Economic Costs for the Compliance of Non-Annex I Countries for CO2 Reduction from International Shipping

Abstract

The differences between Common but Differentiated Responsibility (CBDR) principle and Equal Treatment for All Ships principle is becoming a stalemate for future policy progress in vessel-based CO2 reduction negotiations. This paper investigates the economic costs of CO2 reduction with and without considering the CBDR under different regulatory scenarios, evaluates the cost impact on trade cost, and discusses the real policy concerns of developing countries who insist the CBDR be applied in the International Maritime Organization (IMO). This paper shows that cost increases for big developing countries are small even using a very stringent estimate. Yet the policy that requires all ships to reduce CO2 significantly increases international trade cost for small island nations, presenting an equity issue need to be resolved. The current proposal to rebate money to developing countries has merit, especially for small countries. But it does not address some fundamental concerns from major developing countries. This paper proposes some policy options that can be considered to involve these countries and to consolidate an international effort in the IMO to reach some binding agreements to reduce ship-based CO2 in the future.