system in correlation with the IMO register of ship
recording all ships technical specifications
[32] Second GHG IMO Study 2009
[33] SEC(2011) 918 final
[34] Regulated Slow
Steaming in Maritime Transport: An Assessment of Options, Costs and Benefits,
CE Delft, 2012
[35] Annex I Parties
include the industrialized countries that were members of the OECD
(Organisation for Economic Co-operation and Development) in 1992, plus countries
with economies in transition (the EIT Parties), including the Russian
Federation, the Baltic States, and several Central and Eastern European States
[36] Recital 2 of the decision n°406/2009/EC and recital 3 of the
directive n°2009/29/EC
[37] Report from the Commission to the European Parliament and the
Council, The state of the European carbon market in 2012, COM(2012) 652 final
[38] http://ec.europa.eu/clima/policies/ets/auctioning/third/docs/20121112_com_en.pdf
[39] COM(2011)0789 final
[40] http://www.cleanshippingproject.se/
[41] http://esi.wpci.nl/Public/Home
[42] http://shippingefficiency.org/
[43] http://site.rightship.com/
[44] http://www.greenaward.org/
[45] http://www.carbonpositive.net/
[46] http://www.yachtcarbonoffset.com/
[47] http://www.bsr.org/en/our-work/working-groups/clean-cargo
[48] AEA Technology and others, 2012
[49] AEA Technology and others, 2012
[50] Based on 2007 figures.
[51] i.e. emissions
within a Member State. Emissions between Member States are considered as
international shipping.
[52] Recital 2 of the decision n°406/2009/EC and recital 3 of the
directive n°2009/29/EC
[53] as recalled with amendment of Annex VI of
MARPOL to include the EEDI.
[54] IHS Fairplay, 2011
[55] For example
MARPOL Annex VI
[56] Excluding black carbon, as the global warming
potential (GWP) of black carbon is highly uncertain. 
[57] Black carbon is a
climate forcing agent formed through the incomplete combustion of fossil fuels,
biofuel, and biomass, and is emitted in both anthropogenic and naturally
occurring soot. Black carbon warms the Earth by absorbing heat in the
atmosphere and by reducing albedo, the ability to reflect sunlight, when
deposited on snow and ice. Black carbon stays in the atmosphere for only
several days to weeks, whereas CO2 has an atmospheric lifetime of
more than 100 years. 
[58] AEA Technology and others, 2012
[59]  COM(2010)2020,
3.3.2010
[60]Taking into
account necessary efforts from developing countries, this will allow a global
reduction of 50% in emissions by 2050 compared to 1990.
[61] Conclusion of the European Council (17 June 2010), EUCO 13/10
[62] For the purpose
of this impact assessment, an internal reduction scenario has been modelled
with all impacts assessed according to this internal reduction scenario by
2030, due to the uncertainties of technological improvements of the maritime
transport sector and of global economy on longer term. 
[63] The flag of a
vessel reflects the country of registration and thus the vessel's
"nationality". The principle of flag neutrality calls for the equal
treatment of all vessels, regardless to the vessel's nationality.
[64] The Second IMO
greenhouse gas study 2009, adopted and agreed by all parties, presented several
policy options to ensure GHG emissions reduction in the maritime sector.
Moreover, 10 proposals had been submitted by Parties. An overview of these
policy options is given in Annex IX
[65] AEA Technology and others, 2012
[66] 59th session of the Marine
Environmental Protection Committee – Agenda item 24
[67] The Bahamas
submitted this proposal for the 63rd IMO's Marine Environment
Protection Committee (MEPC 63) in March 2012. It has been withdrawn by the
Bahamas in April 2012.
[68] The 63rd Marine
Environment Protection Committee of the IMO in 2012 stressed that the EEDI
cannot be used for existing ships and the use of Energy Efficiency Operational
Index (EEOI) is currently not mandatory. Furthermore, ship types with high
relevance in Europe such as cruise ships and ferries are not yet covered by the
EEDI. Therefore, developing such a measure in an European context would require
the EU to replace or supplement existing efficiency standards adopted at global
level.
[69] such an approach is currently being discussed in the IMO context
[70] IMO resolution A.600(15); SOLAS Chapter XI
[71] SafeSeaNet is a vessel traffic monitoring and information system
[72] Thetis is an
information system, which aims to assist Member States with harmonization of Port
State Control procedures and execution through centralized storage and
distribution of reports 
[73] Currently under revision
[74] See footnote 22
[75] Increasing fuel prices (particularly due to global low-sulphur
requirements) will make alternative fuels such as LNG or biofuels more
attractive and therefore some level of fuel switching can be expected.
Moreover, there is already evidence of an industry-wide trend towards larger
ships and additional economies of scale on transoceanic routes will be
permitted by the opening of the new Panama Canal in 2015.
[76] Recognised
organisations are organisations recognised in accordance with Regulation (EC)
No 391/2009 of the European Parliament and of the Council on common rules and
standards for ship inspection and survey organisations     
[77] OJ C 82,01.04.2008, p.1.
[78] COM(2011) 169 final.
[79] The tax rates are based on the rates in the ETD proposal of EUR 20
per tonne of CO2 and EUR 9.6 per GJ.
[80] Article 4 of Directive 2003/96/EC
[81] OJ C 82,01.04.2008, p.1.
[82] For the purpose
of this Impact Assessment, analyses have also been carried out using different
tax levels, e.g. close to the expected price of EU allowances under a
decarbonisation scenario with values of € 25.0 in 2020, € 34.2 in 2025 and €
50.9 in 2030. However, this does not significantly affect the results.
[83] The term
"compensation fund" is associated with the idea that the growth of
emissions in the maritime transport is compensated by the funding of in-sector
or out-of-sector emissions reductions.
[84] This mechanism
should be designed in such way that the contribution based compensation fund
remains in practise the primary instrument. The Norwegian NOx fund is an
example where a tax serves as such complementary instrument. The tax rate is
higher than the contributions to the fund. So, it can be assumed that the use
of alternative mechanisms will be marginal. For this reason, possible impacts of
alternative mechanisms are not assessed.
[85] OJ C 82,01.04.2008, p.1.
[86] OJ C 82,01.04.2008, p.1.
[87] The term
"compensation fund" is associated with the idea that the growth of
emissions in the maritime transport is compensated by the funding of in-sector
or out-of-sector emissions reductions
[88] OJ C 82,01.04.2008, p.1.
[89] SEC(2011)
358
[90] http://www.rina.org.uk/hres/mepc%2061_inf_18.pdf
[91] Under option 2
(monitoring of fuel consumed), transport costs for all commodities are slightly
decreasing. Under option 3a (levy on bunker fuel sales), very limited changes
can be expected as only intra-EU routes are impacted but the transport costs
related to these routes are increasing for all commodities.   
[92] Less than 0.12%
of the volume traded by ships is expected to shift to road or rail (which are
covered by EU regulations on climate change), according to AEA Technology and
others, 2012
[93] see footnote 55
[94] Helsinki Commission, 2010
[95] Heavy Fuel Oil and Marine Gas Oil 
[96] Excluding fuel cost
[97] Assuming that no action is taken outside the EU.
[98] COM(2011)0789
[99] http://ec.europa.eu/clima/policies/g-gas/docs/monitoring_2011_en.pdf
[100] Maddox Consulting, 2012
[101] AEA Technology and others, 2012
[102] Maddox Consulting, 2012
[103] Maddox Consulting, 2012
[104] For 18400
vessels, this figures includes annual costs (e.g. for annual emission reports)
as well as one-off costs (e.g. for monitoring plans) which are equally
distributed over 10 years
[105] €4500 would be
added if the private sector verification of the data reported as well as the
processes is required.
[106] This threshold is used in SOLAS regulations
[107] As market
barriers are key in the maritime transport sector, a private discount rate of
10% was used in this impact assessment (expect for the health benefits) instead
a social discount rate of 4% recommended by the Impact Assessment guidelines.  
[108] Pending on the
scope, at least 99% of EU maritime transport SMEs could not subjected to the
regulation. See annex II 
[109] AEA Technology and other, 2012
[110] Estimate based
on a minimum number of posts required, excluding one-off costs for setting up
IT systems and excluding enforcement costs
[111] AEA Technology and others 2012, CE Delft and others 2009. 
[112] As market
barriers are key in the maritime transport sector, a private discount rate of
10% was used in this impact assessment (expect for the health benefits) instead
a social discount rate of 4% recommended by the Impact Assessment guidelines.  
[113] For example,
hull coating (reduction of frictional resistance of a hull), waste heat
recovery (using the heat of the engine for electricity production), wind
engines (rotors placed on deck of a ship can generate thrust, taking advantage
of the Magnus effect), solar energy, speed reduction, propeller upgrade, engine
upgrade, weather routing (optimisation of routes according to current and
weather conditions), etc. 
[114] Assuming that
the total administrative burden is €34 million per year and the fuel
consumption is around 56Mtoe
[115] Fuel prices are expected to reach €745 per ton of fuel by 2030
[116] AEA Technology and others, 2012, based on TIMES model output on
fuel consumption 
[117] For example,
many ships are already retrofitted to comply with the IMO regulation on sulphur
which will enter into force in 2015.  
[118] Pending on the
scope, at least 99% of EU maritime transport SMEs could not subjected to the
regulation. See annex II 
[119] AEA Technology and others 2012
[120] These estimates
are based on the damage cost function developed under the Clean Air For Europe
(CAFE) program.
[121] Closed ETS with full auctioning is not assessed 
[122] This is
equivalent to -10% compared to 2005 in accordance with
the internal reduction scenario for the 2050 target modeled for the purpose of
this impact assessment.
[123] Bearing in mind that these commodities are mostly looked at in
isolation and are a small sample of the whole economy, the cumulative impacts
of the option may be important.
[124] Pending on the
scope, at least 99% of EU maritime transport SMEs could not subjected to the
regulation. See annex II 
[125] AEA Technology and others 2012
[126] The NER 300 – so-called because it is funded from the sale of 300
million emission allowances held in the New Entrants Reserve (NER) of the EU
Emissions Trading System (ETS) - aims to contribute to investments in
demonstration and deployment of innovative technologies, including 34 types of
renewables.
[127] AEA Technology and others, 2012
[128] These estimates
are based on the damage cost function developed under the Clean Air For Europe
(CAFE) program.
[129] 1 / Effective in
contributing to the reduction of global GHG emissions; 2/ Binding and equally
applicable to all flag States in order to avoid evasion; 3 /Cost-effective; 4/Able
to limit – or at least – effectively minimize competitive distortion; 5/ Based
on sustainable environmental development without restricting global trade and
growth; 6 /Goal-based approach that is not prescriptive in nature; 7/ Supportive
of promoting and facilitating technical innovation and R&D in the entire
shipping sector; 8/ Facilitates new technologies in the field of energy
efficiency; 9/ Practical, transparent, fraud free, and easy to administer
[130] Under this
policy option, to large extent, fuel is expected to be purchased outside the
EU. Therefore, fuel sales could not be used as basis to determine the total CO2
emissions of voyages from and to EU ports.
[131] In case of a privately managed fund
[132] In case of a publicly managed fund
[133] If the target
based compensation fund is assimilated as an open ETS with free allocation,
this ratio should be equivalent to option 4b.
Annex I - Overview of the shipping sector
In 2010, the Commission set up a contract with
IHS Fairplay to have an overview of ships calling into EU ports. The full study
can be found on Commission's website[1].
However, this annex aims to provide an overview of the results of this study.
1.     
Organisation of the supply chain of the shipping
sector
The
supply chain of the shipping sector is organised around the follow main actors:
-       the
ship-owner who owns the vessels
-       the ship
operator who operates the vessel
-       the charterer
who rents the vessels (with or without the crew) 
-       the shipper
who provides the cargo
Other actors may also take part of this supply
chain, such as the ship-broker who negotiates the use of a ship between
ship-owners and charterer or the ship-manager who performs the technical
operation of the ship but not its commercial management. These actors may not
be distinct. For example, a ship operator can own its ships or a ship-operator
can charter a ship.
Different type of chartering contract exists[2]:
-       A voyage
charter is the hiring of a vessel and crew for a voyage between a load port and
a discharge port. The charterer pays the vessel owner on a per-ton or lump-sum
basis. The owner pays the port costs (excluding stevedoring), fuel costs and
crew costs. The payment for the use of the vessel is known as freight. A voyage
charter specifies a period, known as laytime, for unloading the cargo. If
laytime is exceeded, the charterer must pay demurrage. If laytime is saved, the
charter party may require the shipowner to pay despatch to the charterer.
-       A contract of
affreightment is a contract similar to a voyage charter, but ship-owner
undertakes to carry a number of cargoes within a specified period of time on a
specified route. Agreed frequency of cargoes may require more than one ship.
-       A time
charter is the hiring of a vessel for a specific period of time; the owner
still manages the vessel but the charterer selects the ports and directs the
vessel where to go. The charterer pays for all fuel the vessel consumes, port
charges, and a daily hire to the owner of the vessel.
-       A trip time
charter is a comparatively short time charter agreed for a specified route only
(as opposed to the standard time charter where charterer is free to employ the
vessel within agreed trading areas).
-       A bareboat
charter or demise charter is an arrangement for the hiring of a vessel whereby
no administration or technical maintenance is included as part of the
agreement. The charterer obtains possession and full control of the vessel along
with the legal and financial responsibility for it. The charterer pays for all
operating expenses, including fuel, crew, port expenses or hull insurance. 
2.     
Shipping segments[3]
a.     
General data
Table I.1: Ship types in the world fleet in 2010
TableI.2:
World fleet, percentage of ships for different flags, 2010
Table I. 
3: Percentage of calls in an EEA port by flag and ship type, all ships, 2010
b.     
CO2 emissions and efficiency
Table
I.4: CO2 emissions on EU related routes in 2010 (tCO2)
Table
I.5 : Projection of CO2 emissions per type of ship on EU related routes 
Table
I.6: Projected fuel efficiency (Mtoe/Mtonnes carried) under the baseline
scenario
   ||   || 2010 || 2015 || 2020 || 2025 || 2030 
 Fuel consumption || Mtoe || 59,44 || 63,30 || 66,12 || 70,92 || 77,13 
 Seaborne trade || Mt || 2234,31 || 2515,14 || 2737,18 || 2972,34 || 3229,06 
 Fuel efficiency || Mtoe/Mt || 0,027 || 0,025 || 0,024 || 0,024 || 0,024 
 Improvement compared to 2010 || - || -5% || -9% || -10% || -10% 
c.      
Overcapacity
Figure
I.1: Overcapacity in oil tankers and containerships   
Source:
Word fleet monitor 2011
Annex II  - SMEs in the shipping
sector
According
to EU recommendation n°2003/361, an SME can be defined according to the
following criteria:
 Company category || Employees || Turnover || or || Balance sheet total 
 Medium-sized || < 250 || ≤ € 50 m || ≤ € 43 m 
 Small || < 50 || ≤ € 10 m || ≤ € 10 m 
 Micro || < 10 || ≤ € 2 m || ≤ € 2 m 
These
ceilings apply to the figures for individual firms only. A firm which is part
of larger grouping may need to include employee/turnover/balance sheet data
from that grouping too.
According to the table below and considering the
threshold mentioned above, 97% of maritime transport enterprises can be
considered as SMEs[4]. 

Table
II.1: turnover, number of enterprises and turnover per enterprise per size of
enterprises  
Source:
Eurostat, 2010; (c): confidential data
These statistics include all companies operating
ships, including for example a company operating a single route to a small
island close to the coast. However, the size of a company is linked to the size
of ships operated by the company and a ship of more than 400 GT requires more
than 9 people to be operated. This means that, as the regulation intends to
apply to ships above 400GT at the lowest, 87% of SMEs in the shipping sector
will not be concerned by the regulation. If the size threshold is set at 5000GT[5],
at least 99% of SMEs in the shipping sector will not be concerned by the
regulation. 
 Example of ferry of around 4000GT || Example of ferry around 400GT 
 || 
Having said that, the thresholds used to define
SMEs may not be relevant to define a small enterprise in maritime transport.
The number of ships is a more relevant indicator to consider the size of the
company. In 2010, around 8000 ships above 400GT[6][7] were
operated by 1778 EU enterprises. This means that on average, each enterprise
operates 4 to 5 ships. However, the top 5 container vessels operators operated together
more than 1756 ships in 2010. So, without considering theses enterprises, the
number of ship per EU operator is between 3 to 4 ships.  
Operating 3 to 4 ships only does not mean that
the ship operator comply with the SME definition mention above. For example,
SeaFrance, a former ferry company, had 4 ships, but 1850 employees due to the
size of its ships (mainly above 30,000GT). 
For that reason, the administrative burden
mentioned in annex XIII have been calculated on a ship basis, having in mind
that, if a company operates several ships, it can benefit from economies of
scale. 
The fuel savings and the increase of investment
and capital costs mentioned in section 5 of the impact assessment are not
related to the size of the companies. The abatement technologies considered are
related to the type of ships and not to the size of ship operators. Having said
that, the fewest the number of ships is operated by an enterprise, the more
reluctant this enterprise will be to implement innovative low carbon
technology. Indeed, a company operating a small number of ships cannot afford
to test technologies on one of its ships, facing the risk to jeopardize the
operation of this ship and the overall profitability of the company. In this
context, getting accurate information on the abatement potential of low
technology and the operational impacts of each of these technologies are key to
ensure their uptake.
     

