Make ships pay for their NOx emissions

A differentiated en-route charge would be an efficient method to bring down NOx emissions from shipping in the Baltic, a new AirClim report claims.

Large emissions of nitrogen oxides (NOx) are a cause of major environmental problems, and ships account for a large and growing share of these emissions.

In spite of the somewhat strengthened emission standards for new ships adopted in 2008 by the International Maritime Organization (IMO), NOx emissions from international shipping in European sea areas are projected to increase by nearly 40 per cent between 2000 and 2020.
If no additional abatement measures are taken, this means that by 2020 the emissions from shipping around Europe are expected to equal or even surpass the total from all land-based sources in the 27 EU member states combined.

In addition to the NOx requirements for new ships from 2011, the IMO decided that in designated Emission Control Areas (ECAs) more stringent rules will apply from 1 January 2016. Here, ships built after that date will have to reduce emissions of NOx by about 80 per cent from the current limit values.

There are currently no NOx-ECAs in place, but the countries surrounding the Baltic Sea are cooperating through the Baltic Marine Environment Commission (HELCOM) to prepare a proposal to the IMO to designate the Baltic Sea as a NOx-ECA.

In March, the United States and Canada jointly proposed to that most areas of their coastal waters – extending 200 nautical miles from the coast – be designated as an ECA for the control of sulphur oxides, particulate matter and NOx emissions. After being approved in principal by the IMO in July, the proposal is set for formal adoption in March 2010.

However, a problem in the context of the new IMO NOx standards is that they will apply to new ships only, and the turnover of the fleet is slow. Ships tend to become 25-35 years old before being scrapped.

Consequently, in order to not only limit the growth in ships’ NOx emissions, but to actually reduce them, there is a need to both cut emissions from existing vessels and to speed up the introduction of efficient NOx abatement technologies in new buildings (i.e. ahead of 2016).

A new study1 by the Swedish environmental economist Per Kågeson has investigated a series of different market-based instruments that could be used for this purpose, and also assessed the potential additional emission reductions that could be achieved by applying such instruments. The study focuses on the Baltic Sea, but the general conclusions are most probably applicable also to other sea areas.

Three technologies are identified that can achieve emissions that meet the stringent ECA-requirements: Selective Catalytic Reduction (SCR), Humid Air Motor (HAM) and engines fuelled by gas (LNG = liquified natural gas).

When comparing the abatement costs with the monetised health benefits from reducing NOx from Baltic Sea shipping by these technologies, it is concluded that the benefits are about five times the average cost, provided that a pay-off time of ten years is allowed. There are also other, less expensive, technologies that can reduce emissions, which is relevant when considering the economic efficiency of retrofitting old engines.

After having analysed several types of economic instruments – such as emissions trading, differentiated fairway and port dues, and emissions charging – the report proposes the introduction of a NOx-differentiated en-route charge, largely along the lines of the current Norwegian NOx-charge.

From 1 January 2007 Norway introduced a charge of NOK 15 per kilo (equivalent to €1,765/ton) on NOx emissions from ship engines above 750 kW. However, a number of Norwegian business organizations have entered into an agreement with the Ministry of the Environment to establish the Business Sector’s NOx Fund, effectively reducing the charge to NOK 4/kg (€470/ton) for the participants. Through the NOx Fund, NOK 600 million per year will be allocated to NOx reduction projects over three years. The NOx Fund selects the most cost-effective projects, which may receive 75 per cent of the investment costs. The Fund will also support operational costs, such as urea for SCR.

A NOx-differentiated en-route charge would be relatively easy to operate. It is suggested that port authorities around the Baltic Sea would be mandated to assist a common authority that collects a mandatory charge reflecting the calling ship’s emissions of NOx during its latest trip in Baltic Sea waters. The charge would correspond to emissions emitted from the point of entry into Baltic Sea waters or since departure from another Baltic port.

Figure: The IMO’s NOx emission standards for new ship engines: Tier I applies from year 2000, Tier II from 2011, and Tier III from 2016 (the Tier III-standards apply only within NOx Emission Control Areas).

It is argued that as long as the revenues are not recycled to the industry, the scheme runs the risk of being legally challenged by third parties. Thus the proceeds could be used to finance grants to ships along the lines used for recycling the revenues from the existing Norwegian NOx Fund.

A charge of the size similar to that of the Norwegian NOx Fund (€470 per ton NOx) may be sufficient when the proceeds are used for grants. The combined effect of a grant and a modest charge should, for frequent visitors, be enough to justify investment in SCR in engines with a remaining life of about ten years or more. Ships should be equally eligible to the grants regardless of flag and ownership.

Ideally there should be only one fund for the Baltic Sea run jointly by the participating coastal states. To improve the overall efficiency it may be worthwhile widening the scheme to cover also the North Sea.

A rough calculation of the emission reduction potential indicates that application of an emissions charge, as outlined above, could cut NOx emissions from ships in the Baltic Sea by about 72 per cent. If it is assumed that only four out of five of ship owners respond to the incentives in the way foreseen, the actual effect on emissions would be lowered to 58 per cent. This would correspond to an annual reduction of about 270,000 tons in NOx, from an expected business-as-usual level of approximately 460,000 tons in 2015.

Christer Ågren

1) Market-based instruments for NOx abatement in the Baltic Sea (Nov 2009), APC-report No 24. By Per Kågeson. Published jointly by AirClim, T&E and EEB. Available at www.airclim.org.