CO2 Marginal Abatement Cost and Its Impacts on Emissions perIts Impacts on Emissions per Import Value from Containerships in the United States

HAIFENG WANGUniversity of Delawarehfwang@udel.edu

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Outline of Analysis

• Impacts of emission levy on countries and commodity types– Prepare basic inventories and trade weight– Combine CO2 inventory and trade– Analyze the price increase due to levy by countries and by

commodity groups• Impacts of speed reduction on CO2 reduction

– CO2 reduction rate from cutting fleets’ speeds– Marginal abatement cost (MAC) of reducing CO2 emissionsMarginal abatement cost (MAC) of reducing CO2 emissions– Compare MAC with cap-and-trade prices in other markets

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BackgroundI t ti l t d i i i i th t d d b f th• International trade is increasing in the recent decade before the recession– Average above 3%

• More than 80% trade in volume was carried by ships• Ship is one of the major sources of several pollutants

– 1.2-1.6 million metric tons of particulate matterp– 4.7-6.5 metric tons of sulfur oxides– 5.0-6.9 metric tons of nitrogen oxides

• Increasing attention is paid to GHG especially CO• Increasing attention is paid to GHG, especially CO2

– 1019 million tons of CO2– 3.3% of world CO2 emissions– 90% is from international shipping

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14,000

16,000

10,000

12,000

tric Tons 

Trade

6,000

8,000

Millions of M

etby

 Seaborne

 

2,000

4,000

M

0

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Other Cargo Crude Oil Oil Products Iron Ore Coal Grain Total Trade

3

g

1000

1200

600

800

on Ton

s

400

Millio

0

200

Fuel Use for Ships Fuel Use for International  Ships

4

CO2 from Ships CO2 from International  Ships

2 32912 3059

3500

1662 1710 1733 1805 1916 2020 2101 2186 2290 2431 2533 2622 2737

2000

2500

3000

1662

1000

1500

0

500

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Average TEU Ship Number  Index Capacity Growth  Index

5

Potential impact of shipping on WRE 450 / 550 emissions stabilization

8000

10000

12000

4000

6000

Tg C

yr-1

WRE550

WRE450

WRE 450 Path Adjusted for Ship Trend

0

2000

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Year

Buhaug, Ø.; Corbett, J. J.; Endresen, Ø.; Eyring, V.; Faber, J.; Hanayama, S.; Lee, D.S.; Lee, D.; Lindstad, H.; Mjelde, A.; Pålsson, C.; Wanquing, W ; Winebrake J J ; Yoshida K Updated StudyW.; Winebrake, J. J.; Yoshida, K. Updated Studyon Greenhouse Gas Emissions from Ships: Phase I Report; International Maritime Organization (IMO) London,UK, 1 September, 2008

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Regulator Responses to CO2

• IMO Policy Instrument to reduce CO2

– Market-based instrumentMarket based instrument– Ship operational index– Ship design index

• Main Engine retrofit• Main Engine retrofit• Retrofit hull improvement

• Europe UnionWith Japan they are pushing to give IMO authority to audit the– With Japan, they are pushing to give IMO authority to audit the flag states

– They plan to regulator GHG within EU if IMO does not take enough actionenough action

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From Wartsila

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Questions

• What is the effect of CO2 reduction cost on trade• Its impacts on countries and commoditiesIts impacts on countries and commodities

• What is the effect of speed reduction• No technology bottleneck

E t f d it• Easy to enforce and monitor

• What is the economy behind• Higher cost on trade• Marginal abatement cost of slowing vessels

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Data Source

• US Army Corps of Engineers– Clearance and Entrance (2002) datasetClearance and Entrance (2002) dataset– More than 7,000 routes identified and analyzed– More than 10,000 international ship calls to the United States

Ship Traffic Energy and Environmental Model (STEEM)• Ship Traffic Energy and Environmental Model (STEEM)– Port to Port distances

• Department of Commerce– U.S. Import and Export Dataset– Trade data by commodity groups and by countries

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Inventory Estimate

• Bottom-up approach– Estimate CO2 emissions from each ship that called the U.S.Estimate CO2 emissions from each ship that called the U.S.

