Carbon emissions in the maritime sector: BAU and with carbon pricing

Table 4 presents our bottom-up carbon emissions calculations using data for both the average annual weight–distance (ton-km) by industry (to which the 6-digit products belong), and the average carbon intensities for the type of ship used to transport the different product category (column 3), for the period we here study (2009 – 2017). We remark that the results by industry in Table 4 are averages from i) taking into account the elasticities of the weight– distance of its traded 6-digit products between two countries with respect to the bunker fuel price; and ii) that these elasticities vary according to the core competence of the traded 6-digit product.

Table 4: Estimated average annual carbon emissions and emission reductions in the maritime sector: BAU and with hypothetical carbon tax of $40/ton CO2 in 2009 – 2017. 1000 tons CO2

6-digit HS products

* International Transport Forum (ITF) (2018). Note: It is assumed that the “BAU” activity level for each sector corresponds to the average activity levels over the period 2009-2017.

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We find that the (BAU) average annual carbon emissions from transporting our heaviest products at the 6-digit HS level of aggregation (belonging to 21 industry categories) were about 448 million tons of CO2 (see column 4). This estimate is about half of total emissions from the entire international shipping over the same period (see e.g. IMO (2015)).

We also estimate what would have been the annual average CO2 emissions and reductions from the BAU, if a global carbon tax of $40 per ton CO2 on all bunker fuels would have been implemented between 2009 and 2017. See respectively columns 5 and 6 in Table 4. Assuming no change in ship technology (i.e. using the average carbon intensities for 2010 – 2015), we find that there will be a reduction in CO2 emissions, by about 7.2% from the BAU, again for our heaviest 6-digit HS products which are part of 21 industries (see column 6). There are however substantial differences in the impact by sector. By far the greatest reduction is estimated to take place for the freight of fossil fuel products (by oil tankers), whose emissions of CO2 are predicted to go down by around 18 million tons (or about 12%) due to this carbon tax. Other sectors with substantial reductions in carbon emissions are ores (10%) and cereals (6%). See Figure 3. Table 4 thus gives estimates of total carbon emissions both under BAU with no carbon tax (column 4), as well the potential changes in carbon emissions that would have resulted from a $40 per ton CO2 carbon tax, for the heaviest 6-digit HS products in each of the 21 industries they belong to (column 5).

Figure 3. Estimated average carbon emissions reduction from a US$ 40/ton CO2 to the heaviest products at the 6-digit HS level of aggregation by industry type during 2009 - 2017

0 2 4 6 8 10 12 14

Reduction in CO2 emissions (%)

27 26 10 31 23 29 74 72 47 12 39 76 28 38 25 44 73 94 87 48 15

Industries to products at 6-digit HS level of aggregation

29 6.3Projections of carbon emissions: 2030 and 2050

In Table 5 we follow the same methodology as for the results presented in Table 4, to estimate how carbon emissions would be reduced in 2030 by considering i) only technological progress in the maritime sector up to 2030; and ii) both this shipping technological progress and a carbon tax of US$ 40. We assume that the annual average maritime trade (weight – distance) from 2009 – 2017 will remain unchanged after 2017. Note however, that the emissions by product/industry category will increase proportionally to any possible increase in trade, if it happens.

Table 5: Estimated carbon emissions and emissions reductions in 2030, due to a $40/t CO2 carbon tax and shipping technology improvements. 1000 tons CO2 per year

6-digit HS products per industry

* International Transport Forum (ITF) (2018)

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The reduction in carbon emissions due to technological improvements from 2010 – 2015 and up to 2030 are presented in column 3, while the reduction in emissions due to the assumed carbon tax together with the shipping technological progress are shown in column 4. Column 5 presents the percentage reduction in carbon emissions in 2030, due to combined effects of technology improvements and the $40 carbon tax.

We now present carbon emissions projections for 2050 in Table 6. The main difference from Table 5 is that the assessed carbon emissions intensities by 2050, in column 1, are lower due to further technological progress up to 2050. Column 2 as before shows CO2 emissions calculations resulting from shipping technological progress without imposing the carbon tax, while column 3 displays the CO2 reductions as a result of technological progress from 2010 – 2015 and up to 2050.

