Scenario-based LCOE assessment for bulk carriers within the scope of EU ETS encompassing Carbon Tax, Fuel Prices and GHG Emissions

Why carbon leakage matters and what can be done against it

This paper explores how optimizing vessel speeds can help reduce carbon emissions in the maritime industry. Focusing on liner shipping routes between China and Europe, it examines how carbon pricing mechanisms, including carbon taxes and emissions trading under the European Union Emissions Trading Scheme (EU ETS), impact operational costs and emissions reduction. With the use of advanced optimization methods, such as the Non-dominated Sorting Genetic Algorithm-II (NSGA-II) and the Technique for Order of Preference by Similarity to an Ideal Solution (TOPSIS), this research explores the balance between adjusting vessel speeds and minimizing emissions. The findings show that shipping companies on the China–Europe route can reduce the financial strain of carbon pricing by carefully managing speeds and voyage times. This study compares two scenarios of carbon tax policy and carbon trading rights in terms of voyage costs and carbon emissions. The results of this comparison based on the given parameters indicate a reduction of 1124 tons of carbon emissions with the carbon tax policy scenario, while the carbon trading rights scenario allows for more voyages yearly (5.24 vs. 5.30). This demonstrates one policy being more economical, while the other is also more environmentally efficient. These insights support the development of strategies that align environmental goals with economic priorities, paving the way for more sustainable maritime operations. The study introduces its objectives and reviews relevant literature by presenting a detailed methodology, incorporating emissions modeling with clearly defined parameters. The analysis presents results that undergo sensitivity testing and limitations using MATLAB (R2022a version). The study concludes by discussing policy implications and recommendations for future research and practical advancement

This article studies the relationship between the prices of fuel and EU Allowances (EUA) for carbon emissions during Phase 3 of the European Union Emissions Trading System. We find that the forward prices of EUA, coal, gas and Brent oil are jointly determined in equilibrium. The existence of such a long-run relationship entails a permanent-transitory decomposition for the series of EUA and fuel prices that reveals the short- and long-term causal influence of the EUA market in shaping the joint dynamics of fuel prices. This result complements the literature that suggests that EUA prices are driven by the dynamics of fuel prices. Interestingly, we do not find an equilibrium relationship in the spot market. EUA and fuel spot prices are driven by independent unit root processes. The differences between spot and forward markets are attributed to the tradability of forward prices that are used for speculation and hedging in financial markets. In contrast, spot prices are mainly driven by supply and demand in energy markets.

The environmental agenda is decisive in the formation of the world economy at the present stage. The need for a green transition is rarely questioned by scientists. However, there remains a wide range of opinions about which instruments are the most effective in achieving the set goals of reducing the carbon footprint. The most popular mechanisms today are the carbon market and carbon tax mechanisms. Aim of the research was using modeling, literature analysis, and deduction methods to compare the similarities and differences between the basic principles of applying a carbon tax and a carbon market mechanism, the authors of the article identify the advantages and disadvantages of both approaches. The results of the research showed that the carbon market mechanism has obvious advantages such as flexibility, cross-industry and crossterritory coverage, and relative benefits for companies compared to a carbon tax mechanism. At the same time, the carbon tax mechanism has the obvious advantage of low management costs and wide coverage, but, on the other hand, these advantages are offset by potential inefficiencies and high “cost” for companies. The analysis of the policies of large countries with large carbon emissions over the past 2-3 years shows that they are more likely to introduce elements of the carbon market to reduce emissions. Based on the theoretical analysis of the main characteristics of the carbon market and carbon tax, as well as their advantages and disadvantages, the authors urge not to be limited to one of the options, but to use both mechanisms simultaneously. In particular, the carbon market should be the main mechanism when the goal is to create more incentives to actively reduce carbon emissions, while carbon tax policies can be an additional measure to incentivize or “punish” those enterprises that exceed emission standards, also, the carbon tax will help to involve those industries that, for various reasons, cannot be represented on the carbon market.

Carbon Pricing: Design, Experiences and Issues, edited by LarryKreiser, MikaelAndersen, BirgitteOlsen, StefanSpeck, JanetMilne and HopeAshiabor. Published by Edward Elgar Publishing, Cheltenham, UK, 2015, 256 pages. ISBN: 9781785360220, ₤75.