Annex III  - Summary of results of
the on-line consultation
Public consultation on 
"Including maritime transport emissions in the EU's greenhouse gas
reduction commitment"
Summary of the contributions received
11 February 2013
Please note that this
summary of the consultation does not express the position of the Commission.
Table of Contents
1      Introduction. 92
2      Structure of the questionnaire. 92
3      Characterisation of the respondents. 92
4      Results of the on-line consultation. 93
4.1      General
context 93
4.2      Scope of
a possible proposal 95
4.3      Reliance
on shipping at a local or regional level 97
4.4      Evasion. 97
4.5      Policy
options. 97
4.6      Choice of
policy options. 104
4.7      General
comments. 106
5      General conclusions. 107
1.     
Introduction
As part of the preparation of the impact
assessment of a possible Commission proposal to address GHG emissions of the
maritime sector[8],
the Commission ran an internet public consultation for 12 weeks from 19 January
until 12 April 2012. 
This consultation sought opinions from
stakeholders and experts in the field of shipping and climate change with a
view to getting additional information on the shape of a possible Commission
proposal. All European citizens, organised stakeholders, industries,
institutions, NGOs and public authorities of EU countries were invited to
contribute to this consultation.
This consultation supplements several
stakeholders meetings held throughout 2011, including 3 two-day meetings in the
context of a working group (WG6) established under the European Climate Change
Program II (ECCPII)[9]
and 3 meetings in the context of a High Level Platform co-chaired by Vice
President Kallas and Commissioner Hedegaard. The outcome of these stakeholder
meetings was used as input for the on-line consultation. All documents from the
ECCP meetings are available on the Commission's website[10].
2.        
Structure of the questionnaire
The questionnaire used open questions or
multiple choice questions. With the exception of certain selected questions,
answers were not mandatory.  The questionnaire reflected the discussion with
stakeholders at the time of its preparation. Emphasis on specific issues may
have happened after the publication of the questionnaire.  
3.        
Characterisation of the respondents
All in all, 139 contributions were received
either directly online or through the support mail address (clima-eccp-ships@ec.europa.eu). Some
contributors sent multiple submissions.  The most represented contributors were
companies or professional associations (37%), followed by non-governmental organisations
(28%), individuals (17%) and public authorities or public administrations
(14%). 
It is noted that some ship-owners or
ship-operators associations were registered as non-governmental associations
and some ports were registered as public authorities. The table below gives an
overview of the contributors, grouped in accordance to their field of
competency:
   || Number || % of total 
 Ship-owners* || 36 || 26% 
 Charterers/ Ship operators* || 13 || 9% 
 Shippers || 12 || 9% 
 Service providers/ Equipment manufacturers || 9 || 7% 
 Ports || 6 || 4% 
 Trade Unions || 3 || 2% 
 EU Regional public authority || 4 || 3% 
 EU National public authority || 9 || 6% 
 Non-EU National public authority || 4 || 3% 
 Environmental and social NGO || 29 || 21% 
 Individuals || 23 || 17% 
 Others || 1 || 1% 
* 10 entities considered as ship-owners can also be
considered as ship-operators. 
15 respondents requested confidentiality for
their responses, i.e. no publication on the Commission's website, while 24
respondents authorised publication on the Commission's website in an anonymous
format.
4.        
Results of the on-line consultation
4.1.  
General context
4.1.1.      Equal
treatment of all sectors of the European economy
54% of respondents consider that the maritime
sector should contribute to the European emission reduction efforts as other
sectors, whereas 39% felt sector contributions not necessary. 7% of the
respondent had no opinion on the matter. The arguments developed under this
question by the respondents demonstrate a full range of opinion from a strong
support to an equal treatment of all sectors of the European economy to a
strong opposition to an inclusion of the maritime sector into the EU
commitments. 
All respondents considered that the maritime
sector should take actions to reduce its greenhouse gas emissions. All
respondents also felt that an agreement should be reached at the IMO level.
There were however some differences of opinions on the timing and on the added
value of EU action. 
More precisely, 21 respondents considered that
the IMO is moving forward at a sufficient pace, especially as result of the
adoption of the Energy efficiency design index for new ships (EEDI) and the
Ship Energy Efficiency Management Plan (SEEMP). Accordingly this group
considered that EU action may interfere with the IMO work. Another larger group
(24 respondents) considered that the IMO had not delivered sufficient measures
(i.e. no market-based measure nor inclusion of shipping emission in reduction
commitments) and that EU action would help the IMO move forward faster,
especially by providing a strong base for a global action.
There were also different views on the urgency
of regulating the GHG emissions on shipping. On the one hand, most ship-owners
and ship-operators considered that shipping is a minor source of emissions and
felt that as the most efficient mode of transport maritime sector should not be
the immediate focus of policy action and priority should rather be on other
sectors. Most NGO contributions considered that shipping is one of the fastest
growing sources of emissions and therefore emissions from shipping should be
addressed urgently.
Regarding competitiveness, all respondents agree
that the key issue is to ensure a level playing field. However, the responses
to this question reflected the different understanding of the associated
dimensions. All NGOs and a majority of individuals (38 respondents in total),
underlined that the maritime sector is the only sector of the European economy
not included in the EU commitments, emphasising the intra-European perspective.
According to them, this creates a market distortion compared to other sectors
of the EU economy. 13 other participants, especially from ship-owners and
ship-operators, claimed that the maritime sector is global and therefore EU
action could risk triggering a market distortion in the maritime sector with
other regions in the world.
Equal treatment of all sectors of the European
economy was also felt to have the potential to provide a clear signal for
technology improvement in the maritime sector. Almost 20 participants stressed
that there is potential in the maritime sector to reduce its GHG emissions. The
up-taking of this potential could result social benefits by stimulating growth
and job creation due to the retrofitting of ships and the development of new
equipment. However, one equipment manufacturer said that, even if the potential
is there, the question of affordability of such emission reduction should be
assessed carefully. On the technological improvement of ships, a ship-owner
mentioned the difficulties of reselling a vessel outside the EU, as the
improvement of energy efficiency required by the EU may not be considered of
value by stakeholders outside the EU. 
While all NGOs supported equal treatment of all
sector of the European economy, 15 NGOs stressed the need to avoid negative
effects on the poorest countries, especially on least developed countries. All
NGOs requested a contribution of the maritime sector to global climate action. 
10 respondents, especially ship-operators, also
stressed the issue of modal shift, especially for short sea shipping, and
evasion. 
4.1.2.      Use of
revenues
A majority of respondents (57%) considered that
revenues generated by a market-based measure should be used to tackle climate
change and support investments to reduce emissions in the maritime sector, e.g.
by improving energy efficiency of the fleet, especially through research and
development or by removing market barriers in the maritime sector, especially
due to split incentives. One service provider stressed that recycling of revenues
in the maritime sector may weaken the polluter pays principle if the revenues
are going back to the polluters.
Regarding the use of revenues primarily for
international climate change finance, there is no clear prevailing view. The
responses varied between 37% in favour and 47% against. However, all NGOs are
in favour and they proposed to use at least 50% of the revenues for this
purpose, especially for the poorest countries. Moreover, even those respondents
which are against primary use for international climate finance recognise the
need to use revenues for developing countries in the event of there being a
global scheme. The use of revenues from a global scheme for international
climate change finance was also seen by 13 respondents as a way to help the IMO
to move forward.
Furthermore, the use of revenues for other
purposes than tackling climate change and supporting investments to reduce
emissions in the maritime sector or financing the international climate change
funds, was only supported by 23% of respondents. The respondents in favour
argued that the revenues could be used to lower labour taxes or to use for the
poorest households who are dealing with increase of energy prices.  
More generally, it was stressed that the
revenues should be used in accordance with the IMO principle of "no more
favourable treatment". 29 respondents considered that the revenues
generated from either a regional or global system should be centralised to a
single entity (collection point) in charge of its use. Furthermore, even if it
is not directly related to an EU measure, 5 respondents underlined that a
'double charge' (i.e. a contribution to the IMO and one to the UNFCCC) should
be avoided.
4.2.  
Scope of a possible proposal
4.2.1.      Route
coverage
More than 70% of respondents considered that no
route to or from European ports should be excluded from the scope, except
routes related to search and rescue, fire fighting or humanitarian operations
authorised by the appropriate competent authority. Indeed, 37 respondents
consider that the exclusion of routes may potentially create market distortions
and encourage activity seeking avoidance of the scheme. 
3 respondents concerned with short sea shipping
urged consideration of either exemption of routes performing public services obligations
or exemption of routes in competition with land based transport to avoid modal
shift. Respondents from short sea shipping also highlighted that, at present,
some routes cannot be performed in the most efficient way regarding GHG
emissions as the infrastructure on ports is not yet available, especially as
regards LNG, or as the weather conditions are not optimal (e.g. need for
ice-breakers). 
12 respondents, especially NGOs, also indicated
their view that the exclusion of routes from least developed countries makes no
sense as some goods coming from least developed countries may transit by other
countries. Therefore, the impact on trade of goods should be assessed.
11 respondents took the view that only routes
within the EU should be covered by an EU scheme.
4.2.2.      Ships covered
The responses to the
questionnaire indicated that European policy action for regulating CO2
emissions from maritime transport should be applied to all types of vessels or
some main types of vessels, such as general cargo, tankers, containers, bulk
carriers, refrigerated ships, passenger ships, ferries, fishing ships and
military, customs or police ships. 
75% of respondents to
this question considered that no other categories should be added. 54% of
respondents to this question considered that no categories should be excluded.
18 respondents indicated a preference for small emitters to be excluded. The
threshold for exclusion suggested was 400 GT (to fit MARPOL requirements), 500
GT or 5000 GT. 5 respondents, especially ship-owners and ship-operators,
indicated that the size threshold should be carefully assessed to avoid
potential distortion of competition within the categories.  
The 46% of respondents
considered that some categories of ships should be excluded, and all agreed
that fishing ships and military, customs and police ships should be excluded.
The exclusion of service vessels and yachts (and more generally all private
vessels) was also proposed. Finland mentioned that the specificity of
ice-breakers should be taken into consideration. 
4.3.  
Reliance on shipping at a local or regional level
The consideration of the reliance on shipping at
local or regional level gave balanced results: 52% were in favour of taking the
reliance into account, whereas 48% were opposed to the idea. Quite markedly,
all local, regional and national public authorities were in favour of taking
into consideration the reliance on shipping at local or regional level.
One third of respondents in favour stated that
the reliance on shipping of isolated regions, like islands, overseas
territories and EU peripheral regions should be considered. 7 respondents,
especially NGOs, considered that the level of development of the region should
be taken into account, especially for least developed countries and small
island developing states. It was also proposed to define the regions according
to the risk of modal shift of their trade. One respondent proposed to solve the
issue of reliance on shipping by providing grants and loans to local actors.  
4.4.   Evasion 
53% of respondents provided comments on the
question of evasion. 39% of respondents considered that there is an important
risk of evasion especially in the Baltic sea, in the Mediterranean Sea (and
especially around the Strait of Gibraltar) and in the Black sea. 19% of
respondents contested the link between the implementation of a regional
environmental policy and the loss of competitiveness for maritime actors, which
would trigger evasion. One ship-operator stressed that the risk of evasion is
pending on the level of the carbon cost, the extra fuel burnt and, eventually
on the level of additional port dues and on the cost of transhipment. Two NGOs
indicated that evasion would not occur if the charge of the carbon constraint
was put on ports, which is an option that has been proposed by Jamaica in the IMO.
4.5.  
Policy options
4.5.1.      Compensation
fund
Management of a compensation fund
68% of respondents considered that any
compensation fund should be managed by a public entity. 42% of respondents
recommended the IMO or an EU public body. 5% of respondents also recommended
management by the industry, but this option raised opposition from the NGOs.
The management by national authorities, by the UNFCCC, by a group of
stakeholders (industry, EU and Members States) were also mentioned. 16% of
respondents underlined the general principle that the fund should be managed by
an independent entity. 22% of respondents stressed that the management of the
fund should be transparent and independent from political interest. 3 respondents
indicated that the management of a fund should depend on the purpose of the
fund, in term of revenue recycling. .
Implementation of several compensation funds
Around 82% of respondents took the view that the
existence of several compensation funds would not be feasible. The rationale
they mentioned was built from the notion that several compensation funds may
create an important administrative burden and market distortions. It was also
stated that this could increase the risk of fraud and carbon leakage.  The
respondents in favour of several compensation funds felt that such a set up
could give flexibility to the sector. This group of respondents also
recommended to set different funds according to ship types. 
Option 1: Contribution-based approach
Under option 1, a contribution has to be paid
for each ton of CO2 emitted falling under the responsibility of the
compensation fund. The level of the contribution is driving the level of
reduction. 
There was no strong majority in favour or
against a rebate of the contribution to a compensation fund, in the initial
years. 22% are in favour, 33% are against and 45% of the respondents did not
answer. Among the respondents in favour of a rebate, there was no strong
differences between those preferring a reduction to be based on a percentage of
a certain carbon price (75% in favour) or by pre-set levels of contribution in
financial terms (60% in favour). Regarding the end of the rebate, there was no
clear preference for a particular precise date for reaching a full
contribution, and timings between 2010 and 2035 were proposed.
Option 2: Target-based approach
13 respondents considered that penalties should
be paid for emissions above the target to ensure compliance. 11 respondents
proposed also to use offsets or financial guarantee. 
2 respondents indicated that setting a target
according to historical emissions is not suitable, as this does not take into
account the variability of the shipping emissions due to the variation of trade
or due to the weather conditions. 
All NGOs stressed that the compliance mechanism
has to be robust and ensure environmental integrity. They proposed that a third
party controls the achievement of the target. Some shippers mentioned that any
such system should foresee benefits for being in compliance. Regarding
monitoring, one NGO proposed to use fuel tank monitoring and another
participant proposed fuel sellers as the monitoring entity. The Norwegian NOx
Fund was mentioned as an example to use for a possible EU measure.
Comparison of option 1 and 2
As shown in the graph below, majority of
respondents considered that neither a contribution based compensation fund, nor
a target based compensation fund could achieve the emission reduction
effectively or efficiently. 
4.5.2.      Mandatory
emission reduction per ship
The replies to the
questionnaire indicated that a target corresponding to a mandatory emission
reduction compared to historical transport performance or emissions could be
set for each ship calling into in-scope ports. The mandatory emission reduction
target could be set as percentage of historical baseline (option 1) or in
comparison with an index, such as the Energy Efficiency Design Index (EEDI,
option 2).
More than 60% of
respondents considered that neither a mandatory emission reduction target set
as percentage of an historical baseline (option 1), nor a mandatory emission
reduction target set in comparison with an index such as the EEDI (option 2)
could achieve the emission reduction effectively or efficiently.
The rational is that a
baseline is considered very hard or costly to define. Indeed, most of the
respondents are against the use of the EEDI[11] or the Energy
Efficiency Operational Indicator (EEOI). Moreover, the administrative burden of
setting a baseline is considered as very high due to the number of ships and
the multiple parameters, like loading conditions, weather conditions, etc. to
be considered. 
Some concerns were also
raised about the environmental effectiveness of such an option, as no absolute
target is set and as the environmental integrity could be challenged by the
increase of ships in case of a baseline based on historical emissions. 
16 respondents,
especially NGOs, also raised the issue that mandatory emission reductions per
ship do not generate revenues.
62% of the respondents considered that the
baseline cannot be set on another basis than the two options suggested in the
questionnaire, even if some respondents proposed to use speed as a baseline or
to consider the Environmental Ship Index.
65% of respondents agreed that a mechanism to
reward early movers should be foreseen. It was proposed to consider a
differentiation to the pricing of emissions for early movers or some financial
incentives (e.g. tax reductions, special grants, etc.). 6 respondents suggest
using ETS as a compliance mechanism to trigger benefits for early movers. It
was also proposed to differentiate the target according to speed.
Furthermore, 73% of respondents consider that a
mechanism that creates incentives to go beyond the mandatory emission reduction
should be explored. 16 respondents proposed to develop a baseline and credit
emission trading scheme for this purpose. 35 respondents proposed to set the
baseline according to speed. 10 respondents proposed to introduce financial
incentives, either through reductions in the pricing of emissions or of ports
dues, or through special grants, while 16 respondents proposed to introduce
energy efficiency labelling.
4.5.3.      ETS
Regarding the effectiveness and the efficiency
of an ETS to achieve the emission reduction required, the opinion of
respondents is balanced. 46% of respondents considered that an ETS can provide
the right signal to reduce GHG emissions from shipping if using an absolute
cap. Those respondents also stressed that ETS gives flexibility to achieve the
emission reduction. 44% of respondents, especially from ship-operators and
ship-owners, were concerned at the perceived administrative burden of an ETS.
The same group of respondents also mentioned that a regional ETS may not be
internationally well-received. Regarding the cost of an ETS, shippers expected
pass-through of costs even in a case there were free allocations given. 27% of
respondents from various categories considered that the ETS is the least costly
mechanism if emission reductions need to be made. 
15 respondents, especially NGOs and individuals,
noted that the environmental outcome of an ETS depends on the level of the cap.
It was stressed that a reliable monitoring and reporting scheme was needed, as
well as a mechanism to ensure effective compliance.
 
Regarding potential linking with other sectors,
the responses were fairly evenly split. On the one hand, 43% of respondents,
especially from ship-owners and ship-operators, supported the linking of a maritime
ETS with other sectors, as it would enable access to cheaper emissions
reductions, ensure equal contributions with other sectors and allowing shipping
activity to grow even where this leads to an increase in absolute emissions (as
reductions can be bought from other sectors). On the other hand, 45% of
respondents, especially NGOs, considered that emission reduction should be done
in-sector as the maritime sector can implement measures with negative abatement
costs. Potential variation of carbon price worried 16 respondents. 2
respondents mentioned that the ETS should be designed to avoid windfall gains
for specific categories of vessels. Some NGOs highlighted that the use of CDM
should not be unrestricted. 
Regarding potential financial support to the
shipping industry (either directly as free allowances or some of the
revenue generated from allowances) by an emission trading system, the replies
in favour or against were evenly split: 29% were in favour, 29% were against
and 42% of the respondents did not answer. Regarding the end of potential
financial support to the shipping industry, there was no clear preference on a
precise date for full contribution, with dates for reaching a full contribution
spanning between 2012 and 2032.
4.5.4.      Tax
Tax on fuel
71% of respondents considered that the evasion
risk regarding the implementation of a tax on fuel at a regional level cannot
be avoided. 16 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. 4 respondents stressed that
this option would be fully applicable if it were possible to be applied
globally.
49% of respondents indicated that a tax on fuel
could not achieve the emission reduction required effectively and efficiently.
The main concern raised was related to the fact that no revenues of a taxation
system would be earmarked for any purpose. Moreover, the environmental output
is highly uncertain, especially regarding the risk of evasion, but also due to
the fact that there is no cap on emissions. Furthermore, 12 respondents from
various categories expressed their doubts regarding the economical
effectiveness. In particular, it was mentioned that some competition distortion
could be triggered if different levels of taxes are set by Member States or if
the level of the tax triggers some modal shift. One service provider indicated
that the effectiveness could be solved by the introduction of progressivity
(the tax should be high when the fuel price are low and low when the fuel
prices are high). One individual mentioned that if a tax on fuel was introduced
the type of fuel should be considered (biofuel/fossil fuel/blended).  
Tax on emissions
44% of respondents indicated that a tax on
emissions could not achieve the emission reduction required effectively and
efficiently. 31 respondents from various categories considered that the risk of
evasion is lower for a tax on emissions than for a tax on fuel. However, 15
respondents from various categories indicated that the administrative burden
may be higher for the ships and the public authorities. Two NGOs indicated that
a tax on emissions should avoid adverse effects on least developed countries.
One individual mentioned that ships operating in specific weather conditions
should be taken into account.
4.6.  
Choice of policy options
Regarding the promotion of progress at the IMO,
a measure comprising a "compensation fund" received the highest
support, with 53% of respondents ranking this option as the most preferred one.
An ETS measure was considered as the most preferred option by 24% of
respondents, while a tax was considered as the most preferred option by 10% and
mandatory emission reduction per ship was considered as the most preferred
option by only 8%. As a consequence, the tax option and the mandatory emission
reduction per ship were considered as less preferred options by more than 50%
of the respondents. The level of respondents with no opinion is almost the same
for any option. 
The questionnaire identified the following
criteria that could be taken into account for the evaluation of possible EU
measures:
-         
Environmental
effectiveness (ensure effective emission reduction in line with the 2°C
objective)
-         
Maintaining
and enhancing competiveness
-         
Maintain
competitiveness of the EU maritime sectors through both first mover advantage
and by providing incentives to increase fuel efficiency 
-         
Enforceability
(Ensure appropriate monitoring, reporting and verification while keeping
administrative burden to the minimum)
-         
Consistency
with the related EU policies
-         
Vulnerability:
Exposure to/Risk of evasion
-         
Timeliness
(Consistency with timing of application of measures and interaction with policy
progress in international fora)
The environmental effectiveness of a possible EU
measure was considered the most relevant criterion by 65% of the respondents.
Other criteria to determine the choice of the policy option considered as most
relevant or relevant by a majority of respondents were the vulnerability of the
legislation, its enforceability and the impact on competitiveness of the EU
economy.
The other proposed criteria (timeliness,
competitiveness of the EU maritime sector and consistency with the related EU
measures) were regarded as less important for the choice of the policy option. 
46% of respondents considered that other
criteria should be used to choose the policy option and 44% had no opinion on
this. The additional criteria mentioned were the ability to generate revenues,
the effects on least developed countries, the ability to provide a stepping
stone to an effective global carbon pricing arrangement, the affordability to
vessels operators/owners and the risk of modal shift. Regarding revenue
generation, the contribution to the international climate finance is proposed
to be between 2.7% and 50% or more of the revenues. 
29 respondents, especially ship-owners and
ship-operators, recalled the nine principles agreed by IMO to define a market
based measures and indicated that an EU proposal should be assessed against
these criteria. One respondent indicated that the criteria proposed in the
questionnaire were sufficient as the nine principles of the IMO are included
in.
 
Regarding the potential use of international
credits (e.g. from the Clean Development Mechanism) for compliance, the
opinions were split as 50% of respondents were in favour and 50% against. 22
respondents, especially from NGOs, indicated that they were not in favour of
offsets, as some measures with negative abatement costs are available in the
maritime sector. However, 13 others indicated that it could give flexibility
for the maritime sector to achieve its target.
Regarding the same approach to use of the international
credits as for other sectors, views were evenly split (49% of respondents for,
51% against). A key issue mentioned was related to the quality of international
credits. 
 

