Atmospheric Pollution of International Maritime Transportation: Measurement and Cost Estimation of Trade-Lane Specific Container Trade Activities in Hong Kong

List of Contents

List of Tables

List of Illustrations

Abbreviations

1 Introduction
1.1 Approach and Motivation
1.2 Objective and Methodology

2 Shipping and Air Pollution
2.1 Global Transportation and CO2 Emissions
2.2 Effects of Atmospheric Pollution
2.3 Emissions Pathway in Transportation and Shipping
2.4 Regulatory Requirements to Greener Shipping

3 Environmental Costs
3.1 Internalization of External Costs
3.2 Monetary Valuation
3.3 Estimation of Emission Costs in Shipping
3.3.1 Top-down Approach
3.3.2 Bottom-Up Approach
3.3.3 Advanced Top-down Approach

4 Literature Linked to Web-Based Calculation Methods of Emissions for International Shipping Activities

5 Methodology of EcoTransIT World: Measurement of Energy Consumption and Emissions Linked to International Shipping
5.1 Background and Environmental Indicators
5.2 Energy Chain and Basic Calculation Rules
5.2.1 Energy Chain and Upstream Process
5.2.2 Basic Calculation Rules
5.3 Environmental Data for Container Vessels
5.3.1 Marine Emission Factors
5.3.2 Class and trade-lane specific emission factors
5.3.3 Derivation of Individual Vessel Emission Factors
5.4 Data Methodology Assumptions and Sources
5.4.1 Container Vessel Routing
5.4.2 Container Vessel capacities
5.4.3 Main Engines and Auxiliary Engines
5.4.5 Other Assumptions for Calculating Marine Vessel Emission Factors
5.5 Considerations of Reduced Vessel Speed
5.6 Relevant Online Data Input And Generated Output
5.6.1. Relevant Online Data Input
5.5.2. Generated Data Output
5.7. Uncertainties

6 Trade-Lane Specific Energy Consumption, GHG Emissions, Costs Estimation and KPIs of Hong Kong Container Trade Activities
6.1 Hong Kong Role as Container (Transhipment) Hub
6.2 Laden Container Throughput Development
6.3 Input Boundaries and Routing Controversies
6.3.1 Input Boundaries
6.2.2 Routing Controversies
6.4 Results from EcoTransIT World
6.4.1 Trade-Lane Specific Container Factors
6.4.2 Primary Energy Consumption.
6.4.3 Sulphur Oxide and Particulate Matter
6.4.4 Carbon Dioxide and Carbon Dioxide Equivalent
6.5 Cost Estimation
6.6 Key Performance Indicators and Comparison of Emission Trade-Lane Data
6.6.1 Key Performance Indicators (KPIs)
6.6.2 Comparison of Emission Trade-Lane Data

7 Conclusions

References

Appendices

Appendix 1: Scope of ‘Maersk Line Carbon Footprint Calculator’

Appendix 2: Cumulative weighted average CO2 KPIs per trade-lane

Appendix 3: Emission factors and energy consumption for energy production of liquid fuels

Appendix 4: Container flows per direction and cargo average vessel utilization on the major trade-lanes.

Appendix 5: Samples of emissions factors for marine vessels from EcoTransIT World

Appendix 6: Normalized emissions to g/tkm for container vessels with specific containers carrying volume goods

Appendix 7: Controversial trade-lane routings from EcoTransIT World

Appendix 8: Identified trade-lanes from C&S with relevant container volume between 1999 and 2000 and transport distances

Appendix 9: Energy consumption ranking for all trade-lane container activities between 1999 and 2000

Appendix 10: CO2 and CO2e ranking for all trade-lane container activities between 1999 and 2000

Appendix 11: Sulfur dioxide ranking for all trade-lane container activities between 1999 and 2000

Appendix 13: Laden container throughput for identified Hong Kong trade-lanes

Appendix 14: CO2e emission costs including upstream process for specified Hong Kong trade-lanes

Appendix 15: CO2e costs ranking for Hong Kong trade-lanes

Appendix 16: CCWG Trade-Lanes

Appendix 17: Trade-lane CO2 KPI comparison between BSR CCWG and EcoTransIT World

List of Tables

Table 1: Relative importance of GHG emissions from ships in 2007

Table 2: Environmental impacts included in EcoTransIT World

Table 3: Sulphur levels in SECA and non-SECA

Table 4: Ocean carriers considered for vessel grouping in EcoTransIT World

Table 5: Major trade-lanes and emission factor design specified in EcoTransIT World

Table 6: Dimensions of the standard 20’ and 40’ container

Table 7: Average utilization factors for three major trade-lanes between 2004 and 2008, by EcoTransIT World

Table 8: Marine fuels main engine emission factors for CO2, CH4, N2O and NOx

Table 9: PM emission factors for main and auxiliary engines

Table 10: CO and HC emission factors for main engines

Table 11: CO and HC emission factor for auxiliary engines

Table 12: Sample of derived container vessel emission factors for main and auxiliary engines used in EcoTransIT World

Table 13: Fuel and engine based pollutants assignment

Table 14: Days at sea, design speed (Vn), share of heavy fuel oil and default vessel utilization factors that are used in EcoTransIT World

Table 15: Table results example in EcoTransIT World

Table 16: Sea shipping trade-lanes with significant truck proportion

Table 17: Derived environmental factors per TEU for identified trade-lanes including energy chain and upstream process