Table 6: Estimated carbon emissions and emissions reductions in 2050, due to a $40/t CO2 carbon tax and shipping technology improvements. 1000 tons CO2 per year

6-digit HS products per industry

* International Transport Forum (ITF) (2018)

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Column 4 shows the impacts on carbon emissions from shipping, due to a $40 per ton CO2

carbon tax and the technological progress. Column 5 shows the total percentage reductions in carbon emissions due to both technical progress and to the carbon tax. The total reduction in emissions from those in 2017, for our heaviest products is larger than for 2030, 28.4% (versus 17.8%).

Our CO2 estimates strongly indicate that expected advances in ship technology, combined with moderate carbon pricing (US$ 40), will be far from sufficient to fulfill the IMO target emissions rate reduction by 2050 which is 50%. Additional instruments and tools are needed. Even a higher carbon tax, for example $80 per ton CO2 in 2050 (the high end of the globally optimal range in Stern, Stiglitz and others (2017)) would lead to a total reduction in carbon emissions from international shipping by at most 34% in 2050. And even this reduction is over-stated as it is based on our assumption that international maritime trade activity will not increase from now up to 2050.

We can also compare our results with the IMF simulation study by Parry et al. (2018). That study predicts the impacts of a comprehensive carbon tax on international bunker fuels on all traded goods, imposed gradually and increasing by $7.50 per year from 2021 onwards, reaching

$75 by 2030, and $150 by 2040. They predict a reduction in carbon emissions from international shipping by 14% (due to the $75 per ton CO2 tax) in 2030, and by 23% (due to the $150 tax) in 2040. These carbon emission reductions in Parry et al (2018) are a result of fa combination of four factors: improvements in ships’ 1) technical efficiency; and 2) operational efficiency; 3) shifting to larger ships and higher load factors; and 4) shifting trade away from heavy goods and distant trade partners, and reduced trade volume. All our estimated impacts follow from the last of these factors, reduced trade volumes and country distances, measured in ton-kilometers. In fact, only 4% of their total estimated carbon emission reductions (14%), when imposing a US$ 75 carbon tax, are a result of decreases in volume – country distance of international trade. A crucial difference however between our study and Parry et al. (2018) is that only our study provides estimations on real historical data, while all the results in Parry et al. (2018) are based on simulations of a theoretical model.

Our results show that the emission reduction from international maritime trade of the heaviest products (at the 6-digit HS level of aggregation) as a result of imposing a carbon tax are much greater than those predicted by Parry et al (2018) when considering total worldwide maritime trade. Our heaviest products represent about half of the total carbon emissions from international

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maritime trade today. Schuitmaker (2016) finds that taking specific measures to reduce emissions, will reduce carbon emissions from total international shipping to 710 million tons CO2 by 2050;

relative to IMO’s BAU scenario of approximately 2 billion tons.

We here remark that the only possible way to obtain an overall small effect of carbon pricing on trade and consequently in CO2 emissions, as in Parry et al. (2018), would be that the impacts of carbon taxation on the rest of (less heavy) maritime trade are significantly smaller than our estimated impacts on the heaviest categories or close to zero.

Consider how our results relate to the IMO’s GHG emission reduction goals for international shipping which is 50% for 2050 relative to its 2008 level. This implies a cut in emissions of 50% of 1,135 million ton by 2050. Note that we have found that only considering the traded heaviest products, one can reduce CO2 emissions to 321 mill tons (=346 – 25; see Table 6) from the heaviest traded products, but only if one has a combination of a carbon tax of $40 per ton CO2, plus technological and efficiency improvements in maritime transport, and assume that the average annual trade is going to be equal to the historical average annual trade over the period 2009 – 2017. Recall also, that IMO has not committed yet to any carbon price scheme. Therefore, it is difficult to see how IMO will reach its goals without implementing carbon pricing of at least US$ 40 per ton CO2. Technology and efficiency progress will not be sufficient. See Smith et al.

(2015a, 2016) for similar conclusions.

At least two additional factors point toward our calculations might be over-estimating the actual carbon emission reductions that can realistically be achieved from shipping in 2030 or 2050.

First, our estimations only embed the approximate half of emissions from the heaviest goods at the 6-digit HS level of aggregation. The rest of international sea freight consists of less heavy and relatively higher-valued goods whose transport volumes are likely to be less responsive to carbon taxation. Secondly, and more importantly, our calculations assume that the aggregate sea freight volume from now and up to 2050 will remain at average annual levels experienced during the years between 2009 and 2017. This may not happen. With further economic growth over the coming 30-year period (in particular among countries currently in the low-income group), trade volumes are likely to increase by 2050.

7. Calculation of global revenues from a $40 per ton carbon tax on shipping heaviest