4.7.   General comments
Under this section, many respondents reiterated
their strong support or their strong opposition to regional EU action. As could
be anticipated, many of the ship-owners and ship operators took the view that
the IMO deliveries, i.e. the EEDI and the SEEMP, are sufficient or felt
confident that the IMO would be able to deliver an MBM in the 'short term'. In
such context, this group of respondents were of the opinion that the EU should
not act. One ship-owner representative proposed that there should be a sunset
provision under an EU regulation. On the contrary, many equipment
manufacturers, the environmental NGOs and some ship-owners and ship-operators
considered that an EU proposal would be a desirable stepping stone for further
action at global level. 
The importance of ensuring the same level
playing field for all maritime actors was emphasised by the bulk of the
respondents. 16 respondents further mentioned that any future scheme should be
designed in a way that would provide predictability for planning future
economic actions. The option of basing a future scheme on incentives and not on
penalties was also put forward by 3 respondents in this section. 
Many NGOs emphasised that revenues should be
provided from shipping for international climate finance and especially for
least developed countries. On the contrary, most ship-owners, ship-operators
and equipment manufacturers took the view that the revenues raised should be
use to finance research and development in the maritime sector and to implement
new green technologies. 
One port and one individual were of the opinion
that the maritime sector was already struggling due to the implementation of
the MARPOL Annex VI related to sulphur content of fuels.
Some international partners (US, Canada and Japan) indicated their strong desire to accelerate discussions in IMO, and to work
together with the EU and preferred the EU postponing market-based measures and
focussing efforts on a common global proposal. 
5.        
General conclusions
The responses to the consultations carried out
clearly illustrate that respondents agree that a global agreement in the IMO
remains the best long term option to achieve GHG emissions reduction of the
shipping sector. The views on the contribution of an EU proposal to this
process differ. In the event of a European measure, there appears to be general
agreement that securing a level playing field for all ships using ports in the
EU should be a central priority. 
Views also converge in so far that any
market-based measure, whether adopted at EU or IMO level and whether it is a
tax, a compensation fund or an ETS, should have transparent and robust
monitoring of emissions. It was further felt that the monitoring approach to be
applied should avoid undue administrative burdens and ensure accurate reporting
results. 
In general, the position taken by the respondent
groups reflected their expected interests. Shippers raised concerns about a
possible pass-through of cost even if there were free allocations or other
subsidy measures, which could lead to an increase of freight rates;
representatives of the short sea shipping focused on the risk of modal shift;
ship-owners and ship-operators stressed primarily the issue of affordability;
the equipment manufacturers mentioned the benefits for the implementation of
green technologies. Public authorities generally wish to limit administrative
burden. NGOs indicated that the use of revenues from maritime was an important
way to provide climate change funding to the least developed countries.  
Regarding the different options proposed,
respondents indicated that the two most preferred ones would be the
compensation fund (with the target- and contributions-based sub-options) and
the ETS. An ETS was considered as the most effective and efficient option to
achieve the emission reduction required, with a compensation funds considered
the second most effective and efficient policy measure in this context.
Establishing a compensation fund was considered as being better to promote
progress at the IMO, while the establishment of an ETS was considered as the
second most effective option to promote progress at the IMO.
The feedback on the effectiveness and efficiency
of the policy options confirmed that a number of ship owners and operators,
making up the majority of the respondents, are sceptical regarding all market-based
measures. 
This consultation provides an input to the
Commission's impact assessment work. 
Annex IV  - Minutes of the ECCP
meetings
1st Meeting 
REDUCING GREENHOUSE GAS EMISSIONS FROM
SHIPS
MINUTES OF THE FIRST MEETING OF THE SHIPS
WORKING (WG Ships) GROUP 6

HELD ON 8 & 9 February 2011

at the Albert Borschette Building, BRUSSELS
These minutes summarise the discussions
in the first meeting of the ECCP Working Group on ships. The group was set up
to provide input to the Commission in its work to develop and assess options
for the inclusion of international maritime transport in the EU's GHG reduction
commitment should there be no sufficient international agreement addressing
these emissions. The ECCP brings together all relevant stakeholders, to discuss
and prepare the further developments of the EU and the modalities of reducing
GHG emissions from ships.
This meeting is the first of a series of
three meetings foreseen to consider a list of topics important to the maritime
sector and focused on scope, monitoring and enforcement. 
All presentations referred to below are
available, as well as a list of organisations represented in the group at: http://ec.europa.eu/clima/documentation/eccp/second_stakeholder_en.htm 
These minutes record the views expressed
by representatives present in the Group.
For the next ECCP
It
was requested that the background material be sent earlier (BE, DE, DK, NL,
INTERTANKO) and that the dates of the second ECCP be changed to avoid overlap with IMO and
UNFCCC meetings. FI suggested that the 3rd meeting be held after MEPC 62. WSC
and others requested a set of scope scenarios to discuss. IETA also requested
additional time to discuss reporting, verification and enforcement (before
evasion). Commission Representatives agreed
that a number of issues such as scope could be re-opened at a subsequent
session.
Shipping GHG emissions and the IMO
The
majority of participants stated
that the priority should be to aim for a global agreement reached at the IMO level (FI, DE, NL, GR, INTERTANKO, ECSA, SE,
T&E, WSC, CY, ESC, UK, ECC, Seas at risk, DK, MT, FR, IMO, CESA, NO, IR).
The Commission also stated its strong preference for an effective global
agreement and stated clearly that an IMO or UNFCCC measure should be adopted
which includes maritime transport emissions in reduction commitments. The ECCP
forum is a way for stakeholders to express their views at a level of detail
that will help measures to make sense, whatever the fora for their
implementation. 
NGO
T&E stressed the need to cover maritime emissions, as aviation emissions
will soon be fully covered by the EU ETS. T&E also called upon the 5 EU MS
that have not ratified MARPOL Annex VI to do so ASAP (T
&E, NO) and with regards the Energy Efficiency Design Index (EEDI), to
strengthen the EU voice behind its adoption. 
 
Views on regional action
Following an initial presentation, participants
made the following points regarding the specificities of any potential regional
measure: 
·                   
Consistent
with 9 IMO principles (DK, ECC, NL)
·                   
Based
on existing IMO tools and documentation as this will facilitate expansion into
a global scheme (ECC, NL, MT, CESA, BIMCO, NO, EMSA)
·                   
Importance
for 'expandability' into an IMO scheme. A replicable regional measure would
mean that different measures adopted in various parts of the world could fit
together.  (SE, CY)
·                   
Flag
neutral & avoid distortion of competition (BIMCO, WSC, NL, DK, MT)
·                   
Minimum
administrative burden (ESC, NL)
·                   
Favouring
incentives rather than sticks (ESC)
·                   
Be
adopted fast (NL)
·                   
Start
with a phase-in approach (IMO, NL, NO, EMSA)
·                   
Cover
a large volume of emissions (SE, Sea at risk)
·                   
Fair
and equitable measures which will not impact negatively on competitiveness (FR,
ESC) and will prevent evasion (DE, NL) as well as carbon leakage (FR)
Scope Discussion
After an opening presentation, stakeholders
exchanged views on the different aspects of scope:
Type of GHG emissions - the IMO
Secretariat, NL and FI proposed to cover CO2 (initially – NL, FI). 
NGO T&E stressed the importance to cover black carbon, a potent GHG and NOx
emissions as these cause major eutrophication problems. Even though extensive
efforts have gone into targeting NOx emissions from land based sources, no
efforts have gone into addressing those coming from shipping. On this point,
Commission representatives explained the planned revision of the Sulphur
Directive.
Geographical Scope - NGO Seas at Risk, as well as SE, argued for the largest coverage possible to avoid market
distortion (DE). MT stressed the importance to study this topic more
extensively. 
The WSC, CY and NO, suggested that an EU measure
should rely on a port entry based system, rather than a time or distance based
one (CY, NO). The WSC explained that a time based measure would be difficult to
apply in practice and that more analysis on the workability of such an approach
is needed (WSC, BE, UK). Similarly, the distance based scheme has difficulties
but precedents are available (WSC). 
IE suggested a hybrid scheme covering ships that
bunker in the EU vs. all other ships. MT suggested different measures for
different scope boundaries in a staggering manner. Similarly, Business Europe
favoured various instruments for intra EU, inland and outside EU shipping. 
Liable entity responsible for covering emissions – Different
views were expressed as to who should be the liable entity. CY suggested the
registered owner and for non EU flagged vessels the use of Internal Safety
Management Code (ISM Code) manager; CY will provide written comments to all
participants with explanations.  IE suggested the registered operator rather
than the owner. SE suggested a hybrid scheme, with an upstream and downstream
approach for ships not buying emissions by covered suppliers. MT suggested
considering a combination of measures applicable differently to intra-EU
shipping and ships going/coming from third countries. 
EUROPIA had a different opinion and expressed
its preference for a downstream approach, stating that marine fuel suppliers
should not be involved. EUROPIA suggested that the liable entity be the one
responsible and/or having an influence on emissions reductions. This was also
supported by FI and SE. ECSA suggested using the management company and the use
of compliance documents showing the person in charge of safety. 
Type of Ships – Different views were
expressed with regards which type of ships should be covered. 
NL suggested the coverage of as many ships as
possible but stated the need for further information and analysis. Similarly,
SE explained that smaller ships should not be exempted to protect intra-EU
shipping competition, but also because relatively small ships are large
emitters. A hybrid system was suggested (upstream for smaller ships, and
downstream for larger one). EMSA also supported the hybrid approach suggested
by SE.
A large group of participants was in favour of
covering larger ships above a certain threshold. 
The WSC, the IMO Secretariat and SI proposed to
target large ships at first, as covering small ships could be extremely
burdensome (WSC, IETA) and could lead to modal shift (IMO, ECSA). Also, by
addressing larger ships first, it will be possible to assess the scheme's
monitoring capabilities/difficulties (SI). A different measure could then be
developed for smaller ships (BIMCO). The IMO Secretariat proposed the use of a
high tonnage threshold and BIMCO suggested the IMO thresholds (thereby making
the system expandable into a global measure). The UK added that the 'de
minimis' threshold should not compromise the environmental effectiveness of
the scheme – for instance a 500Gt threshold could be used, as stated in the CE
DELFT report, 97% of emissions in 2006 were produced by ships above 500Gt.
Commission representatives noted that 80% of emissions come from ships above
5000gt. EMSA also suggested the use of IMO thresholds including MARPOL and
SOLAS. 
However, a threshold based system could
incentivise shipbuilders to build ships below that threshold (WSC). Also, IACS
expressed their concern about underpowered ships being produced: there is a
need to be able to keep going in heavy weather.
Legal aspects – certain participants
raised concerns regarding the legal aspects of a regional scheme, especially if
based on port entry (UK, BIMCO, WSC, BE, CY). However, NGO Seas at Risk and CY stated that most legal issues could be overcome. They gave some example
such as the US Oil Pollution Act (OPA). Commission representatives observed
that partial coverage of industry was precedent. In a recent ECJ case (Arcelor
case C-127/07), the Court ruled that provided the regulator extends coverage
over time, a portion of the sector may be covered at first.
Speed Limit Approach – NGOS were very
supportive of this approach versus the industry which raised many concerns.
NGO Seas at Risk suggested the
need for a speed limit imposed as a mandatory requirement to port entry, and as
a potential complementary measure to a MBM. Slow steaming would help ships meet
their operational EEDI and lead to actual in-sector reductions. This view was
supported by NGO T&E confirming that slow steaming leads to immediate
emissions reductions. Even though more ships might be required, the CO2
gain will remain significant. Seas at Risk is currently organizing a study
looking at speed limits, regionally, globally, and at contract and chartering
aspects. 
IE and FI explained their heavy reliance on
shipping for imports and exports (95% of trade to Ireland is via ships). In
this context, they both expressed their dislike towards this approach. FI
explained that the increase in ships needed to compensate for the slower
steaming, in combination with the heavy winter conditions, would increase GHG
emissions significantly. The ECC explained that in addition to the increase in
emissions, the need for more ships would mean additional crew would be
required; currently the market lacks maritime crew. BIMCO added that slow
steaming impacts the logistics chain negatively and that it is already done
during fuel price increases. ECSA's concern was that a speed limit would lead
to modal shift to aviation. SE explained that a speed limit could not be
applicable on RORO and passenger ships as these are designed to run on specific
schedules that allow a specific amount of trips per day. The ESC expressed
concerns over resulting lower lead times. ESC therefore proposed that slow
steaming be applied on a voluntary basis only (ESC, BIMCO). 
MBM, technical or operational measures - NGO
T&E stated that shipping should explore every possible avenue for emissions
reductions (technical, operational and MBM). They urged the Commission to keep
considering all possibilities and that a technical measure could influence the
IMO members to act prompter. T&E also suggested fuel taxation in Europe. 
For a regional scheme, the IMO Secretariat
favoured an MBM stating that it would be more difficult to introduce
operational and technical measures regionally. For example, the implementation
of an operational measure requires a change of culture on board the ship – this
is more difficult than to require ship operators to pay a fee. Similarly, it is
more difficult to regulate the construction and design of ships regionally. The
IMO Secretariat concluded that technical conditions could be set but these would
certainly be less straightforward than an MBM.
Many other participants also agreed that all
technical regulatory aspects should be dealt with by the IMO (NO, INTEMANAGER, OCIMF, MT). The importance of technology was also stressed by CESA, stating that as shown
by DNV and the IMO studies, technological and operational measures combined
provide net benefits to the operator. IACS added that any technical measure
should be solely technically based and not politically driven (i.e. double
hull).
Need for additional data - Many
participants stated the need for additional data and examination of data. Data
is needed about the composition of ship size/fraction/thresholds within Europe and segregate who comes from trans-oceanic voyages (WSC).  FI requested that COM
provides more information at the next meeting on the distribution of emissions
(intra-EU / domestic / third countries) and per type of shipping (FI, Business
Europe). This will also help determine which types of ships should be covered
(IETA). (NB. The COM is intending to provide such information to the second
ECCP meeting)
Concluding comments by the Chair
Stakeholders 

 Accept the urgent need to tackle climate
     change
 Strongly prefer a global solution
 Suggest building on existing
     scope/categories rather than reinventing the wheel
 Suggest focus on CO2 initially
 Strongly support a flag neutral application
 Suggest port state control as a possible
     way of administering/enforcing
 Suggest a MBM is more appropriate for
     regional action than technical or operational measures

Monitoring
Following the EEA's presentation, Commission
representatives made a brief presentation on monitoring and stressed its
importance for ensuring successful implementation. FI supported this statement
by quoting an IMO expert group report stating that "the integrity of an
MBM depends on robust monitoring".
Two monitoring options were examined:
·                   
Option
1 - Inventory control based on the log books or Bunker Delivery Notes
(hereafter BDN). Use of emissions factors. 5% margin of error.
·                   
Option
2: A direct measurement approach with a fuel consumption monitoring system.
The following points were then made by the
stakeholders:
Data availability - NL stated that fuel
consumption data is simple to gather as the crew normally measure and report
fuel consumption on a daily basis. NL explained that the data may be inaccurate
at times but that all technical issues preventing accurate data collection
could be tackled. It was added that if the EEDI became adopted, ship operators
would be very keen to have accurate information. 
ECSA stated that there are many possible ways to
monitor emissions but these are time consuming. From the technological/hardware
side, CESA and INTERMANAGER confirmed that fuel consumption can be measured
precisely. CESA explained that ship operators operating their own ship, are
very keen in investing in monitoring equipment and that the uncertainties in
the data originate from the lack of legal requirements and enforcement. In this
context, SI expressed its contentment over the industry acknowledging full
technical possibility to monitor its emissions and added that in combination
with political will, progress could be made. For the dredging sector, fuel
consumption depends on the activity and is straightforward to measure (what
goes in, goes out). However, with the emissions, alterations are common
depending on engine performance (EUDA).
The method to gather data -
INTERMANAGER stated that from an operational point of view many indicators
could be used for monitoring (data that gives indication on the tuning of the
engines). This should be considered, as many factors (wind, waves etc)
influence fuel consumption data and create uncertainties and inaccuracies. EMSA
suggested the use of existing EU monitoring tools. Moreover that the EU Member
States could as a condition to port entry, require data reporting.
IBIA explained that inaccuracies are common in
fuel consumption data and therefore suggested emissions monitoring rather than
fuel. Finally, the question of how precise we would want to be was raised
(IBIA, IETA). The UK favoured the use of current available data and stated that
a 5% margin for error sounds acceptable (Option 1). In the context of Option 1,
BIMCO added that the IMO emissions factors should be used, as the industry is
familiar with them and knows how they work. With the Fuel Quality Directive,
upstream CO2 emissions are known for the power sector. It is however
complicated to track the emissions based on marine fuel supply distribution.
EUROPIA therefore favoured emissions calculation based on factor emissions
(Option 1). 
The IMO Secretariat favoured Option 2 (direct
measurement) and added that a ship calling regularly at an EU port, when
subject to an emissions reduction measure, might chose to invest in a reliable
emissions monitoring equipment. A ship that rarely calls at an EU port may
prefer to pay a standard fee.  
Entity responsible for reporting fuel
consumption - SE stated that the shipowner should report fuel
consumption by providing a declaration, i.e. like the Norwegian tax which has a
declaration system and makes use of the BDNs and the log books; ships prove
they emitted less than the benchmark (IMO). EMSA added that with such a system
which looks at the level of the single ship, the declaration data could then be
compared with the bunker fuel sale statistics.
Reporting of fuel consumption - The IMO
Secretariat explained that there is no legal requirement for ships to report
their emissions.  A 2008 IMO Secretariat proposal to introduce mandatory
reporting of fuel consumption was turned down by the IMO Member States at the
time. While it was recognized that fuel consumption data could be seized on
every ship, IMO Member States objected to data collection for two main reasons:

- the resulting burden for management companies
and the large flag states
- commercial confidentiality issues. 
There is no plan by the IMO to raise this
proposal again in the foreseeable future (IMO).
ECSA mentioned a voluntary reporting exercise
which was carried out in Hamburg. Help/info could be requested from them. To
minimise administrative burden, SE proposed that ships which run frequently
between two ports, only report their fuel consumption once a month. Moreover,
incentives could be offered to enhance accurate reporting and compliance.  For
the other ships (whether the scheme be route based or time based) a default
value/price could be set.
EUDA suggested looking at the work of DG
Enterprise on technical aspects. Moreover, EUDA requested that any measure adopted,
create durable modification of the maritime market which will require all
maritime stakeholders to change. DG CLIMA asked how the data collected at ship
level could be consolidated and accurately reported for verification.
Verification - IETA pointed out the
difference between the term verification when used in relation to GHG
inventories and when used in relation to technology. Technological verification
is done differently.
Upstream or Downstream - SE
favoured an upstream approach in which shipowners would declare if the
emissions bought were bought from a covered company. T&E explained that 50%
of EU shipping emissions come from intra EU shipping and suggested ships be
divided between the 'blue ships' which would be subject to an upstream charge and
the 'red ships' (travelling outside the EU).
The WSC stated that an upstream system would be
ideal if the market were closed; being open, a downstream system is most
appropriate. Nevertheless, the WSC stated that a downstream system would still
be very complicated to monitor and would impact the level playing field. The
following questions were raised: How would you minimise under-reporting? Is it
difficult to segregate how much fuel suppliers have supplied and to whom? How
do you verify that data? This view was supported by the IMO secretariat.
Concluding Comments by the Chair

 There appears to be lots of monitoring
     already being done for commercial reasons – but no standard approach.
 Monitoring creates efficiencies and is
     beneficial for shipowners
 An adequate level of data accuracy is
     available
 The question is how much accuracy do we
     want
 Verification and reporting needs further
     discussing
 The definition of verification should be
     well defined when talked about