ports in 2002– Add up emissions from each ship

• Parameter assumption• Parameter assumption– SFOC: 206 g/kwh– Average main engine load factor: 0.8

f 0– Average auxiliary engine load factor: 0.5

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Inventory Esimation

Fuel usage estimate CO2 Emission

∑ ××+×=

ji

jikkkji s

dAEfuel

ssMEfuelFuel

, 1

,3

0

1,, 24

))(( ∑⎪⎭

⎪⎬⎫

⎪⎩

⎪⎨⎧

××⎥⎥⎦

⎤

⎢⎢⎣

⎡+⎟⎟

⎠

⎞⎜⎜⎝

⎛××=

kji k

ijk

k

kk s

dAF

ss

MFCO,, 1

3

0

12 24

17.3

Total CO2 emissions: ~22 million tons

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Basic Facts

• Total CO2 emissions from International Shipping that call the United 2States: ~22 million tons

• 13.6 billion kg commodities were imported to the United States• 2 ton CO2 emission for every one ton of commodity2 ton CO2 emission for every one ton of commodity• Unit emission: Emission/weight of imported commodity

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Top Emitters of CO2 in Trade with the United Statest e U ted States

Country Emission (ton) Annex I

Japan 19,365,000 Yes

NSouth Korea 7,366,000 No

China Taiwan 5,267,000 No

China Mainland 5,229,000 No

Mexico 4,841,000 No

Canada 4,451,000 Yes

Venezuela 3 027 000 NoVenezuela 3,027,000

Spain 3,001,000 Yes

United Kingdom 2,777,000 Yes

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Top Unit Emitters of CO2 in Trade with the United Statesthe United States

Country CO2Annex I

A i S 1 05 NoAmerican Samoa 1.05 No

Pacific Islands N.E.C. 0.75 No

St. Helena 0.58 No

Western Sahara 0 31 NoWestern Sahara 0.31Eritrea 0.26 No

South Pacific Islands 0.18 No

Gambia 0.16 No

Kiribati 0.12 No

Cuba 0.08 No

Guam 0.04 No

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Emission/Import Ration by Commodity

• Trade data classified by 2 digit Harmonized System (HS2)• One underpinning assumption: CO2 emissions from containerships

are proportional to trade weight.– In practice commodities are packed in containers in one ship andIn practice commodities are packed in containers in one ship and

transported– Calculate CO2 emission and total weight– Assign CO emissions to different commodity types according to– Assign CO2 emissions to different commodity types according to

their weight ratio

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Unit Emission by Commodity4 096

Mineral ProductsChemicals & Allied 

Industries

0 512

1.024

2.048

4.096

Animal and Animal Product

Service0.128

0.256

0.512

by cou

ntry

Product

Vegetable Products

Foodstuffs

Wood and Wood Products

Stone/Glass

Metals

M hi /El t i l

Transportation0.016

0.032

0.064

CO2 ratio

 b

Plastics/Rubbers

Raw Hides, Skins, Leather, & Furs

Footwear/Headgear

Machinery/Electrical

Miscellaneous0.002

0.004

0.008

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TextilesMiscellaneous

0.001

Price Increase due to CO2 levyAssume a $ 50 per ton CO2 levy is imposed to commodities that are

HS19: Food HS72: Steal HS61: Textile

transported by international shipping

Guam 370% Guadeloupe 2770% Guam 70%

Pacific Islands N.E.C. 370% Belize 790% Dominican Republic 40%

Kiribati 360% Bahamas 540% Sao Tome and Principe 3%Kiribati 360% Bahamas 540% Sao Tome and Principe 3%

Fiji 15% New Zealand 530% Kiribati 2%Georgia 4% Panama 530% Ivory Coast 1%Panama 4% Portugal 490% Fiji 0.5%g jFrench Guiana 3% Ukraine 430% New Zealand 0.4%Albania 3% France 410% Greenland 0.3%Cayman Isl 2% Denmark 370% Namibia 0.3%Ivory Coast 2% Korea 350% Haiti 0.3%A % 3% 0 %

