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Generally, in an emissions trading scheme, a central authority sets a cap on the
amount of a pollutant that can be emitted. The cap is allocated or sold to involved firms
in the form of emissions allowances. Firms can exchange allowances in the market. This
allows the system to reduce emissions without significant government intervention.
Since an emission trading scheme is more marketable than emissions taxes, this paper
mainly tries to propose an international, potential marine emissions trading scheme.
Existing emissions trading schemes are mostly regional, such as the European Un-
ion Emissions Trading Scheme (EU ETS) and the New Zealand Emissions Trading
Scheme (NZ ETS) [22]. Taking international shipping as a global industry, regional
emissions trading schemes cannot take an ideal effect on cutting down its emissions.
In order to solve this issue, a global marine emissions trading scheme should be put
forward. However, there still exist some issues hindering its implementation. The key
one is the allowance allocation method. In theory, the efficiency of an emissions trad-
ing scheme is independent on the choice of allocation criteria and the design of the
initial allocation method [23, 24]. However, the allocation method determines the
financial burden to international ship operators. This will be crucial for the acceptabil-
ity of the marine emissions trading scheme.
Generally, five basic methods have been proposed to allocate allowances, namely
grandfathering, benchmarking, auctioning, baseline, no allocation. Each allocation
method gets some support or objections, while auctioning appears to be the most at-
tractive option [14, 15, 24]. However, if international shipping carriers get all the
allowances through auctions that would be a huge financial burden to them.
Considering the financial burden to ship operators and the GHG emissions reduc-
tion pressure to the international shipping sector, the initial allocation of allowances to
the shipping sector could, in principle, be done by a combination of grandfathering
and auctioning [14]. A hybrid system of these two allocation measures could provide
a starting point for a slow transition from allocation free of charge to an auctioning
system. Moreover, the obligation to surrender allowances for emissions growth shows
parallels with both allocating free of charge and auctioning. One parallel lies in the
fact that involved firms do not have to pay for emissions within a certain quantity for
free. Once the free quantity is exceeded, they must auction allowances.
After the initial allocation of allowances has been determined, we take a final deci-
sion on the size of the cap and auction rate. In this paper, the equivalent cap for a
liable entity in the marine emissions trading scheme could be 80% of its 2012
emissions and the ship itself considered as the liable entity [14].
Table 1.
Marine emissions trading scheme, in detail
Liable Entity
Cap
Free Rate
Auction Rate
0.8
0.2
0.6
0.4
80% of its 2012
emissions
Ship
0.4
0.6
0.2
0.8
0
1
As the auction rate of allowance is hard to decide, this paper mainly refers to auc-
tion rates in EU ETS to propose a scenario analysis, which may consider some
