Civic Exchange - 2009 The Air We Breathe Conference - The Economics of Managing Damaging Pollutants from Marine Sources

connecting you to the future

The economics of managing damagingpollutants from marine sources

Terry BarkerUniversity of Cambridge and Cambridge Econometrics

Overheads for Expert Symposium on Air Quality,Hong Kong, 9 January 2009

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Context: aviation and shipping

• International transportation– Global and growing– Size and effects uncertain and risks asymmetric– Aviation is different from shipping

• Place of emissions: high versus low• Light versus heavy loads• Passengers versus freight• Regulation and safety: risk to life/oil pollution

• Why air and ship including other polluting emissions(i.e. GHGs) in GETS?– Both are intrinsic to globalisation & trade-based growth– Both face local congestion and pollution– Both also pollute outside border controls, in what would otherwise be

pristine environments– Most intractable of broad sectors (data, law, behaviour)– CRITICAL:

• likely substantial reductions in costs if altogether in an extendedGETS: “flexibility” (time, multi-gas, and technological-option-choice)

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International policy coordination

• Current policies are ripe for reform– Systemic: pollution, congestion, noise– Many damaging emissions are outside national borders– National caps for GHG, SO2, NOx, not for international

emissions– Not in Kyoto, Article 2.2– Consensus and action difficult to achieve– Classic example of externalities, but no taxation

• GETS– Cap-and-trade can limit emissions equitably across operators

and countries– Auctions yield revenues (otherwise huge profits)– Carbon and other pollutant prices can be managed

• Post-2012 (Copenhagen COP15)– Need to start with a global scheme, GETS is logical– Will reveal market carbon price for decarbonisation

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A Global Emissions Trading Scheme(GETS) for international transport

• GETS is based on the design of the EU ETS forGHGs and can be extended to include otherpollutants.

• Each phase will run for 8 years – 5 consequentphases from 2013 to 2052

• Cap at the average level of 2004-2006 emissions in2013, phasing out by 2052 i.e. no allocation in 2052(net zero emissions)

• 100% auctioning & 100% revenue recycling• Usage of credits from CDM projects: 10% of

allocation in 2013 decreasing linearly to 5% in 2052• CDM credits are supplementary to the allocation

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Outcomes

• Management of GHGs, NOx, SO2, PM• Inducing technological change and more

investment (through carbon price and R&Dinvestments)– Higher prices will not necessarily stop growth

of the sector– New planes and ships likely to be more

generally productive and better quality– Growth less polluting

• Funding flows from air passengers and importersto development

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Sketch of a GETS for InternationalTransport: Low growth scenario

GtCO2

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bau emissions credits auctioning

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Sketch of a GETS for InternationalTransport: Low growth scenario 10%

auction revenues returned to the industry

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billio

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Low growth revenues recycled to the industry - High price

Low growth revenues recycled to the industry - Medium price

Low growth revenues recycled to the industry - Low price

$bn(2000)

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Sketch of a GETS for InternationalTransport: Risks and opportunities

• International aviation and shipping together: lowestand highest emissions per tonne of freight carried

• Regulatory capture– Annex I versus Non – Annex I countries– ICAO and IMO versus UNFCCC– Provides opportunities for collusion and monopolistic pricing

• Institutional feasibility: will IMO, ICAO ever agree toa scheme? National governments? (IATA supportsincluding aviation into an open GETS)

• Technologies may not emerge– But wind, heat-pump, new PV materials – a technological

revolution appears to be starting

• Convenience-flag countries in shipping.