Towards an equitable transition in the decarbonization of international maritime transport: Exemptions or carbon revenues?

Abstract

The International Maritime Organization (IMO) is considering the implementation of a carbon pricing instrument in international shipping. One of the most contentious point of debate on the implementation of carbon pricing in the sector concerns how to ensure an equitable transition. This article analyzes in-depth the advantages and disadvantages of two key potential approaches to address equity considerations in the design of a market-based-measure for international shipping: exemptions, and the strategic use of carbon revenues. This in-depth analysis has two main aims: i) it tests arguments presented in the literature on the relative benefits and risks of exemptions and carbon revenues use against up-to-date empirical research; ii) it adds to existing research by identifying benefits and drawbacks related to these two approaches that have so far been overlooked in the literature. The analysis reveals that an adequate use of carbon revenues is likely to deliver greater climate benefits than exemptions, both within maritime transport and beyond. The analysis also reveals that, while exemptions have some potential merit in addressing equity considerations, they also have various drawbacks. Overall, this research suggests that carbon revenue use should be the primary approach to addressing equity considerations in the decarbonization of international maritime transport. The article concludes by suggesting principles necessary to ensure that the distribution of carbon revenues supports the equitable transition.