Chapter 6. Who is responsible for emissions from international trade?
consignee is the cargo. If an international tax were used, the real incidence of the tax would again match the relative contributions of the transaction partners to jointly causing the damage. The problem of apportioning responsibility would accordingly be solved.
6.3. Conclusion Developing countries would see their responsibility for global emissions fall, which may help in facilitating climate agreements, but also bring developed countries more in line with reality as they would need to live up to the fact that their current environmental progress is partly built on advantageous accounting – an account-ing which actually goes against the climate law principle of favouraccount-ing developaccount-ing countries (Common but Differentiated Responsibility, UNFCCC Art. 3).
Using these causation principles would also help reduce the fracturing of climate law. Even though the Paris Agreement sets climate targets for the whole world, it is not currently able to cover all emissions through its main instrument: the Nationally Determined Contributions (NDCs). Emissions that are released in the international transport of goods fall out of the NDCs, because of a disagreement over the national apportionment of such emissions. Current international law does not attribute these emissions to any state, and OECD research even suggests that “it would be impossible to apportion shipping emissions to countries” (Merk, 2013, p. 4). As a result, emissions from the shipping and aviation sectors needed to be regulated in a negotiation stream separate from the main climate negotiations, with questionable success. Here we have provided a solution for apportioning these emissions to countries, so that they could be included in the NDCs. We have also shown a way how consumer countries could identify a responsibility for emissions that were released in producing their goods overseas.
Our current system of international law is still very much build on the nation-state, and acting through international agreements is fraught with difficulties. It can be that nobody feels responsible for the emissions from international trans-port of goods, and extrans-porting countries can feel they are not responsible for the emissions of their export sectors. Here we have described a way to apportion responsibilities and situate the causation with the nation-state. Furthermore, the fact that the proposed system would shift more responsibility to consumer coun-tries may spur environmental efforts if councoun-tries’ valuation of environmental pro-tection rises in their income levels.
This chapter has therefore shown a way to attribute causation of emissions to countries which may not have the physical control over these emissions. For example, consider a case where Germany imports products from China by ship.
The emissions which the ship releases in the high seas would, under our new conception of causation, be jointly caused by Germany and China. So Germany and China could then both have a responsibility of acting on a share of these
Chapter 6. Who is responsible for emissions from international trade?
emissions, even when it does not have physical control over emissions occurring in the high seas outside its jurisdiction. Chapter 7 will describe how countries can tax such emissions outside their borders given legal limitations on extraterritorial regulation and economic limitations on tax competition. Chapter 9 makes the same case for taxing embodied emissions.
Creating these possibilities for attributing national responsibilities and enabling national action does not mean that it must be nation-states who act on these emis-sions – ideally the world could act as one through an international agreement on such emissions – but here we show backup a solution in case the world does not act as one and we continue to need individual nation-states to act. In chapter 8 we then show how bottom-up national action on emissions can contribute to making successful international climate agreements more likely.
Part III
National environmental tax policy for global
environmental problems
Chapter 7
Taxing emissions in international space:
The maritime case ∗
Many academics and policymakers agree that taxing maritime fuels – which are currently tax-exempt around the world – would be efficient, but that any such reform requires a unanimous international agreement. Such an agreement is deemed indispensable because any unilateral action would be impossible due to massive tax competition in this industry, competitiveness effects and the legal limits on regulating an industry operating mostly in international waters, thus
∗Contents from this chapter are included in several publications. Most has been published in the journal article Heine, Dirk, & Gäde, Susanne. 2018. Unilaterally Removing Implicit Subsidies for Mari-time Fuel: A mechanism to unilaterally tax mariMari-time emissions while satisfying extraterritoriality, tax competition and political constraints. International Economics and Economic Policy,15(2), 523–545.
The legal analysis surrounding this chapter has been published in Dominioni, Goran, Heine, Dirk,
& Martínez Romera, Beatriz. 2018. Regional Carbon Pricing for International Maritime Transport:
Challenges and Opportunities for Global Geographical Coverage,Carbon and Climate Law Review 12(2), 140–158. Contents of the chapter relating to international negotiations have been published in Parry, Ian, Heine, Dirk, Kizzier, Kelly, and Tristan Smith. 2018. Carbon Taxation for International Maritime Fuels: Assessing the Options, IMF Working Paper 18203. The mechanism developed in this chapter has also been published through the MIT Climate Co-Lab which awarded its 2015 Judge Award for the best submission in the transport sector.