Enforcement
Following an initial presentation, EMSA
mentioned the complementarities of the port State control and the flag State
controls in enforcing measures applicable to ships. It highlighted the
distinction should be made between controls in ports and Port State Controls
which rely on the Paris Memorandum of Understanding (Paris MOU). The following
points were made by the stakeholders:
Scope of enforcement - MT stressed the
important link between scope and enforcement, and the need to have a clear
understanding of who will fall within the scope of enforcement. Reference was
made to the aviation sector, for which according to MT, the identification of
whether an operator fell within the scope or not was a complex exercise. Also,
MT does not favour exemptions as this makes the above mentioned exercise more
complicated. 
WSC stressed that the context of what we are
enforcing matters greatly and that knowing the context of the scheme would make
it easier for the stakeholders to give feedback on enforcement. The following
questions were raised:
- Whether the Commission is envisaging
enforcement through a single enforcement unit or whether the Member States will
be responsible
- Whether the Commission is envisaging recording
fuel consumption or making calculations based on specific fuel consumption over
specific distance
- Whether it will be required for ships to
account for emissions occurring outside the EU
CMIA asked whether it would be possible to have
a different enforcement scopes for intra EU shipping vs. international
shipping. Many recalled that intra-EU is also partly international (voyages
between EU MS). CMIA also expressed preference for an open sector
approach, in which shipping would be allowed to trade allowances with other
sectors – there would otherwise be a risk that the carbon price suffers of
spikes.
Enforcement mechanisms - MT and
BIMCO suggested the use of existing documentation (threshold certificates –
BIMCO), regimes and proceedings (MT). MT and the IMO Secretariat both favoured
a prescriptive approach, with clearly defined roles of who should do what. MT
also suggested the hybrid approach. The ECC stated that ships should not be
delayed because of the enforcement checks. NL proposed a risk based
enforcement system with checks on a random basis (IMO).
In this context, it was mentioned that an
advantage of a MBM is that it places fewer burdens on the industry than a
Command and Control measure.  The UK requested a linkable enforcement system,
consistent and compatible to other systems.
EUDA favoured strong compliance incentives
rather than bans (IE). The ECC asked whether early adopters could
receive rewards.
IE favoured a sophisticated enforcement regime
and suggested the use of SafeSeaNet (Maritime platform for exchange of
information between designated authorities). Similarly to EUDA, IE does not
favour banning procedures. Ships could give a 24h notice before nearing the
port and confirm whether they are in compliance or not. If not, entry will not
be allowed. This type of enforcement will be simple and won't require any
physical intervention.
Commission representatives explained
with the current EU ETS registry system, compliance and enforcement are
straightforward. Once a year operators have to report their emissions in the
registry. Those then have to be verified by the verifier, who is also in the
registry. In the case of shipping, the verifier could look at the BDN which
wouldn’t add an extra requirement in itself. The operator would then have to
surrender allowances based on the emissions reported and verified. 
This system makes it easy for the regulator to
see who complies and who doesn’t; this information is then also publicly
available, which creates an extra incentive for compliance due to the naming
and shaming effect.
The IMO Secretariat suggested that each
participating ship have its own account and that checks be done on a random
basis. EMSA referred to a 'virtual wallet' attached to the ship identification
number (IMO number). Amendments of the BDNs will be necessary, before these
could be used for enforcement purposed. New enforcement tools, documentation
but also new skills will be needed, if the system will not be purely paper
based. For verification purposes SafeSeaNet could be very useful (but it would
depend on the design of the system). The option of establishing a new entity
for enforcement should be considered in further detail. For the use of the Long
Range Identification & Tracking System (LRITS), the SOLAS convention would
need to be amended to make sure LRIT could be used in that way. However, it is
more likely that it could be used in the context of a global scheme than in a
regional scheme.
IETA explained that verifiers could look at all
BDNs associated with a ship, the quality of the fuel going on board and the
effectiveness of the equipment. It could also be feasible to ask for
calibration certification for the bunker barge. Bunker notes should be the
basis of monitoring.  The WSC stressed the need to have a MBM that
will affect the price signal and push the industry to reduce emissions. The
Norwegian NOx tax has elements of interest which could be used when designing
an EU scheme (NO). FI mentioned the Sulphur Directive for which similar
enforcement issues arise.
The IMO Secretariat made
a closing comment and pressed Member States to ratify MARPOL Annex VI and vote
for the adoption of the EEDI in July 2011. Finally, the IMO Secretariat asked
DG CLIMA to strengthen its outreach policy and use its diplomacy, to push third
countries with a view to adopting a global IMO led measure.
List of acronyms and abbreviations
 BIMCO || Baltic and International Maritime Council 
 CEFIC || European Chemical Industry Council 
 CESA || Community of European Shipyards Association 
 CLECAT || European Association for Forwarding, Transport, Logistics and Customs Services 
 CMIA || Carbon Markets and Investors Association 
 DG ENTR || Directorate-General for Enterprise and Industry. European Commission. 
 DG MARE || Directorate-General for Maritime Affairs and Fisheries. European Commission. 
 DG MOVE || Directorate-General for Mobility and Transport. European Commission. 
 ECC || European Cruise Council 
 ECSA || European Community Shipowners' Associations 
 EMEC || European Maritime Equipment Council 
 EMSA || European Maritime Safety Agency 
 ESC || European Shippers Council 
 ESPO || European Sea Ports Organisation 
 EUDA || European Dredging Association 
 EUROCHAMBRES || European Association of Chambers of Commerce and Industry 
 EUROPIA || European Petroleum Industry Association 
 FEPORT || Federation of European Private Port Operators 
 IACS || International Association of Classification Societies 
 IBIA || International Bunker Industry Association 
 ICS || International Chamber of Shipping 
 IETA || International Emissions Trading Association 
 IMO || International Maritime Organization 
 INTERTANKO || International Association of Independent Tanker Owners 
 INTERMANAGER || International Ship Managers Association 
 MIF || Maritime Industries Forum 
 OCIMF || Oil Companies International Marine Forum 
 T & E || Transport and Environment 
 UNFCCC || United Nations Framework Convention on Climate Change 
Participants
 National Administrations 
 1 || BE - Belgium || DECLERCK Ruth 
 2 || BG - Bulgaria || ATANASOVA-STOYCHEVA Irina 
 3 || CY - Cyprus || ATALIANIS Christos Dr. 
 4 || DE - Germany || HEINEN Falk 
 5 || DE - Germany || MÖLLENKAMP Sabine Dr. 
 6 || DK - Denmark || NIELSEN, Stefan Krüger 
 7 || DK - Denmark || HASSELAGER Lars Olsen 
 8 || DK - Denmark || MONDRUP Gitte 
 9 || EL - Greece || KOUROUNIOTIS Ioannis Commander 
 10 || EL - Greece || GRYLLIA Artemis Mrs 
 11 || EL - Greece || KALLIPOLITOU Venetia Mrs 
 12 || FI - Finland || ERIKSSON Lolan 
 13 || FR - France || SIMIU Diane Mlle 
 14 || IE - Ireland || SNELGROVE James 
 15 || IT - Italy || RAMPAZZO Daniele 
 16 || IT - Italy || RICCI Angelo 
 17 || LV - Latvia || RIMSA Helena 
 18 || LV - Latvia || LEJA Linda 
 19 || MT - Malta || VASSALO Saviour 
 20 || MT - Malta || SAMMUT Christopher 
 21 || NL - The Netherlands || DEKKERS Chris 
 22 || NL - The Netherlands || DIJKSTRA Wieger 
 23 || NL - The Netherlands || HASSING Sibrand 
 24 || NORWAY || ALMKLOV Lars 
 25 || NORWAY || KORSVOLL Marie 
 26 || PL - Poland || BANAS Panel 
 27 || PL - Poland || WERKOWSKI Maciej 
 28 || RO - Romania || DRAGU Violeta 
 29 || RO - Romania || TARASILA Florin 
 30 || SE - Sweden || KÄGESON Per 
 31 || SI - Slovenia || GASPERIC Matej 
 32 || SI - Slovenia || TUSAR Petra 
 33 || SI - Slovenia || ZABUKOVEC Ales 
 34 || UK - United Kingdom || PHILPOTT Alex 
 EU Shipping Organizations & Associations 
 35 || CESA || LÜKEN Reinhard 
 36 || CLECAT || BEUCK Niels 
 37 || ECC || ASHDOWN Rob 
 38 || ECSA || PETERSEN Hans Henrik 
 39 || ECSA || LOICQ Benoit 
 40 || EMEC || LANCELLOTTI Paola 
 41 || EMEC || CUNNINGHAM Douwe 
 42 || ESC || VAN DER JAGT Nicolette 
 43 || ESC || VAN DOESBURG, Joost 
 44 || ESPO || MICHAIL Antonis 
 45 || EUDA || SANSOGLOU Paris 
 46 || FEPORT || TEURELINCKX Diego 
 47 || FEPORT || KRÖGER Martin 
 48 || MIF || BRODDA Joachim 
 International Shipping Organizations & Other Associations 
 49 || BIMCO || LUND Michael 
 50 || IACS || WRIGHT Colin 
 51 || IBIA || ADAMS Ian 
 52 || IBIA || Ms EGAN Charlotte 
 53 || IMO || VAGSLID Eivind 
 54 || INTERMANAGER || SORLIE Svein 
 55 || INTERTANKO || FUGLESANG Kristian 
 56 || OCIMF || PROCTOR Cliff 
 57 || WSC || WOOD-THOMAS Bryan 
 Other Associations 
 58 || BUSINESS EUROPE || FAURE-FEDIGAN Christine 
 59 || CEFIC || VERLINDEN Jos 
 60 || CMIA || STUART Graham 
 61 || EUROCHAMBERS || HAAS Regina 
 62 || IETA || LUNSFORD David 
 63 || IETA || WARRIS Anne-Marie, replacer 
 64 || EUROPIA || CHEVALLIER Franck 
 65 || UNFCCC SECRETARIAT || VLADU Florin 
   || NGOs 
 66 || SEAS AT RISK || MAGGS John 
 67 || T&E || HEMMINGS Bill 
 68 || T&E || HOLYOAKE David 
 69 || SURFRIDER FOUNDATION EUROPE || BRETON Véronique 
   || European Commission – EEA – EMSA - European Parliament 
 77 || DG CLIMA || CHAPUIS Laure, DELIYIANNIS Chrysostomos, DUGGAN Jill, KIZZIER Kelly, KREMLIS Mariella, MAJOR Mark, MEADOWS Damien 
 78 || DG ECFIN || MIGUEL Cabeza Mercedes 
 79 || DG ENTR || HEHN Wolfgang / MITOV Martin 
 80 || DG MARE || VOPEL Ronald 
 81 || DG MOVE || BUTLER Victoria 
 82 || DG MOVE || LESOVICI Roxana 
 83 || EEA - European Environment Agency || VAN AARDENNE John 
 84 || EMSA || LEROY Arnaud 
 85 || Assistant MEP || RAPTIS Sotirios 
2nd Meeting 
REDUCING GREENHOUSE GAS
EMISSIONS FROM SHIPS
MINUTES OF THE SECOND
MEETING OF THE SHIPS WORKING (WG Ships) GROUP 6

