Comparison of Market-based Measures to Reduce GHG Emissions from ships

• An Emission Trading Scheme for shipping. In this system, ships need to surrender emission allowances for the amount of CO2 they emit. Ships would receive a number of allowances up to the cap for the sector. In addition to the allowances available under the emission cap set for the shipping sector, ships would be able to buy additional allowances from other systems and/or use CDM or similar credits.  A GHG fund. In this system, ships or fuel suppliers would pay hypothecated contributions on each quantity of fuel consumed or sold. The resulting fund would be used primarily to offset emissions by financing emission reductions in other sectors.
• A Baseline-and-Credit Trading Scheme. In this scheme, the regulator sets a fuel efficiency target for ships, depending on ship type and size. Ships that are more efficient than the target receive credits while ships that are less efficient need to surrender credits in order to compensate for their inefficiency.

This scheme is closed to other trading systems, such as the EU ETS and the CDM. We conclude that an emissions trading scheme is the most effective and the most cost-effective global MBM. It also scores well on most of the other criteria. The GHG fund is slightly less effective and less cost-effective, because it does not incentivise the shipping sector to implement all cost-effective abatement options. The Baseline-and-Credit Scheme is less effective because it does not have an emissions cap, and less cost-effective because it does not incentivise all cost-effective abatement options and is closed to trade with other sectors and the CDM.