Chapter 7. Taxing emissions in international space: The maritime case
outside of any state’s jurisdiction. However, an international agreement to solve these problems has proven impossible to reach, thus resulting in the conserva-tion of the status quo. To break this deadlock, this chapter proposes a mechan-ism whereby a small coalition of countries, to start with, can introduce environ-mental taxes even in the absence of an international agreement. This incentive-compatible scheme solves the above-mentioned issues. The mechanism is fur-thermore designed to avoid locking in a sub-global scheme. Instead, it has the potential to contribute to unlocking the gridlock in negotiations over a global agreement on this matter.
7.1 Overcoming economic constraints
To mitigate climate change, large reductions in global greenhouse gas (GHG) emissions are required. Emissions from the maritime sector, however, are rising fast. International maritime transport accounted for just 2.2 % of global CO2 emis-sions in 2012, but as trade volumes grow, these emisemis-sions are projected to rise by 50-250 % by 2050, depending on future economic and energy market develop-ments (Smithet al., 2014). In a business-as-usual scenario, maritime transport is expected to account for as much as 17 % of global CO2emissions by 2050 (Cames et al., 2015). There is an enormous potential for maritime emissions reduction that has not yet been exploited, though. Compared to the baseline scenario, combined technical and operational measures could reduce CO2emissions by 60-75 % per tonne-kilometre by 2050 (European Commission, 2013b; Simset al., 2014).
Yet, to date, despite agreement among global governance institutions about the need to tackle the issue,1there is little market-based policy incentive to improve fuel efficiency. Unlike other transport fuels (except for international aviation), maritime fuels are not subject to fuel excise duties. In the absence of appropriate incentives, producers and consumers of maritime fuels impose an external cost on third parties. Using official accounting costs per tonne of CO2endorsed by the governments of the United States, Great Britain and Germany, the external cost of
1See the register of proposals made in negotiations at the International Maritime Organisation at http://www.imo.org/en/OurWork/Environment/PollutionPrevention/AirPollution/Pages/Market-Based-Measures.aspx as well as the reports that IEAet al.(2011), as well as the International Monetary Fund and the World Bank (Keenet al., 2011) provided at the request of G20 Finance Ministers.
7.1. Overcoming economic constraints carbon2emitted by this sector in 2012 amounts to between USD 33.7 bn - 82.6 bn.3 The current lack of environmental fuel taxation in the sector is thus creating a significant social cost.
In this chapter, we suggest an economically and legally viable solution for how to remove tax subsidies for carbon emissions released by maritime transport in the absence of an international agreement on this issue. In doing so, we focus on a coalition formed by the member states of the European Union (EU), although the mechanism is applicable more widely.4The mechanism is designed such that it imposes only a small additional administrative burden on tax subjects and au-thorities by drawing on existing institutions and databases. This chapter is also a contribution to find a way of extending the Paris Agreement’s focus on bottom-up national and regional action to a sector where this approach has proven particu-larly difficult to implement given the international nature of maritime emissions.
Lastly, this chapter is a practical policy contribution to the literature on negoti-ation strategy. Oberthür (2003) defends unilateral action (or the threat of unilat-eral action) as one of the ways to move beyond political stalemate with regards to maritime emissions. In this chapter, we provide a sector example of how regional action may enable global cooperation, instead of harming it.
The chapter is structured as follows: Section 2 reviews the previous literature on unilateral schemes for pricing emissions in the maritime sector. Section 3 intro-duces the emissions tax regime. It first elaborates on what the appropriate tax bases should be for international and intra-EU shipping, by whom the tax should be paid, and how the tax base could be computed. Subsequently, it expands on why using two different tax bases is unproblematic, and how the tax rate should be set. Section 4 concludes.
2In this chapter, the term “carbon” refers to both CO2itself and the carbon equivalent of other GHGs.
3These estimates follow from multiplying the total amount of maritime emissions from Smithet al.
(2014) with the US Cost of Carbon (US-IAWG, 2013), the UK Treasury’s Shadow Price of Carbon (Price et al., 2007) and the German mid-level short-term estimate of the external cost of carbon (Burger, 2014;
Friedrichet al., 2007; Schwermer, 2012). The German estimate for long-term damage is significantly higher. 33.7 bn is the amount when using the US Social Cost of Carbon, the German mid-level short-term estimate for the cost of carbon suggests this figure is 77.8 bn. With the UK Shadow Price of Carbon, this figure further rises to 82.6 bn.
4In particular, it would work even more effectively in Australia and Japan, given their lack of land connections to other jurisdictions.
Chapter 7. Taxing emissions in international space: The maritime case