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The European Union has been bombarded by complaints from the U.S. and China after it decided this year to force airlines to pay for their carbon emissions. Now, the shipping industry has also begun to stir as the European Commission is looking into how best to make it reduce its CO2 emissions.

Starting in January 2012, airlines flying in and out of the 27 EU member states will have to buy permits for each ton of carbon dioxide they use exceeding a designated cap — which will gradually shrink. They’ll have to buy the permits in the EU’s carbon market, known as the Emissions Trading System.

Given the airline precedent, including the maritime industry in the ETS is one option. But industry officials increasingly favor a levy, which they say is simpler and more flexible. A levy, though, does not come without drawbacks.


“Why a levy? Because it is simple to be applied,” said Alfons Guinier, secretary general of the European Community Shipowners Association, at a meeting debating the issue last week.  The levy would be easy to calculate, allowing ship owners to pay the penalty and proceed with business.

He further emphasized that the money could be used appropriately if piloted by the International Maritime Organization, a U.N. body that regulates shipping to ensure security and to prevent polion. The revenues from the levy would be channeled to three areas: buying carbon credits, supporting developing countries to adapt to climate change, and developing technology in the industry.

Things are not quite that straightforward, according to Per Kågeson, professor in Environment System Analysis at the Royal Institute of Technology Stockholm.

“Proponents of the levy say the levy will bring a predictable price, which is important for investors, low transaction costs, and I think they expect, even though they don’t say so, a lower cost to the industry than in the case with the ETS,” said Mr. Kågeson.

However, although the industry expects emissions per kilometer to be reduced by 20% in 10 years, trade by shipping will still grow by 3% to 4%. Thus, the gap between allowed emissions, which will consistently fall, and total real emissions, which will rise annually, would grow, so the logic may have to be that the levy gradually increases to give stronger incentives to cut emissions.

Indeed, a levy would mean lower transaction costs, but there are options to reduce red tape even with the ETS, claimed Mr. Kågeson.

Which market based measure will the Commission choose? Well, readers, we’ll have to wait a bit: At a high-level meeting today, the Commission is asking this same question to different stakeholders and will then weigh the different options. Its final decision will only be known next year, when it plans to propose a concrete plan.