External costs of maritime transport in Sweden
Axel Merkel,
Researcher (PhD),
Swedish National Road and Transport Research Institute,
Sweden
The use of maritime transport is associated with external costs, a high share of which is related to greenhouse gas emissions and air pollution. Shipping is subject to less incentive-based regulation than e.g., road transport, but proposed new regulation at the EU level hints at a much more stringent regulatory strategy going forward. Sweden represents a unique regulatory case with its national system of fairway dues, which are differentiated according to the environmental performance of ships. Can more than two decades of attempting to incentivize the reduction of external costs from maritime transport in Sweden teach us anything about the preferred policy path going forward?
Amid increasing attention paid to shipping’s environmental impacts, a tripartite agreement to reduce emissions of NOX and SOX from shipping was reached by the Swedish Maritime Administration, the Swedish Shipowners Association, and the Swedish Ports Organization. To achieve this aim environmentally differentiated fairway dues – ‘green’ infrastructure charges levied on commercial traffic calling Swedish ports – were introduced in 1998. In short, this meant that shipowners were given a rebate on charges based on the intensity of NOX emissions and the use of low-sulphur fuel (the subsequent implementation of the sulphur directive in 2015 made the latter part obsolete). In addition, refunds on fees were given to co-fund the installation of catalysts and other abatement equipment on vessels, though this measure was discontinued in 2001.
The environmental differentiation of fairway dues was significantly reformed in 2018, when a new system entered into force. Under the system, shipowners can qualify for environmental rebates if vessels score high enough on an index called the Clean Shipping Index (CSI). The CSI is an equally weighted composite of different factors, including the emissions of CO2, NOX, SOX and PM, as well as chemical use and water/waste management.
Evaluations of the various environmental policies built into the infrastructure charging regime have found mixed results. Previous research has found that while the uptake of measures enhancing vessels’ environmental performance increased during the policy regime in place prior to 2018, it is difficult to establish to what extent this was driven by the policies. It has been acknowledged that the potential rebates that could be earned by shipowners were too low to create sufficient incentives for investments in emissions-reducing measures. An evaluation of the current system has shown that while the reform has succeeded in increasing the uptake of environmental incentives, the incentives to reduce NOX emissions have been weakened. The economic incentive for shipowners to undertake measures to enhance vessels’ environmental performance are still weak in relation to the costs involved. Under the current system, analysis shows that the Swedish national policy measures only lead to an external cost internalization rate of roughly ¼ – meaning that the majority of external costs caused by shipping are left unchecked.
An important outstanding issue concerns the harmonization of policy measures across countries and ports. Many large ports in Sweden and in neighboring Baltic countries apply some form of environmental differentiation in the setting of port fees. However, the basis for rebates and environmental incentives is not uniform, rather it varies from port to port. There is a marked risk that differing indices weaken the incentives for shipowners to take urgent steps to reduce the environmental impact of operations. Harmonization ought also to occur to a greater extent between the Swedish national charging system and the charging systems of individual ports to maximize the effect of differentiated charging. ‘Green’ pricing must not only reward those who have already complied with higher standards but also accelerate transition among laggard shipping segments. For this to happen, we need coordinated, and sufficiently strong policy measures.
A second issue concerns the transparency of measures. Evaluations of the current scheme for environmentally differentiated fairway dues in Sweden are made difficult by the fact that the system is not sufficiently transparent. That is, it is difficult for any outside actor to establish what environmental effects can be expected to follow from the implementation of the rebates system. By contrast, the EU mandate enforcing Monitoring, Reporting and Verification of carbon emissions from shipping, which constitutes the basis for including maritime emissions in the European Trading System, ensures a high level of transparency regarding the effectiveness of policy.
In summary, Swedish experiences of implementing monetary measures for the reduction of maritime emissions are encouraging but also show that much work is needed in terms of getting policy right.
Email: axel.merkel@vti.se
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