22 & 23 June 2011

at the Albert Borschette Building, BRUSSELS
These minutes summarise
the discussions in the second meeting of the ECCP Working Group on ships. The
ECCP WG was set up to provide input to the Commission in its work to develop
and assess options for the inclusion of international maritime transport in the
EU's GHG reduction commitment should there be no sufficient international
agreement addressing these emissions. The ECCP brings together relevant stakeholders,
to discuss and prepare the further developments of the EU and the modalities of
reducing GHG emissions from ships.
This meeting was the
second in a series of three meetings foreseen to consider a list of topics
important to the maritime sector and focused on available data, use of revenues
and evasion. 
All presentations
referred to below are available, as well as a list of organisations represented
in the group at: http://ec.europa.eu/clima/documentation/eccp/second_stakeholder_en.htm 
These minutes record the
views expressed by representatives present in the Group.
Introduction
The European Commission (COM) introduced the
meeting by providing an overview of the agenda on maritime emissions issues,
especially regarding the next IMO meeting in July, which will be important for
the adoption of an Energy Efficiency Design Index (EEDI). COM presented the
objective set in the new Transport White Paper, i.e. a reduction of at least
40% of EU shipping CO2 emissions (50% if feasible) in 2050 (from
2008 levels). As requested in the first ECCP meeting, data was provided
regarding the number of port calls in Europe by COM and IHS Fairplay. COM
pointed out that the terms of reference of the impact assessment are available
on the Commission’s website (request of FI and UK).
For the next ECCP meeting
FI, RO and DE underlined
to need to analyze the legal issues and challenges that could arise when
implementing a regional system, especially those linked to evasion. On this
note NGO Climate Earth informed the stakeholders about their study on the legal
aspects related to EU unilateral action which will be available. Finally,
DE and FR requested the COM to clarify open legal questions especially as to
the compatibility of a regional scheme with the international law of the sea
and with WTO rules. DE further requested the Commission to look in how far a
policy measure could combine high environmental effectiveness with low evasion
risks.
Regarding the Impact Assessment, T&E
requested the Commission to look at all the regulatory options and assess them
on the basis of their potential to create substantial emissions cuts and cuts
quickly within the sector.
There was strong interest in the COM's selected
Impact Assessment contractors presenting to the next ECCP meeting.
In the
beginning of the meeting, many stakeholders underlined that a global measure is
preferable over a regional scheme.
Slow steaming
After the presentations made by Seas at Risk and
the National Technical University of Athens (NTUA), an intensive debate raised
the following different issues.
Most of the stakeholders agreed that reducing
speed can contribute to GHG emission reductions. Several stakeholders also
considered that slow steaming is a part of the solution to reduce GHG emission,
but it cannot be considered as a single option (Sea at Risks, BE, DE, Öko
Institute) and it has to be considered at a global level (DE, FI, UK, FR).    
Seas at Risk underlined that speed reduction is
the most cost-effective way to reduce emissions and that the adoption of an
EDDI is not the solution for short term action. Reducing speed is also
considered by some stakeholders (Öko Insitute, BE) as inefficient to ensure
absolute emission reduction, contrary to an MBM. Seas at risk expressed the
idea that an MBM and speed limits could be combined, for example by creating a
system that forces actors to pay for going faster. 
Several stakeholders (BIMCO, ESC, ICS, ESCA,
WSC, FR, FI, ECC) are against a mandatory scheme and underlined the need to
differentiate between ship types. If speed limits are introduced, flexibility
is required for its implementation (SE, ESC, ECSA, FI, FR).
It was argued that there is no correlation
between fuel prices and speed (WSC, Öko Insititute, BIMCO). The WSC explained
that the
important increase in the price of fuel between 1990 and 2007 had a limited
effect on the speed of ships and that a fuel levy, would have no stronger
impact. A mechanism should be found which will drive improvements within the
sector itself (WSC). 
Others (Seas at Risk, NTUA) considered that
increasing the fuel price will have a direct effect on speed but the NTUA and
ESC recognized that the speed of ships is not only driven by fuel prices, but
also by market requirements.  
The safety issue was also pointed out by the UK and ICS. UK considered
that traffic congestion in ports due to slow steaming would be a major safety
concern.FI
raised the 'land bridge' issue: countries highly dependent on shipping will be
penalized by a reduction of speed. EL supported this view as well. Sea at risks
recognized that this issue has to be discussed. 
Several stakeholders
(NW, SE, NL, Intermanager, DE, ESCA, FR) requested more analysis on this
topic.  The Seas at Risk study final report will be available in October 2011.
Several stakeholders (FI, UK, BE, DE, ECSA, ICS) were of the opinion that a
flexible measure, which gives incentives to a broad range of CO2-reduction
options, is preferable. 
Regional tax/ Hybrid system
Two presentations were made by T&E, on the
one hand, presenting a solution based on a regional tax and by the Center for
Transport Studies, on the other hand, presenting a solution that combined a tax
based on fuel consumption for small vessels and a cap and trade scheme for
large vessels. This hybrid system is designed to involve progressively all
actors and non-EU/EEA countries. 
T&E also underlined that the emissions
reduction has to be done in the shipping sector. WSC shared the view that the reduction
must be internal. However, he pointed out that the increase of fuel price in
the 90's had a major effect on the fleet efficiency.
Seas at Risk considered that whatever the system
will be, it have to provide absolute emission reduction.
Several delegations (UK, NW, WSC) considered
that a regional tax could be very complex to implement, especially due to the
administrative burden. 
BE expressed their preference for an MBM, and
others specified that an MBM should be seen as transitory measure (ECC). ECSA stated its
preference for a global bunker levy but shared the view of the ECC, that an MBM
would be necessary to achieve absolute reductions and achieve the 40% emissions
reduction target set in the White Paper, to complement technical and
operational measure.
It was questioned whether an MBM is able
to create multiple accelerators to provide incentives to improve the efficiency
of the sector (ECC). ECC explained that emissions reductions could not be
achieved with zero cost, especially in the cruise industry.  If this was the
case, the cruise industry would have done so already. However, some
stakeholders (CESA, T&E, Seas at Risks,) considered that some measures
could cost nothing. CESA pointed out that 35% reductions without any cost are
possible.
ESC considered that a tax would not bring any
substantial emission reduction. 
CY is against any regional system, including a
system capped.
EL does not support a regional measure. It called for the EU MS and IMO to
achieve an international solution. It stated that in developing a regional
measure, the EU should pay particular attention on how it will affect certain
MS, in particular Greece, where it is essential to keep shipping services
between islands. EL will submit their comments on this issue in writing.
Several stakeholders (ICS, BE, DE,
  FI, UK, FR, EMEC, CY) raised the risk of evasion by implementing a
regional system. However, DE, UK and FI stressed the need to analyze any
solution that can lead to a global system. ICS consider that if a regional
system exists, it must be flag-neutral.
Öko Intitut underlined the need of equity
between the modes of transport and therefore all sectors need to contribute to
the GHG emission reduction.
Use of Revenues
The following views were expressed by the
stakeholders after the two presentations (Use of Revenues by COM – the
Norwegian NOx Fund by NO). 
Some stakeholders reaffirmed the need to have a
global solution as opposed to a regional one (ICS). ICS was positive about the
ability of the IMO to come forward with a solution after the go ahead from the
UNFCCC.
A question on how compliance is ensured in the
context of the NOx Fund was raised, due to the fact that contributions are made
on a voluntary basis by the industry. NO explained that compliance was ensured
by the “participant agreement” between the government and the industry and
penalty processes.
The benefits of LNG were raised by SE. LNG
creates greater CO2 emission reductions compared to the traditional bunker
fuels (SE, NO). It reduces CO2 emissions by 20% (ICS, SE), NOx emissions by 90%
and sulphur emissions very close to zero (SE). According to ICS, LNG seems like
an attractive solution but could create important damages in the case of a
leakage (even 1%) as LNG is predominantly comprised of methane, a potent global
warming gas.
NO stated the need to look into all possible
options so as to achieve the 2 degrees target and stated that all sectors would
have to incur costs to reach that target. T&E encouraged COM to look into
solutions to handle NOx emissions from ships, in conjunction with DG ENV.
Distribution of revenues to third countries 
SE noted the interest of the EU to use revenues
differently over time and keep those within the European Union in the short
term. When expanding the regional system, the revenues could be distributed on
a larger scale, thereby considering the Common but Differentiated
Responsibility (CBDR) principle.
According to Oxfam international, any EU
regional system should include financial obligations to set aside revenues to a
green fund or channel funds directly to developing countries for climate
action, especially on adaptation, in accordance with the pledge of Copenhagen made by the EU. ICS agreed in that part of the revenues should indeed be spent
on mitigation and adaptation in developing countries. ECSA expressed its
concern about the use of revenues that should not be hypothecated for
mitigation.
When developing a global system within the
UNFCCC and IMO the distribution of revenues to developing countries for climate
action would be an absolute condition (T&E). However, according to T&E,
in the context of a regional measure, it would be expected that the revenues
would not all go back to the industry, as is the case for road transport. The
Commission recognises that, if the EU is forced to take regional measure, the
use of revenues can be useful to build a global system.
Distribution of revenues to the sector
Other stakeholders stated that the revenues
should be kept within the sector (BIMO, ECC, CMIA, CESA) – and shared their
concern about the shipping industry becoming a ‘cash cow’ (BIMCO). 
Any regional MBM should be designed primarily to
reduce emissions (ECC, UK, BIMCO), the shipping industry should not pay for a
measure which does not reduce emissions. There should be a strong link between
CO2 emission reductions and the raising of revenues (ECC). The revenues gained
should be used for efficiency improvements (ICS). By keeping revenues within
the sector, distortion of competition could be minimised (CESA): CESA reiterated
that ‘cleaner’ shipping would be beneficial for the industry and that the
expenses incurred to reach more efficient levels, should be seen as investments
rather than costs. If non EEA flagged ships were to be covered as well, these
should then also have access to the funds (BIMCO).
DE has no
final position on the use of revenues. DE currently earmarks auction revenues
from the EU-ETS  in a fund for national and international energy and climate
projects.  As a preliminary view, it was stated that for any instrument, the
shipping industry would have to have access to revenues generated and that a
fair distribution of revenues for land locked countries would need to be
ensured. DE stressed that it put forward a submission to the IMO in which it
lay down three possible uses of revenues generated by a worldwide ETS:
Compensation of economic impacts on developing states; R&D and
technological support to promote mitigation and adaptation in the maritime
sector and contribution to international climate finance.
DK mentioned the CO2 tax which is
recycled in process intensive companies as long as those have an energy
management plan.
NO explained that in that in the case of the NOx
Fund, the government introduces the tax but the earmarking is happening in the
industry. CMIA stated that the revenues should not be given to the Member
States and mentioned the NER 300[12],
which constitutes a good example of money being set aside to help finance
industry project developments. The UK was attracted by the example of the NOx
Fund, particularly as it avoids the hypothecation of revenues.
FR does not have a final view on how the
revenues should be used as of yet – part of the revenues should be used to
prevent carbon leakage.
ECSA asked the Commission about its position
regarding the States aids. The Commission mentioned that free allocation is not
considered as State aids. However, this issue has to be further analysed
depending on the use of revenues.
Avoiding Evasion
The following views and concerns were expressed
after COMs introductory presentation.
According to the IMO, an EU system would
inevitably create more evasion risks than a global scheme.
The ECC requested the Commission to refer to the
act of legally evading the applicability of a measure as avoidance, rather than
evasion.
Several stakeholders considered that the risk of
evasion in highly dependent on the geographical scope of the scheme (ESPO, SE,
FI) and of the type of instrument (ESPO, ICS, Oko Institut). ESPO noted that as
the scope would be reduced, a loss in terms of environmental effectiveness
would inevitably occur. ESPO does not currently have a position on which scope
would be the most suitable. DE considered that evasion could be avoided by
setting the largest scope as possible. 
According to IETA, long lasting port inspections
and bill of lading confirmations could delay the whole supply chain – this
should be looked at in further detail.
RO considered that the risk of avoiding the EU
Port should be well analysed, especially in the Black Sea. FR raised the evasion
possibilities in the North African ports. 
RO, supported by BE, also considered that there
is a risk of evasion of the industry, not only the logistics. 
The
infrastructure and the ability of states  to quickly develop their
infrastructure (esp. concerning ports and transport from and to ports) in the
third country States is also an important issue to analyse when discussing on
evasion (UK, DE, FR). A regional measure could serve as an incentive for
further port developments and thus could increase the risk of evasion over
time. This has to be taken into consideration when studying the impact of a
regional scheme (DE).
The avoidance of evasion is a priority for the UK: the environmental effectiveness of the system should be ensured and distortion of competition
should be minimised. Credibility of the system should be preserved. The bill of
lading could be useful to check compliance. 
FR informed the stakeholder that she is carrying
out a study on evasion that will be available at the end of year. FR underlined
the need to take foreign countries on board of an EU instrument to avoid
evasion. The Commission pointed out that regional partnerships, such as
EuroMed, are helpful in this context.
SE requested further analysis on how much money
would be lost because of evasion.
List of acronyms and abbreviations
 BIMCO || Baltic and International Maritime Council 
 CEFIC || European Chemical Industry Council 
 CESA || Community of European Shipyards Association 
 CLECAT || European Association for Forwarding, Transport, Logistics and Customs Services 
 CMIA || Carbon Markets and Investors Association 
 COM || European Commission. 
 ECC || European Cruise Council 
 ECSA || European Community Shipowners' Associations 
 EMEC || European Maritime Equipment Council 
 ESC || European Shippers Council 
 ESPO || European Sea Ports Organisation 
 EUDA || European Dredging Association 
 EUROCHAMBRES || European Association of Chambers of Commerce and Industry 
 EUROMOT || European Association of Internal Combustion Engine Manufacturers 
 EUROPIA || European Petroleum Industry Association 
 FEPORT || Federation of European Private Port Operators 
 IACS || International Association of Classification Societies 
 IBIA || International Bunker Industry Association 
 ICS || International Chamber of Shipping 
 IETA || International Emissions Trading Association 
 IMO || International Maritime Organization 
 INTERMANAGER || International Ship Managers Association 
 INTERTANKO || International Association of Independent Tanker Owners 
 NTUA || National Technical University Athens 
 OCIMF || Oil Companies International Marine Forum 
 T & E || Transport and Environment 
 UNFCCC || United Nations Framework Convention on Climate Change 
 WSC || World Shipping Council 
Participants
 National Administrations 
 1 || BE - Belgium || CLERICK Liesbeth 
 2 || BE - Belgium || MILLE Walter 
 3 || CY – Cyprus || CHRISTOFI G. 
 4 || CY - Cyprus || EFSTRATIOU Ioannis. 
 5 || DK - Denmark || HASSELAGER Lars Olsen 
 6 || DK - Denmark || LODRUP Jesper 
 7 || DK - Denmark || NIELSEN Stefan Krüger 
 8 || DE - Germany || MÖLLENKAMP Sabine Dr. 
 9 || DE - Germany || SÖKER Meike 
 10 || EL - Greece || KOUROUNIOTIS Ioannis Commander 
 11 || FI - Finland || ERIKSSON Lolan 
 12 || FR - France || SIMIU Diane 
 13 || FR - France || BAILLY-MAITRE Marie-Laure 
 14 || FR – France || NIKOV Dimitar 
 15 || LV - Latvia || RIMSA Helena 
 16 || LV - Latvia || OZOLA Liene 
 17 || MT – Malta || CHETCUTI Nathalie 
 18 || MT - Malta || KERR David 
 19 || MT - Malta || MUSCAT David 
 20 || MT - Malta || SAMMUT Christopher 
 21 || NL – part of the NL delegation || DEKKERS Chris 
 22 || NL - The Netherlands || DIJKSTRA Wieger 
 23 || NL - The Netherlands || HASSING Sibrand 
 24 || NORWAY || KROEPELIEN Knut F. 
 25 || NORWAY || OFTEDAL Sveinung 
 26 || PL - Poland || BANAS Panel 
 27 || RO - Romania || TARASILA Florin 
 28 || SE - Sweden || KÄGESON Per 
 29 || SI - Slovenia || GASPERIC Matej 
 30 || UK - United Kingdom || PHILPOTT Alex 
 EU Shipping Organizations & Associations 
 31 || CESA || BENEDETTI Lanfranco 
 32 || CESA || LÜKEN Reinhard 
 33 || CLECAT || BEUCK Niels 
 34 || ECC || ASHDOWN Rob 
 35 || ECSA || LAFFINEUR Ludovic 
 36 || ECSA || BALSTON David 
 37 || ECSA || LOICQ Benoit 
 38 || ECSA || PLÖTZKE Matthias 
 39 || EMEC || ANDSAGER Charlotte 
 40 || EMEC || ANINK David 
 41 || EMEC || LANCELLOTTI Paola 
 42 || ESC || Van der Jagt Nicolette 
 43 || ESC || WIESEHAHN Marco 
 44 || ESPO || MICHAIL Antonis 
 45 || EUDA || MINK Erik 
 46 || ICS || TONGHE David 
 International Shipping Organizations & Associations 
 47 || IBIA || ADAMS Ian 
 48 || IBIA || EGAN Charlotte 
 49 || IMO || HUGHES Edmund 
 50 || INTERMANAGER || SORLIE Svein 
 51 || INTERTANKO || FUGLESANG Kristian 
 52 || OCIMF || PROCTOR Cliff 
 53 || WSC || WOOD-THOMAS Bryan 
 Other Associations 
 54 || BIMCO || LUND Michael 
 54 || BUSINESS EUROPE || FAURE-FEDIGAN Christine 
 55 || CEFIC || VERLINDEN Jos 
 56 || CMIA || AUSTIN Miles 
 57 || ENVIRONMENTAL DEFENSE FUND || COOPER Jenny 
 58 || EUROCHAMBRES || PAPASHINOPOULOU Mary 
 59 || EUROMOT || ZEPF Paul 
 60 || EUROPIA || CHEVALLIER Franck 
 61 || IETA || MOTTY Monique 
 62 || IETA || WARRIS Anne-Marie, replacer 
 63 || OXFAM INTERNATIONAL || CRAEYNEST Lies 
 64 || SEAS AT RISK || LINDSTAD Haakon 
 65 || SEAS AT RISK || MAGGS John 
 66 || SURFRIDER FOUNDATION EUROPE || BRETON Véronique 
 67 || T&E || HEMMINGS Bill 
 68 || T&E || KEDZIERSKI Antoine 
 69 || T&E – Client Earth || O'LEARY Aoife 
 ACADEMIA 
 70 || NTUA || PSARAFTIS Harilaos 
 71 || ÖKO-Institut Berlin || SEUM Stefan 
 Council Secretariat - European Commission – EEA – EMSA - European Parliament 
 72 || Council Secretariat || VARFIS Katerina-Zoi 
 73 || DG CLIMA || DEBAISIEUX Nicolas, DUGGAN Jill, KIZZIER Kelly, KREMLIS Mariella, MAJOR Mark, MEADOWS Damien, TOVSAK PLETERSKI Mary Veronica 
 74 || DG ENTR || HEHN Wolfgang / MITOV Martin 
 75 || DG MARE || VOPEL Ronald 
 76 || DG MOVE || BUTLER Victoria 
 77 || DG MOVE || LESOVICI Roxana 
 78 || EEA - European Environment Agency || VAN AARDENNE John 
 79 || EMSA – European Maritime Safety Agency || LEROY Arnaud 
 80 || MEP Assistant || RAPTIS Sotirios 
 Guest / Speaker 
 81 || IHS Global Insight || PALSSON Chris 
3rd  Meeting 
REDUCING GREENHOUSE GAS EMISSIONS FROM SHIPS
Draft MINUTES OF THE THIRD MEETING OF THE SHIPS WORKING (WG
Ships) GROUP 6
15 & 16 November 2011
at the
Charlemagne Building and the Management Centre Europe, Brussels
These minutes summarise
the discussions in the third meeting of the ECCP Working Group on ships. The
ECCP WG was set up to provide input to the Commission in its work to develop
and assess options for the inclusion of international maritime transport in the
EU's GHG reduction commitment should there be no sufficient international
agreement including these emissions in reduction commitments by the end of
2011. The ECCP brings together relevant stakeholders, to discuss and prepare
the further developments of the EU and the modalities of reducing GHG emissions
from ships. 
This meeting was the
last in a series of three two day meetings foreseen to consider a list of
topics important to the maritime sector. At this meeting, the possible policy
options and the Impact Assessment Study were presented. The meeting also
considered the appropriate emission reduction level and the potential for
emission reductions in shipping, the question of offsetting, as well as the
relevant legal framework. The issue of short-lived climate forcers and the
question of how regional action could serve as a platform for broader action
were also addressed.  
All presentations
referred to below are available, as well as a list of organisations represented
in the group at : http://ec.europa.eu/clima/events/0047/index_en.htm 
These minutes record the
views expressed by representatives present at the meeting.
Introduction and Review
of ECCP I and II and IMO Developments at MEPC 62
The European Commission
(COM) opened the meeting by providing an overview on the previous ECCP meetings
and by outlining the main developments within IMO, in particular the adoption
of the Energy Efficiency Design Index (EEDI) at IMO's Marine Environment
Protection Committee (MEPC) meeting in July 2011. COM noted that the EEDI was
adopted through a vote and that the EEDI in itself did not sufficiently address
the GHG emissions from international maritime transport as it only applies to
new ships. COM noted that although it considered the ideal solution to be a
global solution and therefore would continue to support the progress within IMO
on market-based measures (MBM), COM is investing time and effort into
developing and assessing options for the inclusion of international maritime transport
in the EU's GHG reduction commitment. It was also highlighted that a possible
COM proposal tabled next year would have no effect on the ground before
2017/2018 allowing for more time for the development of a global solution. A
COM proposal could serve as an accelerator in the IMO discussions.
Support Contract for EC
Impact Assessment
AEA Technology
introduced, as the leader of the consortium of the support contract for the EC
impact assessment, their methodology and the planning of their work. The launch
of the impact assessment process was welcomed by several delegations (DE, ESC,
FI). DE stressed the importance of the impact assessment of measures and
referred to the inclusion of aviation into the EU-ETS.
ICS, supported by ECSA,
called for transparent assumptions. In this context, WSC noted that the MACC
curves have to be taken into account carefully. Several precise concerns were
raised such as the risk of modal split (ESC, ECSA), the need to take into
account the diversified circumstances, such as winter conditions, within the EU
(FI), the use of revenues to tackle climate change globally (DE, Oxfam) or to
help the sector to reduce its emissions (WSC), the impact on fuel and
commodities prices (WSC, IMO) and the consideration of existing regulation on
sulphur, NOx and others (ECSA). 
The effects of the EU
measures globally was stressed by DE, Oxfam and the IMO. DE recommended
starting the analysis with the intra-EU option. In addition it may be useful to
analyse in depth only those options which are feasible. The IMO indicated that
developing countries might be affected by a regional measure.
AEA Technology pointed
out that the model used, TIMES, is a global model that integrate most of the
concerns, especially the consideration of existing regulation, the recycling of
revenues and the modal split. A methodology to select relevant commodities to
be assessed will be set. 
COM underlined its
openness to discuss with stakeholders the assumptions made for the impact
assessment. COM agreed to consider the possibility of involving experts in the
impact assessment process. 
Main Policy Options
COM introduced the
possible policy options to be analysed in the impact assessment.
BIMCO, supported by NL,
SAR, EDF, stressed that the key issue is the effectiveness to address climate
change.
All stakeholders
indicated their preference for a global scheme. However, all Members states who
took the floor (DE, FI, NO, NL, DK, SE) indicated their openness to elaborate
and/or discuss a regional measure in parallel with the IMO process with the
goal to serve as a basis for or advance a global scheme. The IMO indicated that
for some policy options, a regional measure cannot serve as precursor for a
global scheme. NGOs (SAR, EDF, T&E) encouraged the EU to take action. ICS,
ECSA and Intermanager are not in favour of an EU measure.
Regarding an ETS, some
stakeholders (BIMCO) considered the administrative efforts as an issue, whereas
NL considered that it is mainly an issue for public authorities. The risk of
evasion (BIMCO) was raised. The openness of an ETS was also discussed.
Stakeholders (BIMCO) and Member States (DE, EL) considered that a closed ETS
would be problematic. DE, SE, NO, UK, IETA, Transport and Environment supported
an ETS. UK indicated that they preferred an ETS with 100% auctioning and no
earmarking. EL expressed its opposition to an ETS.
Regarding a compensation
fund, the issue of setting carbon price was raised by FR. The possibility to
raise revenues for global climate change finance was also mentioned (FR). Regarding
an industry managed compensation fund, several Member States asked for clarity
to identify who will manage the fund (FR, UK). FI, EL supported the
compensation fund option.
Regarding mandatory
emission reductions per ship, several stakeholders (BIMCO, WSC) considered that
there is a risk of stopping trade if the emission of each ship is capped on
historical performance. Taking into consideration the efficiency of the ship,
such as the one set by the EEDI or the EEOI, is clearly preferred by several
stakeholders and Member States (DE, WSC). Regarding the EEDI, CESA indicated
that its opposition to apply this on existing ships. The feasibility at the EU
level was also questioned (DE, WSC). 
Regarding the tax, DE
stressed the importance of the legal issues and in particular its compatibility
with the energy tax directive. EUROPIA is opposed to any system applying to
fuel suppliers.
Several Member States
and stakeholders agreed that the responsible entity should be the ship (DE, FI,
NO, IMO). However, CE Delft indicated that it is possible to leave this choice
open.
Seas at Risks recalled
the sensitivity to the maritime sector on the fuel price and called for a range
of measures and not only one. They reiterated the preference for speed limits.
EDF, supported by IETA,
indicated the need of a robust compliance mechanism. 
The IMO stressed that
the issue of ships calling once into EU ports should be addressed, such as the
flexibility in the design of the scheme. Building a scheme on historical
emissions seems to be challenging according to the IMO.
DK underlined the
importance of flag neutrality.
COM reiterated its wish
to achieve a global agreement in the IMO. In this context, the Commission
underlined that, if a proposal is made next year, it will take several years to
be implemented at the EU level and therefore the IMO has still time to deliver.
Any EU measure will also be fully compatible with international laws.  
Legal Issues
After presentations by
the European Maritime Safety Agency (EMSA) and ClientEarth setting out the
international legal framework of relevance to the inclusion of international
maritime transport in the EU's GHG reduction commitment, no participant
underlined a possible incompatibility of the considered policy options with
international law. Some were of the view that all considered policy options
could be designed in a manner that is compatible with international law
(T&E, DE, CY, WSC).  DE pointed out that DE had analysed possible legal
issues as well as the opportunities and barriers created by international law
to a global MBM before making an ETS proposal to IMO and that preference should
be given to the option that is most environmentally effective whilst being
legally compatible. DE also remarked that parts of the Advocate General
Kokott's Opinion in case C-366/10 on the compatibility with international law
of the inclusion of aviation in the EU ETS were of relevance for shipping.
Finally, DE insisted that the role of bilateral agreements with third countries
on shipping also had to be considered. 
When questioned why they
preferred a "port entry"-based measure, ClientEarth responded that in
terms of scope, port-entry raised less legal issues than a system based on
distance or time for reasons of proportionality, although the evasion risk was
lower in a distance/time-based scheme. ClientEarth also clarified that outgoing
ships could be covered by a "port entry"-based scheme if allowances
had to be surrendered on an annual basis by the ship, as liability would arise
the next time the ship would return to the port.  
The Commission's Legal
Service highlighted that under UNCLOS and WTO law, continuous international
efforts to reach agreement should and are being undertaken. Moreover, the Legal
Service recalled that a future EU measure should be compatible with a system
adopted at international level. Any risk of double regulation could be more
easily avoided in a "port entry"-based scheme than in a scheme based
on distance or time. 
Generating Offsets
through a Sector Based MBM/Access to Reductions in Other Sectors –
International Credits
Several Member States
and stakeholders stressed the need to strike the right balance between
in-sector and out of sector reductions/offsetting. DK, ICS and WSC highlighted
a perceived need for offsetting to enable the shipping sector to achieve its
reduction targets cost-effectively, as there might be technical and operational
limits to the reductions that are possible in the shipping sector. Others
emphasised the wish to limit offsetting to encourage in-sector reductions (DE,
SE). 
Level of Reductions
The EC introduced a
synthesis of the studies made on MACC curves in perspective of the EU
objectives, followed by a presentation of DNV on the possible level of
reduction achievable in the maritime sector and a presentation by ECSA on what
the sector can deliver.
ECSA indicated that the
shipping sector is committed to reduce its GHG emissions. However, shipping is
the servant of the world trade and is the most effective mode of transport.
ECSA recognised that the work in the IMO has been slow due to its political
background. A reduction of 50% by 2050 compared to 2005 is achievable, as well
as a relative reduction of 20% by 2020 compared to business as usual. To this
end, EEDI and SEEMP are not sufficient. Regarding global climate change
finance, the shipping sector will contribute, but it should not be the only
one. ECSA also stressed the risk of modal split and evasion in case of regional
measure. ECSA also indicated that the majority of ship owners is in favour of a
global compensation fund.
The issue of market
barriers was raised by several participants (CE Delft, DE).
Regarding the EU
objectives, DE recalled that the Council objective was made in the context of
Copenhagen and stated that for shipping a cap of – 50 % until 2050 compared to
2005 levels might be feasible. 
Regarding the risk of
modal split, SE considered that will not happen in most cases, as road and rail
are facing similar pressure. SE, supported by ECSA, called for incentives to
support the maritime industry to overcome market barriers. 
The IMO stressed that
the EU emissions reduction is linked to the delocalisation of its industry to
other parts of the world and therefore the increase of emissions of the
shipping sector may be linked to this development. 
CESA, supported by EMEC,
stressed that, even if shipping is the most effective mode of transport, the
current fleet is not efficient and, taking a lifecycle approach, 97% of CO2
emissions of a ship is emitted during its operation.
EMEC noted that even
though shipping is the most efficient way of global transport – emitting about
4 % of the global CO2 emissions, transporting in excess of 95% of global
transport – there is room for improvement; the most effective driver is cost
saving through energy/fuel saving. 
WSC stressed that ship
operator have a limited leverage over the ship design. 
Short Lived Climate
Forcers 
Transport and
Environment made a presentation on the work they have done on short lived
climate forcers. The IMO informed that work has begun on this issue at the
global level. Several participants recalled that existing regulation have an
impact on black carbon, such as the EEDI (ICS) and the sulphur rules (SE). DE
indicated that we already have a good enough knowledge of black carbon to know
that it is a concern.
Market Barriers
COM highlighted that
different studies undertaken by the IMO, DNV, CE Delft and IMarEST had revealed
the great potential to reduce GHG emissions from shipping at low or negative
abatement costs. Nevertheless, GHG reduction measures are not being taken up
widely by the industry, possibly due to market barriers to the introduction of
abatement solutions. 
Following a presentation
by Maddox Consulting outlining their intended workplan to conduct a COM-financed
market barriers study, SE encouraged Maddox Consulting to also consider
parallels in other sectors such as market barriers to eco-driving in
long-distance truck freight/road voyage. BIMCO considered that market barriers
related to the questions of who is the owner, who pays the fuel bill and who
benefits from the measures, as well as the fact that retrofitting is expensive.
CESA assumed that behavioural market barriers were of greater importance than
technological market barriers and proposed the development of criteria to be
taken into account by banks when deciding whether to finance ships.  
EMEC asked the question
as to how the maturity of the technologies to be studied by Maddox Consulting
will be measured.  This needs to be considered carefully as many of the longer
term technology developments which have a large potential to reduce GHG
emissions are relatively immature and may not be available for widespread use
in the timescales assumed in many forecasts.   
ICS expressed concerns
about the study being too generic and preferred targets being imposed on the
industry rather than measures/solutions.
ECSA emphasised that
surveys undertaken by the Danish Shipowners' Association had revealed that
measures to reduce GHG emissions in the maritime transport sector are being
taken up and said that the relevant data was publicly available on the website
of the Danish Shipowners' Association. 
IMO said that in an
ideal MBM, part of the revenues generated through the measure should go back to
the industry as in the MBM proposal by Japan to IMO since this would lead to
the fastest emission reductions. Making part of the revenues available for
R&D and for improving port and sea infrastructure in developing countries
could also lead to reductions, while a general compensation scheme for
developing countries might not result in (fast) reductions from the shipping
sector. CESA stated that it would only be possible under a regional and not an
international scheme to return all revenues to industry and that the most important
emission reductions were possible in a system in which 100% of the revenues
would go back to the industry. 
Regional Action as a
Platform for Broader Action 
For a possible EU
measure to be perceived as successful by COM, it would have to stimulate other
states, regions and international organisations (IMO and UNFCCC) to adopt
measures to reduce emissions from the shipping sector. 
Several Member States
and stakeholders insisted that for a possible EU measure to serve as a platform
for broader action, it would have to be compatible with international law (NO)
and promote IMO action (ES, FR, NL, NO). NL noted that the COM/EU would have to
be active in the IMO debate to ensure compatibility with possible IMO action.
Some participants argued that the EU system/systems would also have to allow
for gradual linking with other compatible systems (FR) and that close
cooperation, in particular with neighbouring states, was essential to avoid
evasion (FR, SE). T&E considered the use of part of the revenues generated
by the EU measures as crucial to promote broader action and FR suggested using
some of the revenue to encourage linking and cooperation with neighbouring
states. It was also highlighted that good communication was crucial to support
broader action (NL, SE). ECSA noted that a COM proposal could help the EU to
speak with one voice in future MBM debates within IMO and thus positively
contribute to the IMO discussions by helping narrowing down the MBM proposals. 

