The levy would be established at the rolling average of the carbon market price, adjusted for any prevailing free allowances. In short, shipping industry would be subject to the same carbon price as other industries; no more, no less.
Until a global carbon price emerges, the rolling average of the largest economy-wide emission reduction scheme, adjusted for any free allowances existing in the scheme, is proposed (likely to be the USA market).
The above price linkage is preferred since 2009.
The old version of deriving the levy from an emission cap is described below (for historical reasons).
The level of the levy, in this older version, was derived from the projected gap between emissions and the cap, as shown below. E is the projected emissions, and C is the cap for the total emissions. R is the ratio equal to the percentage of emissions that are above the cap, calculated as R = (E – C ) / E. In the simplest case R defines the level of levy in terms of the carbon price. The levy can be adjusted upwards for an extra charge for technology R&D.
Furthermore, both E and C can be expressed in reference to emissions in any given year – such as 2005 – through an appropriate growth rate. R can therefore be calculated from an emission growth rate for E and an emission reduction rate for C. This allows the scheme to start operating without the a priori knowledge of total emissions, in contrast to cap-and-trade for which reliable emission data is required to allocate emissions.
Example calculations for 2013. Emissions (E) and cap (C) are projected to be 116% and 89% of emissions in 2005, respectively. The ratio (R) is calculated as 23%. An adjustment of +7% for technology and scheme costs brings the levy to 30% of carbon price (wherein the carbon price is not adjusted for any free allowances).
NOTE: Please note that in a "USA linked" version of IMERS the levy could be set through a different mechanism. This is a subject of consultations starting in early 2009 (in the context of the recent proposal for an economy-wide cap-and-trade scheme in the USA). Please contact us if you require further details.