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Assessing the MBM EG’s report

Assessing the MBM EG’s report. Dr Per Kågeson MEPC 61 29 September 2010. The Expert Group’s feasibility study and impact assessment of the MBAs. A valuable summary and assessment of the proposals Relevant information on abatement measures Interesting but unconventional calculations

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Assessing the MBM EG’s report

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  1. Assessing the MBM EG’s report Dr Per Kågeson MEPC 61 29 September 2010

  2. The Expert Group’s feasibility study and impact assessment of the MBAs • A valuable summary and assessment of the proposals • Relevant information on abatement measures • Interesting but unconventional calculations • Good work!

  3. Need for two different instruments? • To cut maritime emissions substantially over the next few decades policy instruments must affect: • Specific emissions from new buildings • Retrofitting of existing ships • Operation of all ships • This may be difficult to achieve by just one instrument

  4. Negative side-effects of flexible and cost-effective policy instruments • Flexibility would allow maritime transport to contribute to inexpensive emission reductions in other sectors • Focusing only on low-hanging fruit may make the shipping sector ill-prepared for challenges to come • Science may have underestimated climate change and the need to reduce emissions rapidly

  5. Requirements on new tonnage • Important to improve the resiliance of the shipping sector and prepare for future mitigation efforts • Turnover of the fleet is 30-40 years • Accepting sub-standard new builds means taking a risk of having to undertake unnecessarily expensive future CO2 abatement measures • The EEDI should be a mandatory supplement to any market-based instrument

  6. Comparing with road transport • The life of ships is longer than for cars • USA, EU, Japan and China enforce mandatory fuel efficiency standards on new cars, supplementary to using MBMs (i.e. fuel taxes) • Significant non-financial barriers in both cases

  7. Three main options • Taxing/charging • GHG Fund, LIS, PSL, IUCN • Cap on total emissions • Norway/France/UK (auctioning + trade) and GHG Fund 3. Reducing specific emissions • SECT, LIS and VSL

  8. Unconventional methods for calculating • Unclear whether EEDI is mandatory in all cases • Confuses abatement cost with proceeds • Does neither distinguish between private and social cost nor between true abatement costs and transfer of revenues

  9. Making calculations transparent • Show average and marginal abatement cost, including administration and other transaction costs • Show the burden on industry (abatement cost + any charges or any costs of allowances that are not refunded) • Calculate net-revenue + discuss how to use it

  10. A few remarks on the likely results • The ETS is most cost-effective • Less burden on industry with the GHG Fund • Large in-sector reductions with US SECT and LES, smallest with GHG Fund • Possibility for large transfers to LDCs and adaptation/mitigation with ETS and PSL

  11. Problems with offsetting by credits • Sufficient short- and long-term supply of credits from projects in developing countries? • Will other sectors accept market dominance by the GHG Fund ? • Long-term dependence on credits smaller when supplemented by a mandatory EEDI

  12. A biased conclusion? • The Expert Group says ETS administrative costs would be 3 times those of the GHG Fund • Most elements are common • ETS trading likely to have transaction costs somewhat above similar costs for GHG Fund levy + the fund’s purchase of credits • Fuel suppliers may buy allowances on behalf of customers

  13. How to arrive at a market price? • LIS and PSL, and IUCN (partly) want to rely on the market price of carbon • But there can only be a price if some sectors and countries use emissions trading or uniform taxes • Currently only the EU ETS • Do the IMO Parties want to leave it to Europe to decide the future price of carbon?

  14. Why make it so complicated? • The UK wants to distribute all allowances below a global cap to individual countries • This implies that shipping companies should buy allowances on 190 different national auctions? • Provides no revenue that can be transferred to developing countries

  15. Emissions from domestic shipping • Domestic shipping emissions are currently part of national inventories • Same ships are used both domestically and for international voyages • To avoid red tape and reduce the risk of fraud, states should be allowed to include emissions from domestic shipping in the global scheme

  16. The size of the burden • Non of the proposed schemes would increase fuel cost by more than 6% in 2020 and 9% in 2030 • High bunker prices will depress demand for fuel oil and cut emissions and simultaneously reduce the price on CO2.

  17. Conflicting principles • The UNFCCC is based on the principle of common but differentiated responsibility • An important principle of the UN Convention on the Law of the Sea (UNCLOS) is no more favourable treatment of ships. • The expert group could not agree on this matter

  18. Equal treatment necessary • The principle of no more favourable treatment of ships must apply to the EEDI (for ships in international traffic) and to all MBMs. • Two thirds of all ships above 400 GT are registered in non-Annex 1 Flag States, but about three quarters of this tonnage belongs to firms in Annex 1 countries.

  19. All countries must contribute • Common but differentiated responsibility means industrialized nations are expected to do more than could be expected from developing countries. • But it does not mean developing countries should not contribute. • As countries develop they need to raise their contribution.

  20. Temporary relief or compensation • LDCs may be temporarily exempt (possible with ETS, more difficult with PSL and GHG Fund) • Certain goods may be exempt (e.g. grain) • Funds created by ETS or PSL can be used for compensating developing countries • Any decision on a MBM must be long-term

  21. Need for a formula on contributions from non-annex 1 countries (example of a key) • States with a per capita income 50% below the poorest quartile of the 1997 Annex 1 countries (in constant 1997 US$) could receive 100% of their share of the revenues, based on the IUCN formula. • States with a per capita income 25% below the poorest 1997 quartile could receive 50% back. • States with a per capita income equal to or higher than the poorest 1997 quartile would get nothing.

  22. Spending the remaining net-revenue • ETS (Norway/France) X% of US$ 17-35 bn • Should be compared with the $100 bnpromised by rich countries for 2020 • An equal amount from aviation might be possible • This is money with no obvious owner • Risk of free-riders if all contributions must be made from national budgets – many large deficits

  23. Political issues to be addressed • MandatoryEEDI • International tax/charge/levy or cap and trade? • Ship size (400 GT or larger)? • A practical definition of the principle of Common but differentiated responsibility • How to spend the net-revenue and how to finance a US$ 100 billion fund by 2020

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