Several years of very low allowance prices in the EU emissions trading scheme (ETS) have motivated calls to introduce a price floor to correct potential underlying distortions and design flaws, including (i) the political nature of allowance supply and related credibility issues, (ii) potential myopia of market participants and firms, and (iii) waterbed and rebound effects resulting from policy interactions. In the wake of the recent EU ETS reform, allowance prices have sharply increased. This raises the question of whether the case for introducing a price floor in the EU ETS remains valid. We argue that such a price floor, also adopted in several other greenhouse gas cap-and-trade systems worldwide, remains an important improvement in the design of the system, as long as the above-mentioned distortions and design flaws persist. An EU ETS price floor can safeguard against these issues and provides more explicit guidance on the minimum allowance price policymakers consider acceptable. Either as a complement or substitute to the current Market Stability Reserve (MSR), a price floor would thus make the EU ETS less prone to future revision in case of unexpectedly low prices. We identify and confront four prominent arguments against the introduction of an EU ETS price floor. Key policy insights An EU ETS price floor would be an important institutional innovation enhancing political and economic stability, and predictability of the EUA price The recent Market Stability Reserve (MSR) reform has not removed the need for a carbon price floor. Introducing an element of price responsiveness into the so far purely quantitative design of the EU ETS would help to preserve its integrity In contrast to conventional wisdom, legal analysis reveals that an EU ETS price floor can be legally feasible Political support for a carbon price floor is gaining traction across Europe

In this study, nondominated sorting genetic algorithm II (NSGA-II) was used to minimize the cost and carbon emissions of a liquefied natural gas (LNG) dual-fuel ship for a given route. This study considered the regulations of emission control areas (ECA) and the European Union (EU) Emissions Trading System (ETS) to determine the optimal speed and LNG/oil ratio for the ship. NSGA-II used the arrival time at each port and the LNG usage ratio for each voyage leg as its genes. The time window for arrival, the fuel cost, and potential EU carbon emission regulations were used to estimate the cost of the considered voyage. Moreover, fuel consumption was determined using historical data that were divided by period, machinery, and voyage leg. The results indicated that the optimal speed and fuel ratio could be determined under any given fuel and carbon price profile by using NSGA-II. Finally, the effects of regulations and carbon price differences on the optimal speed and fuel ratio were investigated. The cost minimization solution was susceptible to being affected by the regulations of ECAs and the EU ETS. The speed profile of the cost minimization solution was found to have a tendency to travel at faster-than-average speeds outside ECAs and non-EU regions, and travel slower in ECAs and EU regions. Meanwhile, the selection of fuel type showed that 100% traditional fuel oil in all regions, but with sufficiently high EU carbon permit cost, tends to use 100% LNG in EU regions.

Carbon Trading: Who Gets What, When, and How?

ABSTRACT. The main goal of the paper is to provide the first ex-post analysis of the EU ETS in year 2013 in the Czech Republic, based on the analysis of the key EU ETS sector - combustion processes. Regarding the methodology, the empirical research was used as a one part, as a second part the Mamdani fuzzy rule-based system. Since the EUA market price was low in year 2013, the Czech companies within the combustion processes group had weak motivation to trade with the EUAs. However, the revenues obtained from the EUA auctions in year 2013 were higher than revenues obtained from the environmental taxes. Moreover, auctioned EUAs had the similar characteristics as the environmental taxes. We can say that the EUA behaved as an additional carbon tax - in case that the company exceeded the level of emission limit represented by free emission allowances.Keywords: emission trading; environmental taxation; EU ETS; Czech Republic.JEL Classification : H23, H3, Q48, Q58IntroductionGenerally, emission allowances trading, also called as cap and trade program, originally started up in the USA and currently it is frequently used throughout the world. National or sub-national emission trading systems are already operating in Australia, the European Union, Japan, New Zealand, Switzerland and the United States, and are planned in Canada, China and South Korea (European Commission, 2013). Besides trading with emissions (mainly CO2, NOx, SO2), there are also tradable fish quota or trading in waste sector, water protection sector and land protection sector.The European Union established a scheme for CO2 and other greenhouse gases' emission allowances trading, the EU Emissions Trading System (EU ETS). The initial EU ETS was based on Directive 2003/87/EC, which established a fundamentally decentralized system for the pilot phase of emissions trading (2005 to 2007) and the Kyoto Protocol commitment phase (2008 to 2012). The key instruments were the National Allocation Plans (NAPs) (Wettestad et al., 2012). In year 2013, based on new Directive 2009/29/EC, the EU ETS came into Phase III (2013 to 2020), the post-Kyoto commitment period.The EU ETS is substantially larger and by far more complex than the pioneering US Sulphur Allowance System (Conrad et al., 2012). The EU ETS covers more than 11,000 power stations and manufacturing plants in the 28 EU member states as well as Iceland, Liechtenstein and Norway. Aviation operators flying within and between most of these countries are also covered. In total, around 45% of total EU emissions are limited by the EU ETS (European Commission, 2013). The EU ETS covers both European Emissions Allowances - EUAs (since 2005) and European Aviation Allowances - EUAAs (since 2012). The market price of the allowances is determined by supply and demand at the exchange. Both in the first and in the second trading period, the EU emission allowances were traded mostly on the BlueNext trading exchange. In the third trading period, there is one significant big exchange, where the auctions can be organized - European Energy Exchange EEX (EEX, 2015).The regulatory framework of the EU ETS was largely unchanged for the first two trading periods of its operation (2005 - 2012); however the beginning of the third trading period in 2013 brings changes in common rules, published as Directive 2009/29/EC, which should strengthen the system. Since the EU emission allowances were previously grandfathered - for free (Wettestad et al., 2012), from year 2013 the significant yield of the emission allowances is auctioned. Grandfathering was widely criticized, mostly because it introduced significant distortions to the EU ETS (Falbo et al., 2013). Auctioning is the most transparent method of allocating allowances and puts into practice the polluter pays principle (Vicha, 2011; European Commission, 2013). Sectorial differentiation was also introduced, with (initially) far more auctioning of allowances for energy producers than energy-intensive industries. …

