Internalization of external and infrastructure costs related to maritime transport in Sweden

Abstract

The use of maritime transport is associated with external costs such as those related to greenhouse gas emissions and air pollution. If corrective taxes, fees or regulations are levied on the production of maritime transport services, these costs become internal and decision-makers will take into account the full social cost of transport. Shipping is subject to less incentive-based regulation than e.g. road transport, but Sweden represents a relatively unique regulatory case with its national system of fairway dues, which are differentiated according the environmental performance of ships. The central question posed in this paper is whether Sweden's internalizing national transport policy measures are in proportion to the societal costs generated by maritime traffic in Swedish waters. Using a dataset comprising all vessel movements in Swedish territorial waters during a year, we estimate the marginal external and infrastructure costs of maritime traffic and find that, depending on the set of unit values applied, the degree of internalization ranges between around 53% and 90%. We also evaluate the effects of a recent re-appraisal of CO2 in the Swedish official guidelines for cost benefit analysis and show that under the new recommendation the degree of internalization is significantly lower: 23–28%. Because the degree of internalization varies significantly between different shipping segments, a uniform increase of the charges currently in place is not recommended. Instead, we highlight that other, more appropriate instruments for internalization may be needed.