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Average 5% 3% 0.5%

Speed Reduction and CO2 Mitigation2Re-visit equation 2, the CO2 is directly related to the relationship between operational speed and designed speed

∑⎪⎭

⎪⎬⎫

⎪⎩

⎪⎨⎧

××⎥⎥⎦

⎤

⎢⎢⎣

⎡+⎟⎟

⎠

⎞⎜⎜⎝

⎛××=

kji k

ijk

k

kk s

dAF

ss

MFCO,, 1

3

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12 24

17.3

Reducing speed can reduce CO2 emission

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30000000

35000000

40000000

)

15000000

20000000

25000000

30000000O2

 emission

 (mt)

0

5000000

10000000

10% 20% 30% 40% 50%

CO

Assume no extra ship

Total CO2 (mt/yr) CO2 saving (mt/yr) Series3

Percent Reduction  in Speed

CO2 saving (mt/yr)

Fuel usage(mt/yr)

CO2 saving % change Assume no extra ship

is added into the lineup to cover the already published

h d l

Speed (mt/yr) (mt/yr) change

10% 6,520,000 9,210,000 19%

20% 12,290,000 7,390,000 35%schedule30% 17,340,000 5,800,000 50%

40% 21,640,000 4,440,000 62%

50% 25,180,000 3,330,000 72%

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Marginal Abatement Cost of CO22

• Marginal abatement cost = extra reduction of CO2/extra cost of reducing CO22

• Marginal abatement cost = CO2 price• Calculation

– Assume ships operate at their optimal speed which is defined as– Assume ships operate at their optimal speed which is defined as the speed that shipping companies produce maximum profit

– When regulators mandate speed reduction from optimal speed, there is cost (opportunity cost)there is cost (opportunity cost)

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• IMO is looking at the 3/13)( ⎟⎞

⎜⎛ ⋅⋅+ sAFPCg

possibility of 10% speed reduction

Marginal cost is around $20 $120

01 2

)(⎟⎟⎠

⎞⎜⎜⎝

⎛⋅

+=

k

kkkk MFP

sAFPCs

– Marginal cost is around $20 per ton

• Haven't considered extra $60

$80

$100

$120

Price ($)

ships that maintain the frequency– Otherwise, the CO2 reduction

$0

$20

$40

10% 20% 30% 40%Carbon

 P, 2

rate will be discounted– Marginal cost will be much

higher

Mandate Speed Reduction Rate (% of Optimal Speed)

Marginal cost

g

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Policy Implication

• CO2 emission is directly related to trade– Regulations regarding the emissions from international shippingRegulations regarding the emissions from international shipping

will effect international trade– More coordination between IMO and WTO

• Countries and commodities would be hit unequally if there were a• Countries and commodities would be hit unequally if there were a CO2 reduction cost– Though bigger countries are responsible for most emissions,

small countries are most severely hurtsmall countries are most severely hurt– Heavy goods are most affected– True for both Cap-and-Trade and Emission Levy

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$50

• Speed reduction is one of solutions to CO2 from

$40

$45

CO2 trad

ing price  

2)

ships• CO2 price is higher than

current market prices$35

$40

Clim

ate Exchan

ge C

(US$/ton

 CO2

current market prices– Even without

consideration of extra ships

$25

$30

Europe

an 

2008 Trade Dates

3.4

3.5

3.6

e ($/ton

)

2.9

3

3.1

3.2

3.3

RGGI Clearance Price

24

2.8

Sep‐08 Oct‐08 Nov‐08 Dec‐08 Jan‐09 Feb‐09 Mar‐09

RGGI Clearance Price ($/ton)

Future Work

• The marginal cost when extra ships are taken into considerations– Fewer CO2 reductionFewer CO2 reduction– More cost– Higher marginal cost

A separate carbon market?– A separate carbon market?• Its influence on international trade

– Empirical works linking low transport cost with growing trade– What is the opposite

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Discussion Welcome

Save the Environment and Ocean Is the Responsibility ofSave the Environment and Ocean Is the Responsibility of Our Generation

Contacts:Haifeng WangUniversity of DelawareT l 302 465 8323Tel: 302-465-8323hfwang@udel.edu

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