Understanding Carbon Pricing and Its Impact on International Shipping

What is Carbon Pricing?

Carbon pricing is a policy approach aimed at reducing greenhouse gas (GHG) emissions by putting a financial cost on GHGs. It incentivizes industries to adopt cleaner energy alternatives and can improve energy efficiency,? spur innovation, and raise revenues.?

There are various types of? primary types of carbon pricing, two popular types are:

1. Carbon Taxes – They set a price per tonne of GHGs released by an activity (e.g., consuming fossil fuels) or are based on the carbon content of fuels. .
2. Emissions Trading Systems (ETS) – Also known as cap-and-trade systems, these set a limit on emissions and allow companies to buy and sell emissions allowances based on their needs.

In July 2023, the International Maritime Organization’s Marine Environment Protection Committee (MEPC) adopted a revised GHG strategy for international shipping, including plans to introduce a GHG pricing mechanism. At the same time, the EU has incorporated shipping emissions into its Emissions Trading System (ETS), raising concerns about potential overlaps and double pricing.?

This recent article by Goran Dominioni and Christy Ann Petit, of the School of Law and government, “Carbon Pricing for International Shipping and Border Carbon Adjustment Mechanisms: A Case for Regulatory Cooperation” examines the pros and cons of implementing double carbon pricing in the global shipping industry.

• ?Double pricing can be beneficial from a climate change mitigation perspective: applying multiple carbon pricing mechanisms increases the financial burden of emissions, further incentivizing shipping companies to invest in cleaner technologies and alternative fuels. However, it can also increase compliance costs for companies and potentially result in negative impacts on trade for some countries.?

Concerns related to compliance costs can be mitigated through regulatory cooperation among institutions working on implementing carbon pricing in shipping. For instance,? GHG reporting requirements could be harmonized to reduce compliance costs. In addition, crediting mechanisms could be implemented so that the price paid under an instrument is credited to the other. A similar crediting mechanism is now implemented under the EU Carbon Border Adjustment Mechanism (CBAM), which may offer learning opportunities for its implementation.?

Read the full publication here: https://www.cambridge.org/core/journals/european-journal-of-risk-regulation/article/carbon-pricing-for-international-shipping-and-border-carbon-adjustment-mechanisms-a-case-for-regulatory-cooperation/D5B676CBCE816B438F01E4FDBA6DDA3E