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Sink or Swim: The Economic Impacts of an International Maritime Emissions System for Greenhouse Gases on the United States

Nigel Purvis and Samuel Grausz

INTRODUCTION

Ships are a significant and growing source of GHG emissions. They currently represent 2.7 percent of global CO2 emissions (870 million metric tons), and the International Maritime Organization (IMO) projects the emissions will rise between 120 and 210 percent by 2050. This makes current shipping emissions approximately equivalent to the emissions of Germany. The GHG emissions are primarily carbon dioxide, but also include nitrous oxide (N2O), methane (CH4), and hydrofluorocarbons (HFCs), though in very small quantities relative to CO2.

The IMO has recently advanced towards regulating GHG emissions. In 2011, it issued standards for energy efficiency for new and modified ships, which directly impact their GHG emissions. The standards mandate a 30 percent reduction in fuel consumption and thus greenhouse gas emissions by 2025, and the IMO expects this will reduce emissions from ships by 180-240 million metric tons annually by 2020. IMO has also proposed voluntary measures to improve the energy efficiency of existing ships through better operations8 and is in the process now of figuring out mandatory emissions regulations for existing ships, the status of which we review below.

In addition to the IMO, the European Union solicited input earlier this year on how to regulate emissions from all ships calling in European ports. European law mandated this action as the IMO had not finished a global program by the end of 2011. The European Union proposed a number of options in the solicitation, such as the inclusion of ships in their Europe-wide cap-and-trade program for GHG emissions, the European Union Emissions Trading System (EU ETS). This follows on the EU’s similar move to include aviation emissions in the EU ETS at the beginning of 2012, a decision currently opposed by many non-European airlines and other countries.

Beyond the IMO and Europe, reports issued by the World Bank and IMF, comments by Bill Gates and language agreed to at the U.N. Climate Negotiations in 2012 all identified shipping emissions as a target for both emissions reductions and raising revenue to address climate change in developing countries. This is in line with the long standing desire of the climate change community to raise revenues from maritime emissions regulations and transfer those revenues to developing countries to help them reduce their emissions and prepare for accelerating climate change. These revenues would help developed countries meet the goal of mobilizing $100 billion per year in such financing agreed to at the 2009 Conference of Parties meeting in Copenhagen. So far, the world has made relatively little progress towards meeting that goal, with only $30 billion pledged.

The position of the United States on these policies will likely decisively impact whether they succeed or fail. U.S. leaders, however, currently lack the necessary analyses on which to base their opinions. Only a few studies have attempted to model the benefits and costs of a global maritime emissions regime and none of the studies have focused on the impacts of the policy on the United States.

This study begins to fill this gap by analyzing the impacts of a global system to reduce maritime GHG emissions, such as that being considered by the IMO, on the United States. We examine the potential benefits of such a policy, including avoided climate change, economic growth, preparation for climate change impacts in developing countries and reductions to health impacts from non-GHG emissions.

We compare these benefits in general terms to the potential costs of such a policy. Specifically, we use a simple economic model to estimate the changes in prices and demand for U.S. imports and exports Sink or Swim The Economic Impacts of an International Maritime Emissions System for Greenhouse Gases on the United States resulting from such a policy. These results are used to indicate the likely impacts for the U.S. economy and inform decisionmakers on whether such a policy is in the best interest of the United States.

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