Environmental Engineering Reference
In-Depth Information
cost has the potential to provide powerful incen-
tives for companies to adopt cheaper and better
pollution-control technologies (Stavins, 2002).
A pollution charge is a fee or tax on the amount
of pollution that a manufacturer or source gener-
ates. A big challenge with the pollution charge
systems is to determine how to identify the ap-
propriate fee/tax rate. The pollution charge also
does not provide much needed certainty to envi-
ronment either. The fee or tax should also achieve
a reduction target from a baseline emission level.
The polluter-pays principle is a widely used ap-
plication for the pollution charge (Stavins, 2002).
The emission levy (ICF) proposed in the MEPC
functions just as the fuel tax.
Tradable permits can provide a cost-mini-
mizing allocation, which is similar to a tax/fee
system (Tietenberg, 2003). Theoretically, tradable
permits and tax/fees should have the same effect.
Tradable permits help to avoid the problem of
uncertain responses by firms and industries. Firms
or industries that have lower marginal abatement
cost may sell their surplus permits to other firms
or industries or use them to offset excess emis-
sions in other parts of their facilities. Tradable
permits are now widely used in emission control
policies. One of the most famous experiments
is the emission trading system under the Kyoto
Protocol for GHG mitigation (Tietenberg, 2003).
The proposed METS, either the closed METS or
the open METS belongs to this category.
Government subsidy reduction is another cat-
egory of market-based instrument. Subsidies, in
theory, can achieve the same effect as pollution
charges. The GHG charges by port states recently
proposed by Jamaica in MEPC belong to this
category. In practice, however, many subsidies
promote economically environmentally inefficient
practices (Tietenberg, 2003).
As the IMO is expected to adopt the market
based instrument to reduce vessel-based GHG
emissions and the market measures in next two
MEPC meetings, and if market works perfectly,
cost-effectiveness, this section will assume a $120
per ton CO 2 reduction cost for the international
shipping. In other words, the adopted market based
instrument will cost ship $120 per ton marginal
abatement cost no matter which measures policy
makers adopt.
Methodology and Data:
GHG Reduction Cost and
International Trade in 2005
Historically, the IMO regulates ships by two mea-
sures: by ship flags and by geographic locations.
In this section, a ship's CO 2 regulation regime is
assumed to be based on geographical locations.
In other words, countries that export commodities
have to pay for emissions irrespective of the flag
on the vessel transporting the goods.
The dataset for this section is based on the
Ship Traffic, Trade, and Energy Model (STTEM),
which was first proposed by Wang (Wang & Wang,
2010). This dataset mainly focuses on the impact
of GHG reduction cost on marine transportation
cost and international trade related to the United
States. Therefore this section will mainly use
the impact to the United States as an example.
The construction of the STTEM is shown in the
Appendix.
There are four assumptions on which the
analyses of this section are based.
First, to achieve a 20% CO 2 reduction, which is
the IMO's interim target, the marginal mitigation
cost is between $0-120 per ton, which is in line
with the cost estimate in the IMO report. Although
some literature has documented a negative mar-
ginal cost for CO 2 reduction (Eide et al ., 2009),
the marginal abatement cost has been projected to
be higher than existing CO 2 market prices, if both
capital costs and service change costs are consid-
ered (Buhaug et al. , 2009; Corbett et al , 2009).
This assumption is the key in this chapter and
has its own limitations.
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