# **IV.   POLICY SCENARIOS: MARITIME**

# **A.   Scenarios**

54. **The same four policy scenarios are considered for international maritime as for international aviation** . These are _(1) a uniform, globally applied CO2 price of $25 per tonne, with no compensation for developing countries; (2) as (1) but with developing countries as a group retaining the amount collected on that 40 percent of global fuel disbursed in developing countries; (3) as (2) but with an emissions price of $15 per tonne; and (4) as (1) but with an emissions price of $40 per tonne_ . Since emissions per liter are somewhat higher for maritime than for aviation fuels (due to the former‘s higher calorific value),<sup>38</sup> this translates into a corresponding larger absolute price increase: about 8 cents per liter, under the $25 per tonne CO2 price (though recall that the two sectors are not really competing with each other, aside from in some marginal segments). And since maritime fuel is cheaper than aviation fuel, it implies a still larger proportional increase: with current average costs of around US$0.67 per liter,<sup>39</sup> this means that this price will increase by about 11 percent at current rates.<sup>40</sup>

# **B.   Environmental Effectiveness**

55. **Higher fuel prices might reduce emissions from international maritime activities, through a variety of channels, by perhaps around 5 percent** . On average, the impact of maritime fuel charges on the demand for traded goods is likely very modest due to the small effect on landed import prices (see below). However, other emissions reduction channels include modifying operations (e.g., reducing speed to reduce resistance of the ship‘s hull, faster loading techniques, improved routing, decreased turnaround times and improved maintenance including hull and propeller cleaning with adequate intervals); technology adoption to improve the efficiency of new ships (e.g., larger ships, hull and propeller optimization, more efficient engines that include waste heat recovery systems), and novel, low-resistance hull coatings); and replacing heavy fuel oil with less carbon-intensive marine diesel or liquefied natural gas. There is much uncertainty over the extent to which higher fuel prices will encourage these mitigation possibilities, though large responses are not projected for the scale of emissions prices considered here.<sup>41</sup> A reasonable conjecture is that emissions will decline by up to 5 percent over the medium term in response to the $25 per tonne price, and proportionately more/less for the higher/lower carbon price scenarios.

> 38 A liter of bunker fuel produces 0.003 tonnes of CO2 (EIA, 2011a) which is about 22 percent higher than the CO2 coefficient for jet fuel.

39 Data taken from Platts, August 29, 2011, see <u>http://www.platts.com/Shipping/BunkerFuel/?WT.srch=1&gclid=CP_0hLHT9KoCFeMD5QodLkuIOw</u>

> 40 Given the potential increase of marine fuel prices by 2020, including a likely significant increase due to the upcoming low sulphur regulations, the anticipated price impact (increase) will likely be below 10 percent.

> 41 See, for example, McCollum et al. (2009). IMO (2009) concluded that a significant potential for CO2 reduction exists through technical and operational measures, many of which appear to be cost-effective, although both financial and nonfinancial barriers may discourage their implementation. IMO (2011) suggest a smaller emissions reduction than assumed above, however.

33