Investigation of the short term impacts of the implementation of a bunker levy in the shipping sector

The pressure for the maritime industry to reduce its contribution to climate change is increasing. In 2018, the International Maritime Organization (IMO) adopted the “Initial IMO Strategy” which aims to reduce and phase out entirely the total annual GHGs from shipping by utilizing various short, medium and long-term measures. Medium term measures include the potential enforcement of Market Based Measures (MBMs), environmental policies like taxes or Emissions Trading Schemes (ETS) that provide monetary incentives to stakeholders to disengage from fossil fuels. This paper investigates the short-term impacts of the implementation of a levy on marine bunker fuels considering that so far during depressed market conditions with high bunker prices and low freight rates ships tended to slow-steam, a practise that also decreases CO2 emissions. Thus, an increase on the bunker price will induce a decrease on the service speed the extend of which depends on the overall condition of the market at the time of enforcement. This study identifies the range of emission reductions achieved considering various market development scenarios. Due to their homogeneous freight market we focused on tankers and modelled the decision on the optimum ballast and laden speed and the final CO2 emissions arising upon the implementation of a levy.