Cap-and-Trade Scheme - will it work?

[Louisa Swaden]

Several leading shipping industry bodies, among them the UK Chamber of Shipping, have confirmed they would support efforts to cut emissions through a global cap-and-trade scheme. They argue that a sectoral cap and trade scheme would provide shipping operators with a clear incentive to invest in more efficient technologies and optimise voyage planning to cut emissions.

Do you believe this scheme will be more effective than the EUs emissions trading scheme or is it unworkable?

[Rob Ashdown]

The Chamber of Shipping firmly believes that the inclusion of shipping in an EU ETS ahead of any international agreement would severely harm our shipping industry and both UK and EU trade – for no environmental benefit. Shipping alone contributes annually over £5 billion directly to the UK’s GDP (£11 billion indirectly) and supports some 185,000 UK jobs . Ships transport 92% of all UK imports and exports by volume. 583 million tonnes of cargo and over 4.88 million containers pass through our ports each year. It is clear therefore that shipping is a vital national resource, both as a business sector and as the carrier of cargoes to the UK. Every effort needs to be made to ensure that shipping maintains its ability to deliver competitively the goods and services on which we all depend.

The difficulties associated with bringing shipping into an EU ETS are two-fold. First, for what proportion of global shipping should the EU hold itself responsible – that of its own shipping sector or that associated with transporting trade to and from the EU by sea? Secondly, what enforcement mechanisms exist to implement any regional legislation that cannot be easily and legitimately avoided by operators?

Instead, the UK Chamber advocates a truly global emissions trading scheme.

The key advantages of emissions trading are that it:
• provides for certainty of environmental outcome;
• allows the market to set the price of carbon;
• allows the shipping company to find the most cost-effective solutions;
• resonates with other legislative developments around the world; and
• fits well with other existing carbon reduction infrastructure, such as Clean Development Mechanisms and Joint Implementation processes under the Kyoto Protocol.

The attraction of the cap-and-trade scheme is that the market-based approach allows for choice and adaptability within the fundamental parameters of the scheme. This goal-based approach fits well for such a diverse industry as international shipping and allows owners to make the necessary reductions at lowest cost. This is reinforced by the fact that the additional costs imposed by an emissions trading scheme would force shipping companies to consider where to allocate shareholder capital to maximise returns. Thus the ‘decision to emit’ would require an assessment of both the internal costs of abatement and the market price of allowances.

The creation of a genuine global market for carbon for shipping – and its interaction with other existing trading schemes – also means that a ‘true’ price is established. A system based on this general approach, whereby the system is fully interactive with other schemes, also allows for greater opportunity of purchasing options by allowing shipping companies to buy units in other existing and future emissions trading markets.

The forthcoming Copenhagen COP15 summit raises legitimate expectations that hitherto excluded sectors – international aviation and shipping – will be brought within the overall UN carbon reduction framework. The UK Chamber is convinced that emissions from international shipping must be explicitly addressed and form part of the equation.

The concept of a global economic instrument for international shipping could be promoted as part of the overall Copenhagen agreement with the specific details left to the IMO. It would be particularly helpful if the Copenhagen agreement could make explicit the fact that shipping must meet any reduction targets while respecting the principle of ‘no more favourable treatment’.

Shipping is the glue that holds world trade together, and is already the most carbon-efficient means of transporting goods. Shipping must be permitted to grow so that it can continue to service the demands of world trade and a rapidly expanding global population – but needs to do so in a sustainable way. Trading under a cap is the only option which would permit international shipping to do just that – and thereby to meet both the needs of environmental and trade policy.

Our considered opinion is that a global emissions trading system, administered by the IMO on behalf of the world’s governments and societies, will achieve the outcomes that are necessary as it will deliver real change both by being explicit about the necessary environmental outcome via the ‘cap’ and by actively encouraging behaviour that will achieve that outcome through the ‘trade’.

Further details of the global, open ETS advocated by the UK Chamber are at www.british-shipping.org/publications