SE insisted that to
facilitate expansion of the regional system to other states/regions it might be
better to keep the shipping scheme separate from the existing ETS.
Summary and Close of
ECCP Process
COM closed the ECCP
process by thanking all Member States and stakeholders for their valuable contributions,
which will be taken into consideration by COM in its future work on the
inclusion of international maritime transport in the EU's GHG reduction
commitment. Stakeholders can provide further input through written submissions
or by participating in an online consultation on "Your Voice in
Europe".
COM highlighted the
consensual view that a global solution to tackle GHG emissions from maritime
transport was the preferred option. It is COM's intention to continue being
closely involved in the IMO process and to engage with neighbouring countries
and other third states. COM stressed the existing obligations under EU
legislation, requiring COM to act on maritime emissions. A proposal for
including maritime transport emissions in the EU's GHG reduction commitment is
foreseen in the Commission Work Programme for 2012. COM stressed that a
proposal tabled next year would not be likely to have effects on the ground
before 2017/2018, leaving considerable time for global action to be taken
forward. A future COM proposal would address issues of distortion of
competition and evasion, be compatible with international law and strike the
right balance between in-sector reductions and offsetting. Any EU action should serve as a platform for broader
action. 
IMO invited COM to
submit the outcome of relevant studies to pertinent IMO bodies as they could be
useful also in the context of global regulations.
[1] http://ec.europa.eu/clima/policies/transport/shipping/docs/ships_visiting_en.pdf
[2] http://maritimeknowhow.com/
[3] Source: IHS Fairplay, 2010 and 2012
[4]
According to the turnover threshold, only maritime freight transport
enterprises with less than 50 employees can be considered as SMEs
[5] As a ship above 5000GT will require more than 50 people to be
operated. 
[6] IHS Fairplay 2010
[7] Note that, in 2010, 18400 ships above 400GT have called in EU
ports.
[8] http://ec.europa.eu/atwork/programmes/index_en.htm

[9] http://ec.europa.eu/clima/policies/eccp/second/stakeholder/index_en.htm
[10] http://ec.europa.eu/clima/policies/transport/shipping/index_en.htm
[11] After the publication of the on-line consultation, the MEPC 63
agreed that the EEDI should not be applied to existing vessels.
[12] The
NER 300 will be funded from the sale of 300 million emission allowances held in
the New Entrants Reserve (NER) of the EU Emissions Trading System (ETS). It
aims to encourage private sector investors and EU Member States to invest in
commercial low-carbon demonstration projects.
For more
information please refer to the following link
http://ec.europa.eu/clima/policies/lowcarbon/ner300_en.htm.
COMMISSION
STAFF WORKING DOCUMENT
Impact Assessment - Part 3
Accompanying the document
Proposal for a Regulation of the
European Parliament and of the Council
on the monitoring, reporting and
verification of carbon dioxide emissions from maritime transport and amending
Regulation (EU) n° 525/2013

Annex
V - Participants and conclusions from the technical workshop hold by AEA
Technology in London on 9 March 2012

Ø      Delegates: 17 participants attended:
·        
Antoine
Person, LDA (ferries) 
·        
Didier
Vandevelde, MSC (containers)
·        
Julien
Topenot, CMA-CGM (containers)
·        
Paul
Altena, Speilthoff (bulkers)
·        
John
Rogan, Shell (tankers)
·        
Robert
Ashdown, European Cruise Council, on the behalf of Tom Strang, Carnival
(cruise)
·        
Eija
Kanto, Finnish shipowner association
·        
Sara
Skold, Clean Shipping Index
·        
Fabien
Becquelin, ShortSea on the behalf of Jean-Louis Cambon, Michelin (shippers)
·        
Jorgen
Clausen, DK Group (equipment manufacturer)
·        
Ernst
Karchhasrt, Siemens (equipment manufacturers)
·        
Robert
Derksen, Swiss Climate (service provider)
·        
Herman-Josef
Mannes, Meyer Werft (shipyard)
·        
Jan
Huebner, Germanisher Lloyds (verifier)
·        
Didier
Chaleat, Bureau Veritas (verifier)
·        
Geir
Hoybe, NOx Fund
·        
Andreas
Arvanitakis, Point Carbon (ETS expert)
·        
Edmond Hughes, from the IMO
Ø      Summary of discussion on
policy options
Emissions trading
 Enforcement || Regarding enforcement measures, the escalation to detention of a ship was highlighted that this would incur a cost to Port Authorities, particularly if the owner chose to abandon the ship.  Denial of entry is considered a strong measure.  Delays to a ship would generate huge costs. There is competition between ports and a need for a level playing field.  In the case of an operator with a large fleet, it was asked whether it would be appropriate to detain any ship in that fleet. 
 Level of the penalty || It was suggested that penalties should take several factors into account, including whether non-compliance was intentional, and the level of non-compliance.  One suggestion was that port fees could be differentiated such that a discount is awarded to ships that are compliant. 
 Conclusions || Maritime experts agreed that penalties should be scaled in proportion to the level of non-compliance.  This could be enforced through differentiation of port fees.  Additional consideration would need to be given to determine the level of underreporting that would trigger penalties. Whatever the option, it was suggested that the compliance could be ensured thanks to a compliance certificate held on ships. 
Mandatory compensation fund
 Membership || It was felt that the fund should have open membership.  Given the dynamic nature of the industry, it would be helpful to have some flexibility over membership.  It was questioned as to whether the membership should be owner-specific or ship-specific.  The length of membership was also discussed – from the point of view of the industry, a period of 5-8 years is considered to be long, but it was also recognised that periods of this length would be needed to produce meaningful emission reduction targets. 
 Penalties || In terms of appropriate penalties, the system used in the Norwegian NOx fund was offered as a possible solution.  Companies are obliged to pay a form of tax if they miss their targets by a certain threshold (e.g. 10%).  However, it was suggested that the system currently proposed by the project team (in the background document, i.e. the payment of a refundable deposit) for the CO2 regulation could be easier to manage, given the much larger number of ships that would be involved. It would be important for tax/port authorities to police the systems, so it is not up to the Fund to enforce measures.  This allows the Fund to concentrate on emission reductions.  The money would go to industry but they would have to report to an authority.  However, there would need to be an EU regulation to confer this power; at which point, it could be argued that it would not be an industry-only scheme. 
 Payment into the Fund || The idea of a returnable deposit received some support – if the deposit were set lower than the obligations imposed on those outside of the system.  It was felt that the level of membership fee should be low, although this would reduce the size of the fund.  Another suggestion was for a basic rate of membership, but with optional incentives that could be selected, or a form of bonus/malus 
 Conclusions || The Norwegian NOx fund was felt to be a good model; however, careful considerations would be needed if expanding to an EU-level measure, as the number of ships would be much greater. 
Industry managed compensation fund
 Discussion of competent authority || The idea of existing industry associations was suggested (e.g. BIMCO, INTERTANKO).  However, these associations would not capture all vessels, so there would need to be a default fund for vessels that were not represented. Giving a mandate to EMSA to play the role of competent authority was also suggested. The importance of good communication to stakeholders about the different options was highlighted. It would be important to give Funds the right to evict members who are not complying. 
 Conclusions || In general the idea of the industry-managed fund is considered to be the best option by many of the maritime experts. The idea of funds by type of vessel was viewed positively by most experts.  However, the way that targets would be set would have to be considered carefully. Some calculations would be needed to work out the relative size of the Funds, and whether they would have large enough membership to generate significant revenues. 
Mandatory emission reductions
 Indicator || Maritime experts pointed out that a good indicator would allow efficient ships to differentiate themselves and allow best practice sharing.  This would only be possible through transparency. A product called the “Eco toolbox” to manage all environmental aspects e.g. water ballast, cargo etc. was discussed.  It has had positive effects on operational efficiency when used in the container sector.  However, it could be very difficult for the existing world fleet to rely on these measures. It was pointed out that the EEDI does not apply to all ships.  The EEOI was not considered to be a feasible indicator as it would not work for tramp shipping because have no control over their EEOI.  It was generally agreed that the EEOI cannot form a reliable indicator for the shipping sector. 
 Conclusions || Maritime experts were of the opinion that there is no indicator that could be applicable to the shipping sector.  They felt that this option would not be feasible. 
Ø      Administrative aspects
 Fuel measurement technologies || The only existing mandatory instrument to measure fuel supply is the bunker delivery note.  Many schemes advocate the use of it, but over time other measures could be introduced.  Even the bunker delivery note would be inaccurate as it wouldn’t take into account measures onboard.  Maritime experts pointed out that not every ship has a flow meter (even if, the largest the ship is, the most they have a flow meter), and they need to be calibrated accurately to the fuel type. This would impact the cost calculations.  It would be possible to detect gross mis-reporting thought use of several different measures. There would need to be some back-up system for all circumstances – for example, if a ship’s flow meter broke. Monitoring using a particular recommended technology could be voluntary for an introductory period, during which incentives would be offered to ships that fit this technology.  However, there is a risk that ships will have to pay twice if a global system comes into force that was to require a different technology. Uncertainties would be smaller for big companies (<2%), whereas smaller operators would have lower accuracy.  Manual measurements are not reliable either.  There are no international standards.  The IMO cited some data on ship thresholds: ships >5,000 GT = 22,000 vessels, and would account for 99% of vessels   For ships >2,000 GT would account for 96% 
 Administrative burden || It was suggested that it would be difficult to ask the crew to do additional tasks because they already have a high workload.  In general, the view was that it was possible to monitor fuel consumption, and it would not place undue additional burdens on the crew.  The regional scope would add some complexity. There was much discussion about sophisticated electronic monitoring that is currently in use of larger/modern ships.  With respect to smaller ships, it could be possible to amend the oil record book to reflect how much fuel consumption occurred within the scope of the scheme.  Every ship must have an oil record book and the data quality is very good.  There are particular codes for different operations.  Another line could be created with a new code that indicates when a ship enters the scope, and another line that records when it leaves.  Based on this data it would be possible to calculate the amount of fuel consumed in the EU.  However, there are still issues that would need further consideration, such as who would control its application and ensure correctness.  Some maritime experts felt that the public sector should pay for the verification, and the industry should not bear the cost of this. 
 Verification || In terms of verification, it was felt that auditors should be able to certify the processes used to monitor fuel consumption, and that this could be done in the back offices.  In some cases, it may be necessary to board the ship, but that would be possible as it is already done (e.g. low sulphur regulations).  It was suggested that class societies would be able to approve monitoring plans.  At a high level it would be possible to use AIS data to check consistency and plausibility of reported emissions.  
 Monitoring guidelines || In terms of defining monitoring guidelines, it was recommended that a matrix should be created that identifies the pros and cons of each technology for each sector.  It could be better to have a common methodology to ensure uniformity, otherwise ships would use the method that gives them the least emissions. 
 Conclusions || The cost for larger vessels would be a much smaller percentage of overall costs.  If the IMO figures are correct, then it makes sense to focus on larger ships, who would find compliance easier in any case. Focussing on larger ships initially would also allow the rest of the sector to learn. 
Ø      Other business
·        
Freight
rates are very sensitive to competition
·        
Stakeholders
pointed out that the fuel prices presented by the project team are based on a
very old source and that the figures for 2010 are not accurate.
·        
The prices
of MDO/MGO will increase in the future.
·        
In
general, it was felt that the fuel prices were rather low
·        
It is
expected that the sulphur regulations are more likely to be realised in 2025,
rather than 2020
·        
LNG as a
retrofit was not considered to be a feasible option at present.  If it does
penetrate the fleet it would probably happen only gradually
·        
Prices of
fuels are different in different regions of the world
·        
The
elasticities also vary by region. It is very difficult to come up with reliable
figures.

Annex VI - Methodology for modelling

1.     
General assumptions
If bunker
fuel sold in the EU was considered, there would be a gap between the volume of
bunker fuel sold in the EU and the volume of bunker fuel consumed on EU routes.
As the purpose of the measure is to address EU GHG emissions of ships, the
environmental, social and economic impact assessment is based on bunker fuel
consumed. considering the bunker fuel sold in the EU will not lead to an
exhaustive assessment of the impacts of GHG emissions of ships in the EU (e.g.
a ship calling into the EU ports will have an impact on EU local air quality,
even if it purchased its fuel outside of the EU), but it can trigger impacts
outside of the EU. However, the administrative burden and the risk of avoidance
of an internalisation of climate externalities based on bunker fuel sold in the
EU are nevertheless duly assessed.
The
assessment of the impacts has been estimated considering the compliance entity
is the ship. The measure intends to have a direct effect on CO2
emissions from ships. However, other compliance entities may be chosen
triggering an indirect effect on CO2 emissions from ships, which may
mitigate the impacts mentioned hereafter. 
2.     
General assumptions of the baseline scenario[1]
The
baseline scenario was established 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. In particular the global redesign scenario is considering:
-         
Strong,
sustainable expansion in emerging markets. 
-         
Monetary
policy gradually adjusted in line with growth prospects. Asia starts tightening
first, followed by the United States and Europe/Japan.
-         
Inflation
is kept at bay.
-         
Large
developed economies adopt measures to reduce budget deficits.
-         
After
shrinking in 2009, US trade deficits widen again.
-         
As
consumer demand expands in emerging markets a process of global rebalancing
begins.
-         
Trade
liberalization continues, but troubled by occasional disagreements and
conflicts. 
-         
US
dollar depreciates mostly against emerging markets currencies, especially the
renminbi. 
-         
By
2030 China’s economy accounts for a significant share of global trade,
including key commodities and manufactured goods.
-         
The
relative change in real GDP per capita is much quicker in the emerging markets
than in the developed countries. 
Figure 1 illustrates the compound annual growth rate (CAGR)
of the developed world (US, W Europe, Japan) in the 20 years leading up to the
great recession. The CAGR was 2.3%. In the Global Redesign scenario the CAGR
for the years following the recession up to 2030 is forecasted to be lower,
2.1%. 
Figure 1: GDP growth in the developed regions
Figure 2 shows how the CAGR for three of the leading emerging
market economies is expected to be lower in the forecast years compared to the
two decades before the recession. 
Figure 2: GDP growth in key emerging markets
As a
result the world total CAGR for GDP increases as displayed in Figure
3. This is a consequence of the still higher growth in the emerging
markets which gain market share each and every year and thereby lifts the world
total. Figure 4 shows the absolute numbers behind the
development, where the share of the world GDP of the Asian emerging markets
continuously increases over the period on the expense of the developed regions’
share. 
Figure 3: Global GDP growth
Figure 4: Global GDP, trillion 2005 US dollar
3.     
Description of the model
1.     
Overview
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.
2.       Representation of shipping
activity
The
model integrates the available routes into/out of Europe and available
technological and logistical choices to 2050.  Key amongst these are:
-       the ability for ships to stop
at a port just outside the EU,
-       the ability to divert freight
to alternative modes via a port just outside the EU, or for intra-EU trade,
-       the possibility for technology
change in the shipping fleet (i.e. new ships and/or efficiency measures).  
-       the option for ships to slow
down and thus reduce emissions.
-       the possibility for fuel
switching in the shipping fleet.
Therefore,
in addition to standard TIMES energy system model functionality, a network
model is required depicting the various routes and modes for goods currently
shipped into and out of Europe. The model includes the flexibility to switch
between these routes and modes.
Figure
VI.5:
Hypothetical Network & Technology Model Showing Routes of Fuel Consumption[2]
Trade
data for cargo categories, including historical data and projections up to 2050
were provided by IHS World Trade Service.  Extra-EU data was available by the
region of trade and commodity type.
The
regions within the TIMES model were defined according to those used by the IHS
World Trade Service to report the trade data. There are two EU regions: EU
Northern/Baltic and EU South/Mediterranean, and 13 extra-EU regions. Distances
between regions were defined in order to calculate fuel consumption on each
route. For this purpose, a representative port was defined in each extra-EU
region, and two ports for each EU region. The distances in nautical miles were
calculated between these representative ports using http://www.portworld.com/map/.
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.  
3.      Representation of vessels
A
summary of ship sizes/types is shown here.  For each of these categories of
ships, several parameters, such as daily financial costs, daily operational
costs, fuel consumption, CO2 emissions per tnm, etc. were defined 
Table
VI.1:
Summary of ship sizes and types
 Type || Size 
 Dry Bulk || Dry bulk Capesize 120'+ 
 Large Dry Bulk carrier (80' +) 
 Medium Dry bulk carrier (35' - 85') 
 Small Dry Bulk carrier (<35') 
 General Cargo || General Cargo 15'++ RoRo 35'-++ 
 GEN long avg of GEN 15'++ and RoRo 35' ++ 
 RoRo 15' - 35' 
 GEN short avg of GEN 0-15' and Reefer 0-15' 
 Container ships || Container 8500 TEU + 
 Container 5500 - 8500 TEU Container 2000-5500TEU 
 Containers 1000-2000TEU 
 Container 0 - 1000 TEU 
 Oil (and product) tankers || Crude oil tanker 120'++ 
 Crude oil tanker 120' + , Product tanker 75' + 
 Crude oil tanker 75-120', products 15-75' 
 Crude oil tanker 0-75'and Products 0-15' 
 Liquid bulk (Chemical, LNG, LPG tankers) || Chemical 40'-++, LNG 60'++ 
 Chemical tanker 40' ++ and LPG 45'++ 
 Chemical tanker and LPG 15-40' 
 LNG tanker 0'-15' and Chemical 0 - 15' 
 Passenger vessels || Ships carrying up to 1000 passengers 
Source: size thresholds based on categories
used in data provided by Marintek, IHS and IMO sources
4.       Cost assumptions
Abatement technologies
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[3], an
IMO-funded study on the reduction of GHG emissions from ships.  These costs are
variable depending on the ship size and type.  Changes were made to the data
sourced from MEPC 61 INF.18 in only three areas: speed reduction, optimisation
of hull & superstructure (new ships), LNG costs (investment cost and
operational cost), as updated data were available from Marintek.   
Fuel types and costs
A
generic maritime fuel was assumed to be used in existing cargo ships, rather
than defining ships that run on residual fuel (HFO) and distillate marine fuel
(MDO/MGO) separately.  This assumption was used in order to keep the model
compact and facilitate the interpretation of results. A new alternative
technology is included in future years, i.e. ships that use liquefied natural
gas (LNG) as fuel.
Wholesale
fossil fuel price projections were sourced from the PRIMES model crude oil
price and natural gas price projections developed for the Commission’s 2011
Energy Roadmap (as obtained from the EC). There are three price scenarios:
Reference, Current Policy Initiatives, and Decarbonisation. While the prices
under the Reference Scenario and Current Policy Initiatives are similar in the
years 2010 and 2015, the Decarbonisation Scenario projects significantly lower
fossil fuel prices throughout the time horizon.
All
three of the PRIMES crude oil price projections were used as the basis for
developing price projections for maritime fuels. The impacts of sulphur
regulations on prices were calculated using results from the Purvin & Gertz
(2009) report to the Commission on the impacts of IMO fuel specification
changes and included in the fuel price scenario. 
Table
VI.2:
Maritime bunker fuel price projections (EUR/tonne)
   || 2010 || 2015 || 2020 || 2025 || 2030 || 2035 || 2040 || 2045 || 2050 
 Reference (Central prices) || 328 || 375 || 606 || 710 || 755 || 808 || 861 || 909 || 977 
 Current policy initiatives (CPI) || 386 || 418 || 636 || 745 || 791 || 847 || 903 || 954 || 1024 
 Decarbonisation || 328 || 373 || 548 || 575 || 539 || 539 || 533 || 520 || 512 
The
CPI scenario was used as a reference for the impact assessment, as it reflects
the current policy initiatives scenario. 
Administrative costs
Additional
administrative costs included in the model assume a minimum of five days
investigation time (at €500 per day), with additional costs of 5% of the
investment cost of the measure.
4.     
In-sector reduction  trajectory
It
has been analysed how to achieve the objectives defined in the White Paper on
Transport, namely a 40% reduction in GHG emissions by 2050 compared to 2005,
through only action within the maritime sector. It has been assumed for this
trajectory that the sector has no access to “flexibilities” such as the
possibility to substitute in-sector emission reduction by purchasing offsets
(carbon credits) or emission allowances (EUA). This trajectory could be
achieved by setting up a closed ETS for the maritime sector only. 
International
fossil fuel price assumptions do not presuppose significant global climate
action and thus follow global baseline projections, i.e. 791€/t by 2030 and
1024€/t by 2050.  
The
trajectory was set by trying to minimise cost subject to the constraint of the
in-sector emission reduction of 40%. The results show emissions reduce from
2015 onwards, reaching -10% by 2030 compared to 2005. 
Table VI.3: In-sector reduction trajectory
   || 2015 || 2020 || 2025 || 2030 || 2035 || 2040 || 2045 || 2050 
 Business as usual || 199 || 210 || 217 || 223 || 233 || 244 || 255 || 271 
 Reference in-sector reduction trajectory for the Impact Assessment 
 In-sector reduction trajectory  || 199 || 195 || 184 || 176 || 162 || 145 || 131 || 119 
 Reduction compared to 2005 emissions || 2% || 0% || -6% || -10% || -17% || -25% || -33% || -40% 
Source: AEA Technology 2012
It is
worth to recall that if the domestic GHG reduction milestones of the Roadmap
for Moving to a Competitive Low Carbon Economy in 2050[4] are achieved, demand for fossil fuels in the
EU may be reduced significantly, reducing also the need for shipping these
fossil fuels. To illustrate the possible impact of reduced demand for shipping,
a sensitivity analysis was carried out assuming that the same in-sector
reduction trajectory is applied. The reduction of transport activity due to
decreasing shipping of fossil fuels necessarily leads to higher emissions
reductions than the reference in-sector reduction scenario mentioned in table
VI3. 
Table VI.4: Sensitivity analysis assuming a
decarbonisation of the EU economy
   || 2015 || 2020 || 2025 || 2030 || 2035 || 2040 || 2045 || 2050 
 In-sector reduction trajectory || 199 || 190 || 176 || 167 || 152 || 134 || 119 || 109 
 Reduction compared to 2005 emissions || 2% || -2% || -10% || -14% || -22% || -31% || -39% || -44% 
Source: AEA Technology 2012
Moreover,
a sensitivity analysis was carried out assuming that administrative costs
related to the uptake of technology were higher than 5% of the investment cost
of the measures. A threshold of 10% was chosen. However, this increase did not
lead to a significant change in the uptake of technology: the CO2 emissions
remain similar to the internal optimal reduction trajectories, even if the
total costs increase by 0.04%.
A
sensitivity analysis was also a carried out assuming low bunker fuel prices,
which is associated with a global decarbonisation scenario. 
Table VI.5: Internal optimal reduction
trajectories according to different fuel prices 
   ||   || 2015 || 2020 || 2025 || 2030 || 2035 || 2040 || 2045 || 2050 
 Emissions (MtCO2) || High fuel price || 199 || 195 || 184 || 176 || 162 || 145 || 130 || 119 
 Low fuel price || 199 || 197 || 187 || 180 || 168 || 147 || 132 || 119 
 Reduction compared to 2005 || High fuel price || 2% || 0% || -6% || -10% || -17% || -25% || -33% || -40% 
 Low fuel price || 2% || 1% || -4% || -8% || -14% || -25% || -32% || -40% 
Source: AEA Technology and others 2012
The
in-sector reduction trajectory is not expected to vary significantly, even if
the emission reduction may be delayed. Regarding the costs, even if there is a
significant difference (around 7%) between the total costs of the in–sector
reduction trajectory using high fuel prices and low fuel prices, this
difference is mainly due to fuel costs. Indeed, others costs do not vary
significantly (less than 1% difference for investment costs and even lower for
operational costs). So, the impacts on policy options assessed should not
significantly differ regarding fuel prices.  
5.     
Scenario assessed
The policy analysis only considers the
time period up to 2030 to look at concrete policy proposals. Taking into
account the in–sector reduction trajectory to achieve the long term goal of
-40% by 2050, a reduction goal of -10% is set for 2030 to assess the different
potential policy instruments to achieve such a goal. 
The modelling simulates two types of
policy instruments, i.e. a levy and an emission trading system (ETS). Any
policy option assessed, except the option on monitoring and reporting based on
fuel consumed (option 2), can be linked with these policy instruments. In
particular, due to similar mechanisms, the contribution based compensation fund
was assessed considering a levy with full recycling on revenues and the target
based compensation fund was assessed based on an ETS with full auctioning and
full recycling of revenues. The option on monitoring and reporting based on
fuel consumed was assessed using academic studies, in particular the Maddox
study, and stakeholder consultations.  
The impacts associated with different
levels of the levy are assessed. For the ETS the impact of a stand-alone system
or a system linked to other trading systems is assessed, assuming different
options for free allocation and auctioning.
The scenarios that look at impacts of
different policy instruments up to 2030 apply a number of assumptions in order
to allow results to be compared:
·        
The
assessment of the impacts of the internalisation of climate externalities is
based on the assumption of no evasion or avoidance of the system, as any
regulation must be designed in such way to minimize avoidance. 
·        
Private
discount rates are applied and the model assumes efficient implementation of
possible mitigation options, with no market barriers. 
·        
Global oil
prices are as listed in table VI.2
·        
Shipping
of fossil fuels is not reduced due to climate action in the EU.
The model is a partial
equilibrium model focused on the shipping sectors. Therefore macro-economic
impacts, including potential double dividend benefits from raising revenue
through auctioning or a levy are not estimated in this model.
The results focus on the
impacts on the costs of shipping itself. For options that include a certain
amount of free allocation, it is assumed that ship operators will not
incorporate the opportunity costs of these free allowances in its price
setting. This specific assumption therefore might underestimate the cost
increasing impact on shipping prices and underestimate the windfall profits
that might materialise for shipping operators if free allocation is applied.
5.      Levy 
Three
scenarios where assessed based on the level of the levy:
·        
Internal
reduction scenario: A level of levy that would ensure that emissions reduce by
10% by 2030 within the shipping sector
·        
Levy high
ETS prices: A level of levy that corresponds to the carbon prices required
achieve the 2030 milestone from the 2050 Low Carbon Economy Roadmap[5].
·        
Levy low
ETS prices: A level of levy that corresponds to the carbon prices with no
additional action on climate change in the EU beyond policies already
implemented[6]. 
The
table below shows the level of the levy marginal abatement costs of achieving
an emission reduction of 10% by 2030 compared to 2005.  
Table
VI.6: Level of levy considered
 (2010 prices) || 2020 || 2025 || 2030 
 Internal reduction scenario[7] || 19.73 || 137.62 || 470.61 
 Levy high ETS prices || 25.0 || 34.2 || 50.9 
 Levy low ETS prices || 9.13 || 21.37 || 35.55 
If all emissions are reduced internally,
carbon prices would need to increase considerably, to levels above € 400 by
2030. It does not appear economically efficient for the level of the levy to be
set at such level, as the marginal abatement costs of other sectors is likely
to be lower (e.g. 50.9€/tCO2 considering the EU ETS prices in case of a step up
of ambition in line with the 2050 Roadmap). In other words, this demonstrates
that the in-sector reductions in line with the cost-effective reduction
trajectory of the economy as a whole (as shown in the Low Carbon Economy Roadmap)
would be lower: at around 5% by 2030, as opposed to the 10% in-sector reduction
in line with the reference trajectory mentioned in table VI.3.
Table VI.7: Comparison between the level of
the levy and the emissions
   ||   || 2020 || 2025 || 2030 
 Emissions (MtCO2) || Levy low ETS prices || 194,2 || 185,9 || 186,7 
 Levy high ETS prices || 193,9 || 185,7 || 186,4 
 Internal reduction scenario || 194,8 || 180,8 || 176,1 
 Reduction compared to the baseline || Levy low ETS prices || -7% || -14% || -16% 
 Levy high ETS prices || -7% || -15% || -17% 
  Internal reduction scenario || -7% || -17% || -21% 
 Reduction compared to 2005 || Levy low ETS prices || -1% || -5% || -5% 
 Levy high ETS prices || -1% || -5% || -5% 
  Internal reduction scenario || 0% || -8% || -10% 
Source: AEA Technology and others, 2012
The
assessment of costs also shows that a scenario using a a levy set at low ETS
prices (i.e. 35.55 €/tCO2 in 2030) delivers significant net savings of 23.6 bn
€. It should also be noted that applying a levy that corresponds to the carbon
prices required achieve the 2030 milestone from the 2050 Low Carbon Economy
Roadmap (i.e. 50.9 €/tCO2 in 2030) achieve similar emissions reduction as the
Levy low ETS price still at negative total costs for the sector.
Table VI.8: Additional costs up to 2030
compared to the baseline, €bn
   || Internal reduction scenario || Levy high ETS prices || Levy low ETS prices ||   
 Costs[8] (excluding levy costs) || -47,6 || -52.7 || -52,7 ||   
 Levy costs || 203,5 || 47.8 || 29,1 ||   
 Total costs || 156,0 || -1.8 || -23,6 ||   
Source: AEA Technology and others, 2012
The
level of a levy depends on the contribution requested from the maritime
transport sector as part of the transition to the low carbon economy. As this
contribution is not set yet for the short and medium term, only the impacts
associated with a levy set at low ETS prices (i.e. 35.55 €/tCO2 in 2030) is
assessed further to analyse the environmental, economic and social impacts. 
6.      Free allocation and auctioning