Policy-making under uncertainty: Commentary upon the European Union Emissions Trading Scheme

This study analyzes the impacts of the European Union Emissions Trading System and free allowances on sectoral value added, gross output, and greenhouse gas emissions in the European Union for the period 1995-2020. Since the European Union Emissions Trading System inherently covers firm-level emissions, most studies in this area have been conducted at the firm level. However, a sectoral analysis allows understanding how sectors as a whole respond to the carbon pricing mechanism in terms of carbon reductions, competitiveness and sectoral output growth. It can also reveal how changes differ across sectors subject to different regulations. Controlling for sectoral employment, intermediate input use, and time effects, the results show that European Union Emissions Trading System coverage has a negative impact on both value added and gross output, but does not lead to a significant reduction in greenhouse gas emissions. The findings indicate that more labor-intensive and less input-intensive production can reduce emissions. Furthermore, the study draws attention to the competitive losses caused by compliance costs in sectors within the scope of the European Union Emissions Trading System and shows that the impact of free allowances on performance is insufficient. These results highlight the importance of coherent and inclusive approaches in policy design to more effectively manage the economic and environmental impacts of the European Union Emissions Trading System. It is recommended to develop more targeted and flexible strategies, taking into account sectoral differences.

Global climate change has encouraged international and regional adoption of pollution taxes and carbon emission reduction policies. Europe has taken the leadership in environmental regulations by introducing the European Union Emissions Trading System (EU-ETS) in 2005 and by promoting a set of policies destined to lower carbon emissions from energy, industrial, and transport sectors. These environmental policies have significantly affected the production choices of these European sectors. Considering this framework, the objective of this paper is to evaluate the effects of the application of environmental policies in a multitiered closed-loop supply chain network where raw material suppliers, manufacturers, consumers, and recovery centers operate. In particular, we assume that manufacturers are subject to the EU-ETS and a carbon tax is imposed on truck transport. In this way, the developed model captures carbon emission regulations, recycling, transportation and technological factors within a unified framework. In particular, it allows for evaluating the impacts of the considered environmental regulations on carbon emissions, product flows, and prices. The proposed model is optimized and solved by using the theory of variational inequalities. Our analysis shows that the combined application of the EU-ETS at the manufacturers’ tier and the carbon tax on truck transport implies additional costs for producers that reduce their good provisions. On the other side, this has a positive outcome for the environment since $$\hbox {CO}_2$$ emissions reduce. Moreover, an increase of the efficiency level of the recycling process increments the availability of reusable raw material in the reverse supply chain. Finally, the distance between a couple of CLSC tiers plays a very important role. The lower is the distance covered by vehicles, the higher is the production of goods and the lower is the amount of $$\hbox {CO}_2$$ emitted.

Carbon pricing is about the explicit pricing of greenhouse gas (GHG) emissions, of which carbon dioxide is the most important. GHG emissions, which are normally measured in tonnes of carbon dioxide equivalent units, are responsible for global warming and hence the greatest environmental externality of our age. Carbon pricing is a mechanism for making society account for the external damage caused by carbon emissions in economic decision making. There are two main ways of pricing carbon dioxide emissions, either via a carbon tax or via the introduction of an emissions trading scheme whereby those emitting carbon into the atmosphere are required to surrender permits which reflect the quantity of emissions they are responsible for. These emission permits are tradeable and hence command a price and, in some respects, operate in a similar way to a carbon tax. Thus, we will discuss both carbon pricing and emissions trading, as the literature on both is closely related. Emissions trading exists for certain other pollutants (such as sulphur dioxide) and we will discuss some of the literature related to this. However, most of the literature on emissions trading relates to carbon dioxide emissions, as these are by far the most valuable traded emissions globally. The literature on carbon pricing and emissions trading is wide ranging and constantly being updated with new analyses. Much of the literature is written by economists who are seeking to apply market-based approaches to the solution of environmental problems. The article starts by looking at the general context in which carbon pricing and emissions trading sits before discussing introductory texts which relate to the subject and going on to introduce the relevant classic literature in environmental economics. It then proceeds to more applied literature, beginning with discussions of early examples of emissions trading and carbon taxation, before continuing to studies of the impact of carbon pricing and emissions trading and those which explain the nature of the schemes we observe. The article continues with literature which looks at the Europe Union Emissions Trading Scheme (EU ETS) for GHGs and other important carbon pricing schemes. It then moves on to the literature on the prospects for a global carbon price, on interactions with other climate policies, on distributional concerns about the imposition of a price on carbon. Finally, it concludes with an introduction to relevant official publications and sources of data on carbon emissions and carbon prices.

