are also relevant. First, the climate change regime emphasizes the role of developed countries in taking the lead in climate change mitigation,<sup>17</sup> including in the maritime sector.<sup>18</sup> Secondly, policies and measures aimed at climate change mitigation should be cost-effective so as to achieve global benefits at the lowest possible cost,<sup>19</sup> and carbon pricing is widely considered to be among the most efficient mitigation policies, including for the maritime sector.<sup>20</sup> Consequently, carbon pricing for the maritime transport sector initiated in developed countries seems like a relevant and timely subject of study for second-best policy action, with the caveat that a global measure that prices GHG emissions at the rate of the social cost of carbon would remain the first-best policy outcome.<sup>21</sup> Existing studies of regional maritime carbon pricing have highlighted the fact that the implementation of effective and efficient sub-global schemes faces various economic, legal and political obstacles.<sup>22</sup> Among other challenges, it has been argued that regional measures may be incompatible with international law, face issues of emission data availability, have low environmental effectiveness, pose avoidance issues, generate low public revenues and affect the competitiveness of shipping companies. These concerns have given rise to a literature discussing whether and how some of these barriers can be overcome. Building on this literature, the present work compares the potential of different regional carbon-pricing schemes suggested in the literature in light of these economic and legal challenges. The analysis indicates that there are important differences between possible design choices for regional carbon pricing, as some would encounter much greater legal and economic problems than others. We stress that the present work does not advocate the introduction of a regional carbon-pricing scheme but argues neutrally that if countries do introduce such a scheme at the sub-global level, they should adopt one of the designs that raises the fewest economic and legal problems.

After this introductory section, the rest of this paper unfolds as follows. Section 2 introduces several regional measures that differ in terms of their geographical scope and accounting unit. Section 3 discusses the various problems that arise in implementing regional schemes and (when applicable) possible solutions. Section 4 then turns to the issue of country action within territorial or internal waters which also has a role to play in implementing a regional scheme with broader geographical coverage.

# **_2. Type of Measure, Geographical Scope and Accounting Unit_**

The existing literature discusses a number of carbon-pricing schemes for emissions from the maritime transport sector.<sup>23</sup> The most efficient and effective option among these alternatives remains a fuel tax or levy applied through a global scheme,<sup>24</sup> with a tax rate set equal to the climate and public health costs of combusting bunker fuels.<sup>25</sup> Regional carbon pricing is a second-best option that might be considered if a globally adopted scheme became unattainable. With this qualification in mind, this paper considers various schemes for regional carbon pricing.

> 17 UNFCCC, article 3.1.

> 18 Kyoto Protocol, article 2.2.

> 19 UNFCCC, article 3.3.

> 20 e.g., IMF and World Bank (2011).

> 21 Note that the analysis proposed here could inform also the adoption of sub-global schemes in pioneer regions under the IMO umbrella. ICAO has recently taken a similar approach in the adoption of CORSIA.

> 22 Faber et al. (2009); Bäuerle et al. (2010); Hemmings (2011); Kågeson (2011); Kollamthodi et al. (2013); Keen et al. (2013); Heine et al. (2017); Heine and Gäde (2018).

> 23 Faber et al. (2009); Bäuerle et al. (2010); Kågeson (2011); Kollamthodi et al. (2013); Heine et al. (2017); Heine and Gäde (2018).

> 24 IMF and World Bank (2011); Keen et al. (2013).

> 25 Parry et al. (2014).

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