For
the assessment of impacts under the ETS options, all scenarios assume an
allocation to the sector equal to the emission profile as projected in section
3 to achieve the long term in-sector reduction trajectory, resulting in a 2030
target equal to -10% compared to 2005.
Two scenarios have been assessed: a free
allocation scenario (i.e. all allowances up to the cap are given for free) and
an auctioning scenario (i.e. each allowance has to be purchased). 
It should be noted that the scenarios are
stylised. No sensitivity was performed on allocating to the sector a cap higher
than the target of -10% compared to 2005. But a tighter cap, in a system that
is linked to a large external trading system, would be similar from the point
of view of the sector, to a scenario with more auctioning. As such the extreme
scenarios of full auctioning and full free allocation give a range of potential
impact on the sector, also for more ambitious targets.
The ETS scenarios assume that there is a
link to external carbon market mechanisms, resulting in an equalisation of
prices. In the scenario it is assumed prices equalise to a level equal to the
low and the high ETS prices as used in the Levy example. As such this
assessment gives a potential range of impacts that strongly will be determined
by the available supply of allowances from for instance the ETS or credits from
CDM, sectoral trading mechanisms or other carbon market mechanisms. The
assessment does not look into potential sources of this supply and the impact
of the potential demand from the maritime sector on these sources of supply.
No closed ETS scenario has been
specifically assessed but the closed ETS with full auctioning would largely
correspond to a levy that achieves the reductions fully internally.
Table VI.9: In-sector emissions under the
open ETS option (MtCO2), Sources: AEA Technology and others 2012
   ||   || 2020 || 2025 || 2030 
 Emissions (MtCO2) || ETS link, high ETS prices || 194.6 || 185.9 || 186.7 
 ETS link, low ETS prices || 194.6 || 185.7 || 186.4 
 Reduction compared to the baseline || ETS link, high ETS prices || -7% || -14% || -16% 
 ETS link, low ETS prices || -7% || -15% || -17% 
 Reduction compared to 2005 || ETS link, high ETS prices || -0,2% || -5% || -5% 
 ETS link, low ETS prices || -0,2% || -5% || -5% 
Table VI.10: Comparison between the level
of the levy and the emissions by 2030(MtCO2), Source: AEA Technology and
others, 2012
   || Internal reduction scenario || Levy high ETS prices || Levy low ETS prices ||   
 ETS link, high ETS prices || 10.6 || 0.3 ||  0 ||   
 ETS link, low ETS prices || 10.3 || 0 ||  0.3 ||   
This
table shows that the difference in terms of in sector CO2 emissions is not
significant up to 2030. 
7.     
Impacts
on the EU-ETS in case of a linking with the maritime ETS
In case of linking with the EU-ETS, the maritime sector would be
expected to be a net buyer of up to 10 million of EUAs[9] by 2030. This represents less than 0.5% of
the total EUAs by 2030 and therefore, it can be assumed that the linking of a
maritime ETS with the EU-ETS will have no significant impacts on the EU-ETS. 
However, as mentioned previously, the impact assessment has been
carried out assuming that there is no comprehensive global agreement on climate
change and therefore no significant decrease of the trade of fossil fuels. In
the event that there is a global decarbonisation of the economy, the maritime
sector could be a net seller of 14 million of allowances. This represents
around 0.5% of the total EUAs by 2030 and therefore it can be assumed that
there is no major risk of disturbance of the EU-ETS in case of linking with a
maritime ETS. 

Annex VII - Identified regions reliant on shipping

1.      Specific
regions heavily dependent on freight activity
The Member States most
reliant[10] on
shipping are Ireland, the Netherlands, Malta, the UK, Sweden and Finland. These countries are expected to be the most sensitive to an EU regulation that
places price on emissions. Austria, Czech Republic, Hungary, Poland, Slovakia and Slovenia do not have a significant seaborne trade activity and, therefore, are not expected
to be as sensitive to any policy.
Apart from these two
groups of countries, the following groups can be considered:
-      
more than 50% of the port calls (excluding port
calls from passenger vessels) in Bulgaria, Estonia,
Latvia, Lithuania, Denmark and Romania are done by bulk carriers (excluding
tankers) and general cargo; these categories of ships are carrying low added
value goods and, therefore, according to the different policy options
considered, the greatest the savings will be, the greatest the benefits will be
for these Members States;
-      
almost 50% of the port calls (excluding port calls from passenger vessels) in Germany, Belgium, Cyprus, Spain and the EU overseas territories
are done by container vessels; this category of ship is the most sensitive to
avoidance and, therefore, this issue is a key issue for these Member States;
-      
the port calls in France, Italy, Portugal and Greece are balanced and the sensitivity to the EU regulation should be close to
the EU average. Luxembourg can be considered as part of this group too. 
At NUTS[11]2 level, the main regions reliant on
shipping are heavily linked with the location of major EU ports. According to
the share of freight activity by sea, these regions are: Zuid Holland
(Rotterdam - NL), Antwerpen (BE), Hamburg (DE), Haute-Normandie (FR),
Noord-Holland (NL), Andalucia (SP), Provence Alpes Cote d'Azur (FR), East
Yorkshire and Northern Lincolnshire (UK), Liguria (IT), Sicily (IT),
Västsverige (SE), Cataluna (SP), Comunidad Valenciana (SP), Etelä-Suomi (FI),
Bremen (DE), Puglia (IT), Nord-Pas-de-Calais (FR) and Romania South East region
(RO). 
The impacts previously
assessed should be more visible for these regions.
2.     
Specific regions heavily dependent on passenger
activity
In 2009, 403 million
passengers embarked and disembarked in EU 27 ports from passenger vessels. Italy and Greece are the focus of this activity, together accounting for 44% of all passengers. This
is followed, with significantly smaller numbers, by North Sea countries (Denmark, Sweden, Germany, UK and France). 
Malta, Denmark, Greece, Estonia, Sweden, Finland and Italy have a share of passenger embarked/disembarked per inhabitant higher than the EU
average. So, these countries, and especially Italy, Greece and Denmark, will be the most affected by any option addressing passenger ships. 
At NUTS2 level, the
most reliant regions are: Åland (FI), Ceuta (SP), Sjælland (DK), Sydsverige
(SE), Notio Aigaio (GR), Malta, Nordjylland (DK), Sardinia (IT), Stockholm
(SE), Calabria (IT), Hovedstaden (DK), Ionia Nisia (GR).
3.     
Specific issue for regions with special winter
conditions
It can also be stressed
that regions with special winter conditions, especially in the Baltic Sea, will be more sensitive to a regulation that address GHG emissions from fuel
consumed. Indeed, ice-strengthened ships use more fuel oil in ice conditions
and also in open water, due to their special design and engine power compared
to ships designed only for open water conditions. 
Ice-strengthened ships
have more expensive investment costs than ships designed only for open water
conditions, because ice-strengthening increases the steel weight of the ship
hull and also the weight of the propulsion machinery. In addition to the cost of
ice-strengthening of the hull, also the additional engine power increases the
investment costs of ice-going ships. 
Therefore, even if most
policy options intend to reduce GHG emissions from ships effectively at
negative costs, the investment costs and the fuel savings may be lower for
ice-strengthened ships and, as a consequence, regions dependent on routes
performed by ice-strengthened ships may be affected. As a consequence, this
concern has to be addressed when implementing the policy option. 
4.     
Specific issue for regions dependent on shipbuilding
Although
the EU’s market share of shipbuilding in terms of volumes has declined over the
years, the EU has succeeded in retaining a position by building more complex
ships with a relatively higher value added, while the production of more
standard mass production ships moved to other countries, especially in Asia. The EU also has a relatively strong position in the ship repair market and in the
marine equipment sector which supplies ship construction. Indeed, it is a net
exporter.
At
the European level, while shipbuilding may be declining, it still remains an
important source of jobs and economic activity in the regions where it does
take place. The main concentrations of large ship yards are in Germany, Croatia and  Romania, followed by Finland, the UK and Spain. 
A
measure to address GHG emissions of ships will lead to an increase of demand of
retrofitting, as well as of high value marine equipment. Therefore, any policy
option should lead to net benefits for regions dependent on shipbuilding. The
highest net benefits would be provided by policy options with the highest
in-sector emission reduction required.

Annex VIII - Analysis of possible technical scope of
an EU measure

All
existing technical regulations for ships define a threshold for the size of
ships covered. Main criteria for the definition of such threshold should be
maximising of the amount of emissions covered by the measure (to ensure its
environmental effectiveness) and the proportionality of the measure, in
particular the minimisation of the administrative burden mainly for industry.
For
the purpose of this Impact Assessment, two possible thresholds have been
analysed:
1.       400 GT: this size limit is
commonly applied under MARPOL and has been used for proposals in the IMO
2.       5000 GT: SOLAS uses 5000 GT as
a threshold for certain technical equipment requirements.  In addition, the
1992 International Convention on Civil Liability for Oil Pollution Damage uses
5000 GT as the floor for Article V liability.
As
the absolute administrative burden of a market-based measure (including
monitoring, reporting and verification and internalisation of climate
externalities) seems to be to a large extent independent of the size or type of
ship (in the order of 7000 – 8000 € per ship and year, see Annex XIII and AEA
study), this burden is expected to be insignificant for large ships, but
relatively high for smaller vessels. 
Overall,
the total annual administrative costs for industry in case of a 5000 GT
threshold have been estimated at 148 M€ and at 82 M€ for a 400 GT threshold
(see Annex XIII for detailed results). Costs for public authorities are also
lower in case of a 5000 GT threshold (see annex XIII for different scenarios).
Furthermore,
the size threshold impacts on the coverage of the MRV system regarding SMEs in
the shipping sector: A 400 GT threshold would exclude 87% of the SMEs whereas a
5000 GT threshold would exclude 99% of the SMEs (see Annex II for more
information).
It
can be concluded that a 5000 GT threshold has to be regarded as more
proportional than a lower threshold as both the total administrative costs for
the sector and the coverage of SMEs can be minimised.
To
ensure the effectiveness of the measure, the effect of the exclusion of certain
vessel types and smaller ship categories on the amount of emissions covered has
been analysed. This analysis could support a decision on the technical scope of
a measure addressing maritime GHG emissions.
For
the analysis, 2010 emission data from the AEA study have been used. Overall,
almost 20,000 vessels equipped with Automatic Identification System (AIS)
transponders and with EU port calls in 2010 are covered. 
Table VIII.1: Number of ships and CO2
emissions in 2010 for EU scope per ship type and size
 VesselType || VesselSize/Group || Vessels || CO2 emissions [t] 
 01 Oil tanker || A - GT < 300 || 11 || 1.930 
 01 Oil tanker || B - 300 <= GT < 400 || 20 || 6.169 
 01 Oil tanker || C - 400 <= GT < 500 || 19 || 5.826 
 01 Oil tanker || D - 500 <= GT < 5000 || 239 || 315.429 
 01 Oil tanker || E - 5000 <= GT || 1208 || 15.404.869 
 02 Chemical tanker || C - 400 <= GT < 500 || 6 || 2.485 
 02 Chemical tanker || D - 500 <= GT < 5000 || 513 || 1.839.139 
 02 Chemical tanker || E - 5000 <= GT || 1577 || 13.971.459 
 03 LPG || A - GT < 300 || 1 || 414 
 03 LPG || C - 400 <= GT < 500 || 1 || 780 
 03 LPG || D - 500 <= GT < 5000 || 130 || 570.398 
 03 LPG || E - 5000 <= GT || 210 || 1.668.018 
 04 LNG || E - 5000 <= GT || 163 || 5.220.857 
 05 Other tanker || B - 300 <= GT < 400 || 3 || 893 
 05 Other tanker || C - 400 <= GT < 500 || 2 || 643 
 05 Other tanker || D - 500 <= GT < 5000 || 45 || 100.519 
 05 Other tanker || E - 5000 <= GT || 19 || 322.459 
 06 Bulker || A - GT < 300 || 1 || 277 
 06 Bulker || C - 400 <= GT < 500 || 1 || 669 
 06 Bulker || D - 500 <= GT < 5000 || 126 || 295.112 
 06 Bulker || E - 5000 <= GT || 2732 || 21.940.872 
 07 General cargo || A - GT < 300 || 9 || 767 
 07 General cargo || B - 300 <= GT < 400 || 16 || 2.393 
 07 General cargo || C - 400 <= GT < 500 || 25 || 4.841 
 07 General cargo || D - 500 <= GT < 5000 || 3158 || 5.876.285 
 07 General cargo || E - 5000 <= GT || 1349 || 7.583.619 
 08 Other dry || B - 300 <= GT < 400 || 1 || 462 
 08 Other dry || C - 400 <= GT < 500 || 3 || 1.156 
 08 Other dry || D - 500 <= GT < 5000 || 145 || 290.648 
 08 Other dry || E - 5000 <= GT || 394 || 4.277.142 
 09 Container || D - 500 <= GT < 5000 || 64 || 285.627 
 09 Container || E - 5000 <= GT || 1964 || 54.565.733 
 10 Vehicle || D - 500 <= GT < 5000 || 2 || 10.692 
 10 Vehicle || E - 5000 <= GT || 438 || 5.591.435 
 11 Roro || D - 500 <= GT < 5000 || 34 || 68.615 
 11 Roro || E - 5000 <= GT || 356 || 6.137.373 
 12 Ferry || A - GT < 300 || 155 || 320.221 
 12 Ferry || B - 300 <= GT < 400 || 49 || 152.251 
 12 Ferry || C - 400 <= GT < 500 || 82 || 246.061 
 12 Ferry || D - 500 <= GT < 5000 || 311 || 2.217.155 
 12 Ferry || E - 5000 <= GT || 488 || 16.888.627 
 13 Cruise || A - GT < 300 || 5 || 1.177 
 13 Cruise || B - 300 <= GT < 400 || 4 || 2.215 
 13 Cruise || C - 400 <= GT < 500 || 3 || 1.761 
 13 Cruise || D - 500 <= GT < 5000 || 33 || 66.249 
 13 Cruise || E - 5000 <= GT || 173 || 6.209.402 
 14 Yacht || A - GT < 300 || 74 || 27.102 
 14 Yacht || B - 300 <= GT < 400 || 81 || 47.167 
 14 Yacht || C - 400 <= GT < 500 || 147 || 130.178 
 14 Yacht || D - 500 <= GT < 5000 || 265 || 540.787 
 14 Yacht || E - 5000 <= GT || 13 || 123.603 
 15 Offshore || A - GT < 300 || 49 || 23.155 
 15 Offshore || B - 300 <= GT < 400 || 23 || 14.008 
 15 Offshore || C - 400 <= GT < 500 || 25 || 24.482 
 15 Offshore || D - 500 <= GT < 5000 || 618 || 1.122.327 
 15 Offshore || E - 5000 <= GT || 145 || 701.982 
 16 Service || A - GT < 300 || 483 || 285.312 
 16 Service || B - 300 <= GT < 400 || 356 || 288.537 
 16 Service || C - 400 <= GT < 500 || 210 || 201.886 
 16 Service || D - 500 <= GT < 5000 || 474 || 878.640 
 16 Service || E - 5000 <= GT || 93 || 572.357 
 17 Fishing || A - GT < 300 || 55 || 11.026 
 17 Fishing || B - 300 <= GT < 400 || 27 || 8.582 
 17 Fishing || C - 400 <= GT < 500 || 35 || 15.574 
 17 Fishing || D - 500 <= GT < 5000 || 248 || 276.232 
 17 Fishing || E - 5000 <= GT || 25 || 110.212 
 18 Miscellaneous || A - GT < 300 || 13 || 2.508 
 18 Miscellaneous || B - 300 <= GT < 400 || 2 || 551 
 18 Miscellaneous || C - 400 <= GT < 500 || 6 || 1.633 
 18 Miscellaneous || D - 500 <= GT < 5000 || 45 || 28.637 
 18 Miscellaneous || E - 5000 <= GT || 44 || 140.280 
 Total ||   || 19.844 || 178.047.885 
The
ships covered by the analysis emitted around 180 Mt CO2 in the EU
scope (journeys from and to EU ports). The results are summarised in the
following figure:
Coverage of number of ships and CO2
emissions depending on the coverage of ship types and sizes, 2010 data for EU
scope
If for
the 13 main ship types, only vessels with at least 400 GT are considered. As
result, the number of ships is reduced to 81% of the total still covering 97%
of the total emissions.
If
only the 13 main ship types and vessels of at least 5000 GT are covered by a
measure, the number of ships goes down to about 11,000 (56% of the total
number) representing 160 Mt CO2 emitted (90% of the total amount).
A
size threshold higher than 5000 GT would not lead to such high level of
emissions covered and would therefore not ensure the environmental
effectiveness of the measure.
People
could also argue that the introduction of a size threshold may create a
distortion of trade competition, as short sea shipping would not be covered by
the measures as much as deep sea shipping. However, short sea shipping and deep
sea shipping are not serving the same market. 
Another
analysis has been carried out to identify a possible correlation between the
size and the flag of ships calling into EU ports. In case of a strong
correlation, a size threshold might lead to different relative coverage of
ships flying different flags.
Share of EU port calls by flag, source: IHS Fairplay
2011
Available
data only allow differentiating between ships smaller and larger than 20000 GT.
The analysis shows that the share of port calls by EEA flagged ships is 77% for
both groups. Out of the remaining 23% port calls, the second largest groups are
port calls by ships flying American flags (mainly Panama and Bahamas) with 13%
respectively 12% of the port calls (smaller/ larger than 20000 GT). This
analysis provides no evidence of correlation between size and European/
non-European flags. As a consequence, the size threshold should not lead to a
significant different coverage of EU/ EEA flagged ships.
In conclusion,
the number of ships covered by a measure to reduce maritime GHG emissions can
be reduced significantly if certain categories and in particular smaller
vessels are excluded. A higher threshold of 5000 GT as used under SOLAS would
reduce the estimated administrative costs for the shipping sector from 148 to
82 M€ per year while covering 90% of the total emissions. No impacts have been
identified on the coverage of different flags.

