The shipping industry under the EU Green Deal: An Input-Output impact analysis

Abstract

In 2021, the European Commission introduced the ‘Fit for 55’ package, a set of policies aimed at reducing greenhouse gas (GHG) emissions by at least 55% by the year 2030. This initiative, aligned with the European Green Deal, seeks to make Europe a climate-neutral continent by 2050. A pivotal aspect of ‘Fit for 55’ is the proposed extension of the European Union Emissions Trading System (EU ETS) to the shipping industry. According to the European Commission, water transport accounts for 2.5% of global GHG emissions, while the shipping industry accounts for 13% of the EU’s GHG emissions from transportation.This stringent new shipping policy makes it imperative to determine how the world’s economy will respond, considering three distinct implementation proposals with different rates of policy introduction. Evaluating the short-term impacts of the policy is crucial to ensuring that the sustainability initiative is not only ambitious but also pragmatic and adaptable to the realities. To assess the implications, this paper uses the Leontief price model, the environmental input–output (EIO) model, and the OECD Inter-Country Input-Output (ICIO) Table for 2018, which contains information for 45 sectors. The focus is on EU countries and its Top 10 Trading Countries.Our findings show that a short-term trade-off exists between economic and environmental goals and that environmental gains incur economic losses for key stakeholders. They also show that the impact of this policy is felt more by producers in the EU and consumers in non-EU countries than by other agents in the respective countries. Lastly, a recommendation from our study is that the policy should be phased in progressively to provide economic agents with the necessary adjustment time and thus minimize economic losses.