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Maritime Fuel Emissions Researchers Call For Fuel Levy in International Shipping

Editor: MA Alexander Stark

The International Maritime Organization (IMO) demands a reduction in CO2 emissions caused by the shipping industry by at least 50 % compared to 2008. One possibility to achieve this goal are market-based measures, such as a levy on fuel. Researchers at the Kühne Logistics University have examined the consequences of such a levy for international shipping.

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Emissions from shipping must be reduced, according to a recent decision made by the International Maritime Organization (IMO).
Emissions from shipping must be reduced, according to a recent decision made by the International Maritime Organization (IMO).
(Source: Pixabay / CC0 )

Hamburg/Germany — In one of the first studies on this topic, Professor Michele Acciaro and PhD candidate Vasileios Kosmas from Kühne Logistics University in Hamburg have conducted a scientific examination of the economic and ecological effects of fuel levies. They have come to the conclusion that these levies will create significant incentives for investment in environmentally friendly technologies in the medium term. However, in the short term, they will also lead to reduced speeds and higher costs.

A levy on fuel is in line with the ‘polluter pays’ principle, argues Acciaro. He assumes that the additional costs would initially be cushioned by shipping companies through slower, fuel-efficient sailing. However, ships in international freight traffic cannot be slowed down indefinitely.“In the medium term, shipping companies will have to find other ways to increase the energy efficiency of their ships. In the long run, the fuel levy will therefore lead to investments in more environmentally friendly technologies, the scientist says.

This goal involves significant investments. Depending on the market situation, shipping companies will try to pass these costs on to their customers, especially under favorable conditions with high freight rates and low overcapacities. In dire times, such as the during the shipping crisis in 2008, Acciaro and Kosmas recommend support measures for shipping companies. This is because, if ship owners make little profit and there are overcapacities, they have hardly any opportunity to invest in environmentally friendly technologies. In this case, a fuel levy could be combined with financial support through a reimbursement scheme to encourage the introduction of new technologies, the researches argue. In addition, Acciaro and Kosmas propose to invest part of the funds raised by the levies in research into environmentally friendly technologies.

Unit or Ad Valorem Levy

There are two different models for the proposed fuel levy: a unit levy, in which a fixed amount must be paid for each ton of fuel, or an ad valorem levy based on the price of fuel. "A major difference lies in the predictability of the charges for shipping," Kosmas explains. With a unit levy per ton of fuel, future costs could be estimated relatively easily on the basis of past consumption. An ad valorem levy would create more uncertainty as the price of fuel would also change the level of the levy. To avoid creating even more uncertainty and volatility in the industry, the experts recommend a unit levy.

At present, shipping accounts for around three percent of global CO2 emissions, which is roughly equivalent to Germany's share. With world trade growing, international shipping traffic will increase, and thus also the CO2 emissions. IMO's goal is to reduce emissions by half compared to 2008, with more routes traveled.

As international maritime transport is not included in the Paris Climate Agreement, the IMO's decision is the first effort to reduce greenhouse gases in shipping at all. The IMO is a specialized agency of the United Nations whose agreements determine the regulations for shipping in member countries.