Annex IX - List of IMO proposals (24 May 2011)

 Proposed market-based measures || Proponent(s) || Mechanism for GHG reduction 
 In-sector emission reductions || Out-of-sector emission reductions 
 An International Fund for Greenhouse Gas emissions from ships (GHG Fund)     || Cyprus, Denmark, the Marshall Islands, Nigeria and IPTA (MEPC 60/4/8, GHG-WG 3/2/1 GHG WG 3/3/4) || Price incentive on fuel use || Prescribed purchase of out-of-sector project offset credits by a fund;   Potential for supplementary reductions from use of remaining proceeds 
 Consolidated proposal of the Efficiency Incentive Scheme (EIS) based on the Leverage Incentive Scheme (LIS) and the Vessel Efficiency System (VES) || Japan & World Shipping Council (MEPC 60/4/37 MEPC 60/4/39 GHG-WG 3/3/2) || Mandatory EEDI;   Existing ship standard with fuel-based charge   Leveraged refund incentive || Potential for supplementary reductions from use of remaining proceeds 
 Port State arrangements utilizing the ship traffic, energy and environment model, STEEM (PSL) || Jamaica (MEPC 60/4/40) || Price incentive on fuel use || Potential for supplementary reductions from use of remaining proceeds 
 Ship Efficiency and Credit Trading (SECT) || US (MEPC 60/4/12 MEPC 61/5/16 MEPC 61/INF.24) || Mandatory EEDI;   Efficiency trading ||   
 Global Emission Trading System (ETS) || Norway, United Kingdom, France & Germany (MEPC 60/4/22 MEPC 60/4/26 MEPC 60/4/41 MEPC 60/4/54 GHG-WG 3/3/5 GHG-WG 3/3/6 GHG-WG 3/3/8)   || Price incentive on fuel use   || Purchase out-of-sector project offset credits by shipping sector;   Potential for supplementary reductions from use of remaining proceeds 
 How technical and operational measures are the only direct and effective means to deliver cuts in CO2 emissions || Bahamas (MEPC 60/4/10, GHG-EG 3/2) || Mandatory emission reduction target ||   
 A Rebate Mechanism (RM) for a market-based instrument for international shipping || IUCN (MEPC 60/4/55 MEPC 61/5/33) || Price incentive on fuel use   || Prescribed purchase of out-of-sector project offset credits by a fund;   Potential for supplementary reductions from use of remaining proceeds 

Annex X - Description of market barriers

Work by the International Maritime
Organisation (IMO) and other organisations[12]
have indicated that there are significant negative or low marginal abatement
cost opportunities to reduce GHG emissions in the maritime transport sector,
i.e. the fuel cost savings would almost or entirely exceed the cost of the measures.
The use of such opportunities would lead to reductions in GHG emissions and in
transport costs. However, a number of market barriers are contributing to
prevent their implementation.
Three main categories of market barriers
exist. As these categories
sometimes overlap, it can be difficult to distinguish between different types
of barriers. Moreover, the different categories are not mutually exclusive, in
other words several categories of barriers may impact the adoption of one
solution. Market failure barriers are the most widespread.
1.      Market failures barriers
a. Split of incentives
This market failure occurs when the commercial shipping
market does not have the ability to implement a cost effective solution because
the maritime transport actor (e.g., the ship owner) making the investment in a
solution does not realise the benefit (e.g., fuel saving) of the investment.
In other words, the people benefiting from energy efficiency
are not the people paying for it.[13]
In the shipping industry, it occurs when there is a disconnect between the
vessel owner, who controls investment spending and energy conservation efforts,
and the operator, who is responsible for fuel cost. This primarily occurs when
vessels – especially bulk carriers, tankers, and containerships – are hired
under contract for a time charter or bare boat charter.[14] In such cases, it is the
charterer who pays for fuel but the ship owner who is responsible for any
investment in energy-efficiency equipment. Another “split incentive” issue is
that shipowners do not typically expect to own a vessel for its entire life, or
are uncertain of how long they want to own the vessel. It is not guaranteed
that shipowners can obtain a premium for a ship in a second hand sale that has
better than expected fuel efficiency.[15]
Moreover,
commercial practises in the maritime industry hinder the implementation of a
cost effective solution. For example, in a spot charter, a ship will be
compensated through demurrage if the terminal is not ready to take the vessel
when it arrives. However, if the ship slows down (thereby reducing GHG
emissions) to arrive at a later time when the terminal is available, the ship
is not compensated for the extra voyage time incurred.
Furthermore,
shipping cycles also prevent the uptake of efficient technology. Large changes
in vessel charter rates over different shipping cycles mean that when rates are
high, vessel owners are unwilling to take any time out of service (e.g. to
install an energy efficiency solution). When charter rates are low, vessel
owners may not have the funds required to make an investment in an energy
efficiency improvement.
b. Lack of information
This market
failure relates to the lack of accurate information on the energy efficiency of
existing vessels, specifically the lack of accurate fuel consumption
information.
It also generates technological barriers.
For a specific technology, a lack of confidence in the technology because of a
lack of operational data/experience can prevent the adoption of efficient
technologies. For example, there are concerns regarding the ability of marine
diesel engines to efficiently and safely operate for extended periods at low
speeds. This can hinder implementation of the speed reduction solution.
Furthermore,
small shipping companies may lack the staff to analyse, make the decision, and
oversee the implementation of a solution. The marine industry is extremely
diverse and has a large number of small companies that may not have the
management time or expertise needed to evaluate and implement GHG solutions.
This may be further complicated by the use of third-party ship managers that
serves to remove the ship owner – from whom the impetus for energy efficiency
improvements is typically expected – from day-to-day operational issues involving
their ships.
c. Access to finance
Even when an
investment is profitable, it may not be possible for an owner or operator to
get access to finance for this investment. This can occur for various reasons: 
-       Uncertainty
over future fuel prices represents an economic barrier to virtually all
solutions involving an installation cost (e.g., waste heat recovery).
Uncertainty over the magnitude of fuel reductions for a given solution can also
adversely impact the investment decision. 
-       Furthermore,
shipping business cycles also prevent the uptake of efficient technology. Large
changes in vessel charter rates over different shipping cycles mean that when
rates are high, vessel owners are unwilling to take any time out of service
(e.g. to install an energy efficiency solution). When charter rates are low,
vessel owners may not have the funds required to make an investment in an
energy efficiency improvement, as the risks become higher for financiers.
-       When solution
is only marginally economic at the current fuel price, the expected rate of
return can be too low to compensate for the investment risk taken.
Moreover, a
cost effective solution may not implemented due to management issues, such lack
of staffing or time to implement a technology. However, the ability of shipping
company to increase their staff is highly dependent on the freight rates
variations.
2.     
Operational
or Physical Barriers
Operational or physical barriers occur
when a solution cannot be utilised on a specific vessel due to physical space
constraints or other matters that impact vessel operations. Examples of this
include:
·        
Waste heat
recovery on a small vessel. The vessel may not have the physical room to
install the waste heat recovery heat exchanger in the funnel.
·        
Solar
cells: On a container ship, the ability to put a large array of solar cells is
problematic given the use of deck space for container stowage. Similarly, bulk
carriers require removable hatch covers that would complicate the use of deck
mounted solar arrays. 
·        
Proposals
to install and deploy sails may be problematic on vessels with limited deck
space such as bulkers and containerships.
3.     
Regulatory
Barriers
Regulatory
barriers are based on concerns over (existing and potential future) regulations
that impact the implementation of a given solution. There is a range of
different types of regulatory barriers, such as competition regulation;
domestic, regional or international law prohibiting certain activities or
limitations in the legislative authority and legislative processes. For example
some abatement solutions such as hull cleaning and propeller polishing are
prohibited in certain ports due to local regulations
that prohibit the release of the cleaning residues in local waters.

Annex XI -  Graphical representation of the
comparison of the policy options

 || 
 || 
 || 
 || 
   ||   

Annex XII - Annual compliance cycle for monitoring,
reporting and verification of emissions

1.     
General
remarks
As regards the geographical scope,
the following routes will in principle be covered in a non-discriminatory
manner for all ships regardless their flag:
-         
intra-EU
journeys
-         
journeys
from the last non-EU port to the first EU port of call (incoming journeys)
-         
journeys
from an EU port to the next non-EU port of call (outgoing journeys)  
Tasks
related to the check of monitoring plans, emission reports,
communication with ship owners and operators and the issuance of
certificates would be ensured by recognised bodies or other
accredited independent third parties. Such bodies, in particular Recognised
Organisations, already have extensive experience and play an important role
for maritime safety. 
Enforcement of the MRV obligations would
be ensured by Member States, more concretely by Port Authorities under the
existing Port State Control regime. 
The
proposed MRV measure should take the form of a Regulation. For the
implementation of the proposed MRV system, delegated acts would be needed to
determine the necessary technical details. Guidance documents will be developed
to facilitate the implementation.
2.     
Compliance
cycle

Annex XIII - Administrative costs and administrative
burden

Source: AEA
Technology and others, 2012
1.      Enforcement
by national competent authorities  (For all options except  option 3a  -  levy
on bunker fuel)
If all ships above
400GT are included:
If all ships above
5000GT are included:
For option 3a, the
enforcement is considered as part of the compliance check done by the national
competent authorities in charge of compliance.
2.     
Monitoring based on fuel consumed (option 2)
·   
For ship owners and ship operators
If all ships above
400GT are included:
If all ships above
5000GT are included:
·   
For public authorities
o  
For national competent authorities controlling
the compliance
If all ships above
400GT are included:
If all ships above
5000GT are included:
o  
For EU competent authority controlling the
compliance
If all ships above
400GT are included:
If all ships above
5000GT are included:
3.     
Levy on bunker fuel Sales (option 3a) 
·   
For bunker fuel suppliers
·   
For national competent authorities
4.     
Tax on emissions from fuel consumed (option 3b) 
·   
For ship owners and ship operators
If all ships above
400GT are included:
If all ships above
5000GT are included:
·   
For public authorities
o  
For national competent authorities
If all ships above
400GT are included:
If all ships above
400GT are included:
o  
For EU competent authority
If all ships above
400GT are included:
If all ships above
5000GT are included:
5.     
Contribution based compensation fund (option 3c) 
Ø     
Private based compensation fund
·   
For ship owners and ship operators
If all ships above
400GT are included:
If all ships above
5000GT are included:
The administrative
burden under a privately managed compensation fund is similar to the administrative
burden under option 3b (tax on emissions).
Ø     
Public based compensation fund
·   
For ship owners and ship operators
The administrative
burden under a publicly  managed compensation fund is similar to the
administrative burden under option 3b (tax on emissions).
·   
For public authorities
o  
For national competent authorities
If all ships above
400GT are included:
If all ships above
5000GT are included:
o  
For EU competent authority
If all ships above
400GT are included:
If all ships above
5000GT are included:
6.     
Closed ETS (option 4a) 
·   
For ship owners and ship operators
If all ships above
400GT are included:
If all ships above
5000GT are included:
·   
For public authorities
o  
For national competent authorities
If all ships above
400GT are included:
If all ships above
5000GT are included:
o  
For EU competent authority
If all ships above
400GT are included:
If all ships above
5000GT are included:
7.     
Open ETS with free allocation (option 4b) 
The administrative
costs and administrative burden under this option are equal to option 4a
(closed ETS)
8.     
Open ETS with full auctioning (option 4c) 
·   
For ship owners and ship operators
If all ships above
400GT are included:
If all ships above
5000GT are included:
·   
For public authorities
o  
For national competent authorities
If all ships above
400GT are included:
If all ships above
5000GT are included:
o  
For EU competent authority
If all ships above
400GT are included:
If all ships above
5000GT are included:
9.     
Target based compensation fund (option 5) 
The administrative
costs and administrative burden under this option are equal to option 3c
(contribution based compensation fund)

Annex XIV – Specific elements of option 2 –
Monitoring and reporting based on fuel consumed

CO2
emissions from ships relate to the emission factor associated (in CO2
per tonnes of fuel) of the type of fuel consumed and the volume of fuel
consumed (in tonnes).
Fuels
used for maritime transport are much more diverse compared to those used in
other transport modes. However, default values for emission factors (as e.g.
provided by Decision 2007/589/EC based on IPCC 2006 figures for standard fuel
types) can be used to lower administrative effort. 
Fuel
consumption on EU related routes required for the monitoring of emissions is
already available for almost all ships. In this context, Regulation 18 of
MARPOL Annex V already makes compulsory the availability of bunker delivery
notes[16] for
ships engaged in international transport over 400 GT. So, the global fuel
consumption of a ship is already monitored. However, in order to get the fuel
consumed on EU related routes, the global fuel consumption has to be split
between different routes (at least for ships involved in routes related to
third countries). 
Regulation
V/28 of SOLAS already require all ships of 500 GT and above, engaged on
international voyages exceeding 48 hours, to submit a daily report to their
company, to include ship's position, ship's course and speed. So, the fuel
consumption per route can be monitored. 
Several
technical methods exist for the actual measurement of fuel consumption and this
measurement is already done for commercial reasons. The choice of method
depends on the available equipment on board a ship. There are no current international
regulations mandating the use of specific equipment or a certain level of
accuracy in the measurements. The particular method to measure fuel consumption
need not be prescribed by a European scheme. 

Annex XV – Specific elements of option 4 – Emissions
trading schemes

A
link to external carbon market mechanisms will result in an equalisation of
prices. The potential range of impacts will be strongly determined by the
available supply of allowances from for instance the EU-ETS, sectorial trading mechanisms
or other carbon market mechanisms. The assessment does not look into potential
sources of this supply and the impact of the potential demand from the maritime
sector on these sources of supply (see Annex VI).
New allowances created
for the maritime sector can be allocated for free to the ship owners and ship
operators or auctioned. The auctioning of allowances allows revenue generation
that could inter alia be rechanneled in the sector to remove some market
barriers. A central European entity could be in charge of auctioning allowances
with full hypothecation.
The competent authority
in charge of approving monitoring plans, receiving and validating verified
emissions reports would be the Member States or a central EU competent
authority. Moreover, the control of the surrendering of required allowances will also be done by the Member
States, in accordance with existing provisions of Directive 2003/87/EC or by a central
EU competent authority.
[1] Source: IHS Fairplay, 2012
[2] Note:  “Slow” ships require double the capacity of the existing fleet
to serve an equivalent demand
[3] http://www.rina.org.uk/hres/mepc%2061_inf_18.pdf
[5] The carbon prices used are those equivalent to the low carbon
scenario in SEC(2011) 288 final (Table 31), achieving 80% reductions in the EU
by 2050, using effective technologies with fragmented global action on climate
and reference fossil fuel prices.
[6] The carbon prices used are those equivalent to the reference
scenario in SEC(2011) 288 final, assuming policies at EU and national level
already implemented, with fragmented global action on climate and reference
fossil fuel prices. These carbon prices would see emission only reduce by 40%
by 2050, well short of the -80% as projected in the 2050 low carbon Roadmap
scenarios.
[7] AEA Technology and others, 2012
[8] Including additional investment costs, additional operational costs
and fuel savings.
[9] European Union Allowances
[10]
The reliance on shipping is define according to seven indicators: the export as
% of GDP, the share of exports done by sea, the imports as % of GDP, the share
of imports done by sea, the extra-EU exports as % of GDP, the share of extra-EU
exports done by sea, the extra-EU imports as % of GDP, the share of extra-EU
imports done by sea and the trade volume in tonnes per capita.
[11] Nomenclature of Territorial Units  
[12] CE Delft Study "Technical
support for European action to reducing Greenhouse Gas Emissions from
international maritime transport"; European Commission Joint Research
Centre Reference Report "Regulating Air Emissions from Ships", the
"Second IMO GHG Study 2009", the submission to the IMO "Marginal
abatement costs and cost effectiveness of energy-efficiency measures"
(MEPC 61/INF.18) and the master thesis "Unlocking the potential for CO2
abatement in ships arriving and departing from UK ports" by Jenny Hill of
Imperial
[13]Jaff et al, 1994
[14]Wijnolst et al, 1997
[15]Brealey et al, 2005
[16]
The bunker delivery note includes the name and IMO number of the ship receiving
the fuel, the port of bunkering, the marine bunker supplier contact
information, fuel quantity and density.