A Systems Perspective to Market – Based Mechanisms (MBM) Comparison for International Shipping

Abstract

There is a debate on which Market-based Mechanism (MBM) international shipping should adopt to mitigate CO2 emissions. Literature presents three preferences: one supports fuel levy, another supports Emissions Trading System (ETS), while the last remains neutral. This study aims to investigate: which MBM is suitable to mitigate CO2 emissions for international shipping? First, we build a systems perspective conceptual model based on economics, technology and innovation management literature to understand relationships between CO2 reduction, R&D, adoption of technologies and financial resources. Next, fuel levy and ETS are defined. multi-criteria decision-making approach is used, containing single-dimensional metrics derived from literature and our conceptual model. We find that fuel levy is more suitable due to higher effectiveness in generating funds, encouraging R&D and technology adoption. ETS is harder to implement as it requires more man-hours to set-up, operate and review. ETS with full auctioning of credits becomes marginally comparable to fuel levy. To conclude, our view is that the MBM needs to fit the context in which it is deployed. In view of the sector’s current need for R&D, fuel levy seems to be more suitable than ETS for international shipping. Note: An earlier version of this paper was titled A systems perspective to market - based mechanisms (MBM) comparison for international shipping.