Integrating RM with other MBMs

In this section we analyze the various MBM (Market-based Measure) proposals being considered by the IMO, in the context of possibility integrating the rebate mechanism with these proposals.

Given that the IMO is in the process of developing a potential MBM, all current proposals should be seen as subject to changes and improvements, not as options set in stone. Therefore, the rebate mechanism could be potentially added or integrated with certain proposals that raise revenue.

    The following proposals are currently being considered by the IMO (see IMO 2010c):
  • International Fund for GHG emissions from ships (GHG Fund)
  • Leveraged Incentive Scheme (LIS)
  • Port State Levy (PSL)
  • Ship Efficiency Credit Trading (SECT)
  • Vessel Efficiency System (VES)
  • Emission Trading System (ETS)
  • Rebate Mechanism (RM).

The Rebate Mechanism has been submitted as two options RM add-on, and RM integrated (aka IMERS), as outlined above.

All proposals except SECT anticipate that a MBM will generate revenue, and a Fund to disburse it. All the following proposals GHG Fund, ETS, and PSL would raise revenue from all participating ships, in a uniform manner. Thus RM add-on could apply to each of them, providing sufficient revenue is generated to cover the rebates.

RM add-on cannot apply to SECT, given that this scheme does not raise revenue at all. Applying RM add-on to VES and LIS would be complex, as they differentiate on the basis of individual ships. VES would only raise revenue from the non-compliant, existing ships. LIS would raise revenue from all ships but provide refunds to the most efficient ones. The greater the refund the more questionable the potential integration would be. In both cases it is unknown where the ships that pay in net terms would operate. Thus compensation through the proposed rebate mechanism cannot directly apply without further considerations, as the cost burden for countries would differ based on where the less efficient ships operate.

Applicability of rebate mechanism to the MBMs being considered is illustrated in Figure below. RM add-on could be easily integrated with ETS, GHG Fund, and PSL. It cannot apply to SECT, and applying to VES and LIS would be complex. The only proposal thus far that incorporates the rebate mechanism is the IMERS scheme (RM integrated).

Integrating Rebate Mechanism with other MBMs

To further clarify, MBMs are categorized in Figure above by the dominant characteristic or type of MBM, reflecting their different designs. They are:

  • Quantity;
  • Price;
  • Efficiency.

The quantity proposals require a cap or target for total quantity of GHG emissions from international maritime transport. The price proposals require a levy or a fee on fuel or GHG emissions. The efficiency proposals require efficiency targets for existing ships.

The figure above illustrates only one possible categorization as certain proposals employ features of a different type, or types. For instance, GHG Fund is categorized as a quantity measure, but some may see it as a price measure, given that it is based on GHG contribution per ton of fuel bunkered. However, I categorize it as a quantity measure as it is the cap on emissions that is established first, that subsequently drives the level of GHG contribution. LIS partially belongs to the efficiency type, as it requires a ship energy efficiency score for a refund to be granted to each of the most efficient ships. VES partially belongs to the price category, as the level of penalty on fuel for ships that do not comply with the efficiency standard needs to be set, and penalties need to be collected. The positioning of these proposals between the different types aims to illustrate their hybrid features.

Thus the figure shows that generally the rebate mechanism can apply to quantity and price measures, but not to measures based on efficiency. This relates to the need to (1) generate revenue and (2) the scheme being applied in a uniform manner across the fleet, irrespective of ship efficiency, age, and so on.