Market-Based Measures for Sustainable Shipping

This PhD thesis examines the role of market-based measures (MBMs) in incentivizing international shipping greenhouse gas (GHG) emissions reductions to leverage the decarbonization efforts of the International Maritime Organization (IMO). The research motivation sprang from the Initial IMO Strategy, which, among other climate ambitions, envisages at least a 50% curb of GHG emissions until 2050 vis-a-vis 2008 levels. The regulatory framework involves several candidate measures, including MBMs, i.e., environmental policies like carbon taxes and emissions trading systems (ETS) that enforce the "polluter-pays" principle, and thus provide fiscal incentives to stakeholders to eliminate their carbon footprint.

The assessment of MBMs as means of decarbonizing shipping is based on three main pillars: their economic efficiency, their environmental effectiveness, and their climate policy design. Compliance with carbon pricing regimes can entail the adoption of both operational measures, such as speed reduction, route reconfiguration, or voyage optimization techniques, and technological measures like the uptake of zero-carbon technologies and alternative marine fuels. Due to this wide range of conformity practices, this thesis assesses several short- and long-term responses to MBMs in order to encapsulate their cost effectiveness in relation to their carbon abatement potential.

From a climate policy design perspective, the two most prominent types of MBMs are the carbon taxes, a fixed-price approach that provides carbon price certainty, and the ETSs, a fixedquantity system that secures that GHG emissions levels are met. At first, the study evaluates the prospects of a carbon levy to achieve GHG emissions reductions by analyzing the macroeconomic effects of freight rates and fuel prices in inducing slow steaming as an operational response to the MBM. The results show that market conditions influence the overall effectiveness of a tax and that the attained reductions, although significant, are insufficient to reach the 50% decarbonization targets. Moreover, considering the imminent inclusion of the maritime sector into the EU ETS, the thesis examines the scenario of liner shipping operators opting for route reconfigurations as an operational response to a regional ETS. The outputs reveal that replacing EU ports with nearby non-EU competitor ports becomes cost-effective for minimal EU carbon prices. The action would result in carbon leakage, EU ETS evasion, loss of EU ETS revenue, and penalization of the EU ports.

To the extent that MBMs induce technological changes, this thesis evaluates the level of carbon pricing needed to close the price gap between alternative and conventional marine fuels. The analysis considers the capital and operational costs for implementing and utilizing alternative marine fuels onboard and develops their marginal abatement cost curves (MACCs) to evaluate their cost-competitiveness and carbon abatement spectrum. The analysis indicates that to reach full maritime decarbonization, fuels such as green liquid hydrogen and their supporting technology, as of today’s cost estimations, would require a carbon price of up to 700 USD/MT CO2e to become cost-competitive.

The thesis concludes that accounting for a well-to-wake scope of emissions will create the right
incentives for developing sustainable alternative marine fuel production pathways to facilitate
shipping’s future energy demand. Revenues from MBMs will be substantial and can accelerate
R&D, scale-up the availability of alternative fuels, subsidize "fist-movers" and green ships and
reverse possible detrimental effects of carbon pricing to developing countries such as the Least
Developed Countries (LDCs) and the Small Island Developing States (SIDS).