entitled to obtain a rebate. To obtain the rebate, the taxpayer has to provide the tax authorities with data on its actual emissions.<sup>92</sup> At the margin, this incentive provides new data constantly to the tax authorities.

This tax could be calculated as follows.<sup>93</sup> Emissions can be estimated by multiplying fuel consumption in relation to the carbon content of the fuel. A proxy for this measure can be obtained by multiplying the assumed energy efficiency of the vessel used to transport the cargo by the weight of the cargo and the approximate distance of the voyage.<sup>94</sup> The tax rate is then calculated by multiplying the estimated emissions by the social price of carbon.

A major strength of this mechanism is that it limits jurisdictional concerns related to obtaining data on emissions released in international waters.<sup>95</sup> Under this measure, every vessel owner that can _voluntarily_ prove to have transported the cargo in question from/to the consignor/consignee could claim a tax rebate,<sup>96</sup> subsidy<sup>97</sup> or tax credit<sup>98</sup> if it can show that its emissions were lower than the assumed default value. The voluntary nature of this action limits the necessity for states to exercise jurisdiction over vessels’ information, especially for those vessels that transport a cargo for a segment of the voyage to the implementing state but that do not call at one of its ports. This mechanism could therefore be particularly useful in collecting data that top-down regional MRV systems might find more difficult to obtain.<sup>99</sup> Thus, the mechanism may allow a more empirically informed, and thus presumably more environmentally effective, _holistic route cargo measure_ to be implemented.

A drawback of this mechanism is that, since it works at the margin, the data collected may be more incomplete than, for instance, the data the EU will collect through the implemented MRV. In this regard, default values could be made more precise by complementing data obtained by means of the mechanism using alternative data sources (e.g. EU and IMO MRV data).<sup>100</sup> In addition, when the authority has no data regarding the vessel used to transport the cargo, the type of vessel used can be assumed to be that typically used to transport cargo of the same type.

Generally, in our view, the voluntary MRV system described here could work as a useful _complement_ to a top-down MRV system that covers first/last voyages from/to a destination. The two systems would provide the authorities with data that are only partially overlapping and that, when combined, would therefore yield more information than either of them considered separately.

# **_3.3 Environmental Effectiveness and Avoidance Strategies_**

Tax avoidance and environmental effectiveness are commonly seen as two major, related issues to be considered in designing a regional maritime scheme. This section argues that a _holistic route cargo measure_ offers the potential for tax avoidance that is limited in form compared to a _first/last vessel_ or a _time-based measure._ The environmental effectiveness and the revenue potential of a carbon-pricing mechanism depend on the scope of its coverage. A _first/last vessel measure_ covers emissions on the first/last segment of the voyage from/to the implementing state. A _holistic route cargo measure_ takes into account

> 92 See also Fullerton and Wolverton (2005), Parry et al. (2014), Trachtman (2016).

> 93 Heine et al. (2017, pp. 13-14); Heine and Gäde (2018).

> 94 This calculation would take into account also the capacity usage of the vessel. This assumed capacity usage could be based on industry averages per route; see: Heine et al. (2017, p. 14) and Heine and Gäde (2018). As mentioned above, data on distance traveled and cargo weight are often already available to customs authorities; see Bäuerle et al. (2010, p. 60), or could be obtained via AIS.

> 95 On a similar note, see Heine et al. (2017, pp. 38-39); Heine and Gäde (2018). 96 Fullerton and Wolverton (2005); Parry et al. (2014).

> 97 Heine et al. (2017, pp. 7 ff); Heine and Gäde (2018). 98 Trachtman (2016).

> 99 Notably, the current EU MRV system is limited to emissions released in first/last voyages from/to an EU port.

> 100 Heine et al. (2017, p. 16); Heine and Gäde (2018).

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