The European Union (EU) Emissions Trading Scheme (ETS) is a cornerstone of the European Union's policy to combat climate change and its key tool for the cost-effective reduction of industrial greenhouse gas emissions. Moreover, according to the European Commission, it is the first and biggest international scheme for the trading of greenhouse gas emission allowances, including sophisticated and far-reaching penalties. Notably, however, the scheme arose out of a failure at the international level to agree on global standards. When an amended directive included aviation under this scheme beginning in 2012, it ignited a global controversy that came before the Grand Chamber of the Court of Justice in December 2011. In its decision, the Court and Advocate General explicitly explain that the EU ETS regime arose because of the failure of the International Civil Aviation Organisation (ICAO) to evolve a global regulatory scheme. To some, the decision of the Court of Justice on the EU ETS represents a definitive view on the legality of the EU's ambitions to uphold high environmental standards and to compel others to uphold these standards also.

Analysis of the sustainability of any system is understood to examine the system performance from the perspectives of its impacts on three domains: environmental, economic, and societal. For energy systems, it is evident now that net greenhouse gas (GHG) emission concern has become the dominant driver for sustainability consideration. All western countries and most in the developing worlds have pledged to reduce GHG emissions in order to reverse potential ill effects of warming of the planet. Not all energy systems emit GHG, but the overall portion of the global energy use of those systems that are GHG-neutral currently is no more than 20%. The important non-fossil energy systems with no net-positive GHG emission are nuclear, biomass and wastes, hydro, wind, solar, and geothermal. Oil (34%), coal (25%), and natural gas (21%) not only constitute the main sources of the world’s energy, but are also believed to continue to maintain similarly dominant position until about 2030, according to Energy Information Administration, as shown in Fig. 1 (EIA 2009a). To satisfy proclamations of draconian cuts in CO2 emissions by most western nations by this date, renewable and non-fossil energy systems would have to be rapidly developed and provided affordably. A recent EIA estimate showed that renewable energy production worldwide in 2025 could potentially reach greater than 200 quadrillion BTUs, which is double the entire U.S. energy use per year today. Even in that scenario, the total fossil energy use is not seen as substantially decreasing in absolute term. As a result of the continued and increasing use of fossil fuels, carbon dioxide emissions will keep on increasing, though, as Fig. 2 shows, the emissions from the OECD nations will have stabilized by 2030, and most of the GHG emissions will come from the developing economies (EIA 2009b). Carbon dioxide emission has become the main focus in debates on energy sustainability because most of these are derived from non-renewable fossil fuels used in power generation (coal and natural gas) and transportation (petroleum), and thus are deemed to be undesirable from global warming viewpoint. Even though over the longer term these are depletable resources, currently there is no shortage of these fuels. The supply and price of these fuels are largely controlled by the international cartel, and more sources are periodically discovered, adding to the recoverable reserves. The recent surge in world prices of fossil fuels resulted mainly from market disruptions and inevitable speculations in the futures market. One of the sustainability criteria any energy resource has to meet is whether we are keeping enough of that resource for the future generations. Fossil fuels do not have to meet this criterion because the resulting carbon dioxide emitted to the atmosphere is believed to do irreparable harm to all inhabitants of this planet because of global warming. This makes the case for drastically reducing the use of these fuels, while developing non-fossil routes to energy to power worldwide development. The U.S. National Research Council, in Grand Challenges for the Chemical Industries, foresees the transition to non-fossil fuels consummating by the turn of the 22nd century (NRC 2005). Negotiations have been ongoing among the nations of the world since the signing of the Kyoto protocol on how to achieve the goal of stabilizing atmospheric CO2 at 500– 550 ppm—without success of any kind. Given the economic status of nations, self-interest differs from one another and that is reflected in their policy practices. The S. K. Sikdar (&) National Risk Management Research Lab/USEPA, 26 West Martin Luther King Drive, Cincinnati, OH 45268, USA e-mail: sikdar.subhas@epa.gov