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Marine air emissions and trading

Zoi Nikopoulou PhD student School of Business Economics and Law at University of Gothenburg Department of Business Administration Logistics and Transport Research Group Zoi.Nikopoulou@handels.gu.se www.handels.gu.se/fek/logistikgruppen +46 31 786 5445.

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Marine air emissions and trading

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  1. Zoi Nikopoulou PhD student School of Business Economics and Law at University of Gothenburg Department of Business Administration Logistics and Transport Research Group Zoi.Nikopoulou@handels.gu.se www.handels.gu.se/fek/logistikgruppen +46 31 786 5445 June 2008, Lighthouse Maritime Competence Centre Marine air emissions and trading

  2. A brave new world.. • Internationalisation of production • Global supply chains • International trade is facilitated • Increased sea-transport to and from European ports • Short sea shipping encouraged by EU (Marco Polo)

  3. ..and old habits • A ship engine and systems • Marine fuels • Air emissions • Sulpur oxides (SOx) • Nitrogen Oxides (NOx) • Carbon dioxide (CO2) • Particulate matter (PM)

  4. Cause problems • Increased air emissions from sea transport • Rate of increase is alarming for shipping • Although the ton-km denominator is valid, inefficiencies need re-adjustment Ship CO2 in g/ton-km in relevance to other modes Source: European Commission DirectorateGenaral for Energy and Transport

  5. And initiate changes • If nothing is done (BAU) emissions from shipping surpass land emissions combined • Re-adjustment could be from bottom to top (industry collaboration, technology innovation) • ..or from top to bottom (regulation) • On different terms (Norway’s NOx tax) Source: European Comission DG Environment General

  6. Sea borne trade and marine fuels Global indices for seaborne trade, ship energy/fuel demand, and installed power. Source:Corbett et al., 2007 • Annual growth rate 4,1% • Sea borne trade is expected to grow • Consumption of heavy fuel oil to be intolerable • Air emissions follow the same trends unless measures are taken

  7. Air pollution is transboundary • Sweden • Receives sulphur oxides from Polland, the Baltic Sea traffic, the North Sea traffic and Russia • Receives nitrogen oxides from the Baltic Sea traffic, Germany, Great Britain, Sweden and the North Sea traffic Source: EMEP

  8. Carbon dioxide CO2 • Upcoming threat for Maritime • The greenhouse phenomenon and global warming • Learning to count: 2-5% of world total • Estimated growth of CO2 from Maritime concistent with trade growth • Aviation vs. Shipping

  9. Summary of effects from air emissions

  10. Growth and responsibility • Estimates • 70,000 ships burn 200m tons annually • 20,000 newbuilds • 350 to 400m tons of fuel estimated by 2020 • IMO predicts GHG emissions growth by 72% • Suggestions • Carbon tax on marine fuels • Levy and credits scheme • CO2-index for design and construction • Action • Rapid responce • International Maritime Organization’s (IMO) Marine Environment Protection Committee (57 MEPC) in London

  11. Treatment • Change of fuel • Distillates - variable • LNG – 90% - 99% - 25% • Cleaningtechnologies • SelectiveCatalystReduction90% • Humid Air Motors – 70% • Direct Water Injection – 35-50% • Internal Engine Modofications – 20% • Exhaust Gas Reserculation22-69% • Sea-waterscrubber – 75% • NOx – SOx – CO2

  12. NOx Reductions and marginal costs ThematicStrategy EU

  13. SO2 reductions and marginal costs for land-based sources and international shipping in the year 2020 • Thematic Strategy EU

  14. Economic instruments • Consortium Benchmarking • Environmentally Differentiated Charges • Environmental Subsidy Approach • Credit based approach

  15. The credit based-approach • Economic instrument • Cap-and-trade • Annual emission permits • Posibility to trade ’’over-reductions’’

  16. Example

  17. Marginal abatement cost • A parabola • Marginal abatementcost • Price coresponds to constrain • The morequantity to be abated, the higher the cost • A parabola Source: Ellerman and Decaux, MIT

  18. Abatement costs • Difference in abatement costs per industrial sector • Potential gain • Best available technologies • Quantities Source: Ellerman and Decaux, MIT

  19. Market price • MAC determines demand and supply • Buyer • Seller • Autarky Source: Ellerman and Decaux, MIT

  20. Glossary • Allowance (or Permit): Permission to emit one ton of a gas in a specified time (usually a year) • Allocation: The act of allocating emission allowances • Banking: The possibility to carry over reduction units from one period to another • BAT: Best available technology • Cap: The upper limit of emissions in tons within a period of time • Hot spot: Localised high emissions due to trading and/or a geographical shift to where emissions are physically reduced • Hot air: Over-allocation of allowances

  21. Examples of existing Programmes • Europe and CO2 • EU ETS – European Union Emission Trading Scheme • US and NOx, SOx • U.S. Environmental Protection Agency's (EPA) Acid Rain Program (nationwide trading) • Clean Air Interstate Rule (CAIR) • NOx SIP Trading Program • Houston and California

  22. Risks and discomforts • Excemptions • Over-allocations • Regressive • Applicability • Hot spots

  23. Feedback Source: US EPA

  24. Financial Markets • New or existing • Chicago Climate Exchange (CCX) • Chicago Climate Futures Exchange (CCFE) • The European Climate Exchange (ECX) • Nord Pool • Powernext • Austrian Energy Exchange (EXAA) • New York Stock Exchange (NYSE)

  25. Emission trading including ships in EU • Sample 37 real ships steaming in the European waters on their annual fuel consumption, Nox and SOx emissions • Virtually instal cleaning technologies (SCR, HAM and scrubber) or switch fuels (distilates, LNG) • Cost capital expenses and annual bunker fuels • Put acheived reductions into the emissions markets and trade them • Estimate an average market price for traded NOx and SOx • Counted incomes from trade • Evaluated all alternatives for cost-effectiveness within five years • Sensitivity analysis for bunker prices and baselines

  26. Results I • In a credit based system shipping can be a seller for NOxcredits • Not a burden, a self-earningproject • Ships receive a margin of profit • Main beneficiaries are lange land installations • Flexibility in production on land • Strategicimportance for shipping

  27. Evaluating the alternatives • SCR quickresults in the emission markets • HAM slowercapexrecoverybut no operationalcosts • Scrubberoutside the emissions markets • Distillates, an expensive solution but simple • Natural gas seems the mostcost-effective solution

  28. Results II • www.sweship.se/Files/080222slutversionReport.pdf

  29. The Future • New baselines for newbuilds after 2015-2016 for SOx and NOx • Nitrogen • Current NOx curve between  17 to 9,8 g Nox/kWh • For newbuilds after 2016  3,4 to 2 g NOx/kWh • Sulphur • Current  global is 4,5% m/m (average 2,7%) • 2020  0,50% m/m global • 2015  0,10% m/m SECA

  30. Zoi Nikopoulou School of Business Economics and Law at University of Gothenburg Department of Business Administration Logistics and Transport Research Group Sweden Zoi.Nikopoulou@handels.gu.se www.handels.gu.se/fek/logistikgruppen +46 31 786 5445 Thank you

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