Table 18: Trade-lanes with highest and smallest environmental impact observed

Table 19: Trade-lane KPIs for energy consumption and emissions per TEUkm

List of Illustrations

Figure 1: GHG emissions of different modes

Figure 2: Total transport CO2 pollution from world economies and shipping in 2008

Figure 3: CO2 emission development per sector

Figure 4: Particulate Matter (PM) in comparison

Figure 5: International marine bunkers 1990 to 2008

Figure 6: Energy chain for diesel fuel and electricity by IFEU

Figure 7: Schematic effects of fuel consumed and greenhouse gas emissions with slow steaming

Figure 8: User web surface of EcoTransIT World

Figure 9: Hong Kong laden container throughput for selected economies

Figure 10: Sample routing Hong Kong Macau by EcoTransIT World

Figure 11: Selected trade-lanes and their total energy consumption regarding sea distance and laden container throughput

Figure 12: Top-down Sulfur Oxide and PM performance, and total laden container throughput

Figure 13: Share of total CO2 emissions per country from laden container throughput between 1999 and 2010 including upstream processes

Figure 14: Trade-lane specific CO2e emissions, vessel activity and upstream split for all laden containers between 1999 and 2000

Figure 15: Major countries and their CO2e pollution between 1999 and 2010

Figure 16: Comparison of trade-lane CO2e emissions performance for Huangpu and Long Beach between 1999 and 2010

Figure 17: Annual Emission Costs of Hong Kong all laden container throughput between 1999 and 2010

Figure 18: CO2e emission costs and split for vessel activity and final energy resource

Figure 19: Average annual CO2e emission costs including upstream processes for Hong Kong laden container throughput

Figure 20: Comparison of averaged emission factors for relevant trade-lanes in g CO2 / TEUkm

Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1 Introduction

1.1 Approach and Motivation

World transportation overcomes the distance between places of origin and places of demand for both passengers and freight. Almost three quarters of the world’s surface is covered by water and around 80 percent of the world trade by weight is moved in this mode. Offshore trade activities (confined to container trade) describe a synonym that features globalization. In fact, transportation including these activities is the least visible critical element in world economies.

But the importance of environment has barely been discussed in the context of pollution performance from individual economies. As a consequence, trade-lane (confined to specific world sea shipping routes between individual ports) emissions, generated by economies, are not precisely reviewed by government agencies. In addition, the real amount and costs of atmospheric pollutions linked to offshore trade-lane performance are not entirely understood by consumers. Environmental awareness seems to be seldom raised in our society. In fact, the ignorance of mankind is the most important factor due to since appropriate information is very little available.

Some emissions are contributing to a process of retaining the heat from solar radiation by the planet Earth also referred to as “greenhouse effect”. The greenhouse effect, which originally has a positive effect, because it makes the planet Earth warm enough to sustain life, is responsible for the increase of the global temperature which has quite apparent effects on our world. Melting sea ice effects and rising seawater levels are only a few examples. To be precise, freight transportation is responsible for approximately 25 percent of the total global transport emissions, equal to 1.65 billion tonnes of CO2 per year (Eyefortransport, 2008, p. 10 and IEA, 2010).

With increasing global demand in commodities and goods the magnitude of transportation also rises, essentially addressing the consumer’s and industry’s need of delivering shipments with different, sizes, volumes, weight and requirements at the right place, to the right time, in the right quantity and to the right costs. From what has been said earlier it is curious why no generally accepted criterion to allocate international transportation pollution is currently in use. While diffident efforts were made to include these emissions in international conventions, CO2 emissions related to international freight are not involved in the pollution reduction goals of the Kyoto Protocol. In addition, environmental pollution generated by international marine bunkers is not allocated to a single country. Recognizing that atmospheric pollution from offshore activities is a vital aspect of green transportation it is acknowledged that this area is not yet sufficiently researched.

So how can this problem solved? Doing nothing would result in a continuation of the build-up of emissions in the atmosphere and even more severe future warming. The maritime industry is still a principal contributor of emissions in a globalised world where massive amounts of cargo are shipped from one economy to another. 2.7 percent of global CO2 emissions are originated by international shipping (IMO, 2009, p. 1) but the accurate amount of emissions generated by seaborne trade has been inadequately calculated. Some researchers have used advanced methodologies to calculate the amount of emissions caused by international transport and offshore production processes based on prepared data and input-output tables. But since atmospheric pollution is far more complex, a sophisticated method is required to determine data used for calculation (Cadarso et al., 2010). In fact, the quantification, allocation and costs estimations of international transport and offshore emissions have not been considered been satisfactorily for individual economies.

1.2 Objective and Methodology

Objective

The key question tackled by this thesis is: what are the amounts of emissions (confined to all greenhouse gases) and what are the estimated costs for different trade-lanes generated by seaborne container trade for the economy of Hong Kong? Due to global atmospheric pollution, local air quality impacts and effects to public health, the question addressed in this study is of rising interest not only for governmental agencies but also for ship owners and operators, in order to become aware of their environmental performance necessary to cope with pollution in a sustainable and green manner in future. Costs, originated from atmospheric pollution, are of essential significance and the author hopes the monetary estimations made in this report can have an influence on the governments in its policy making strategy and initiation to guide the industry towards more environmental friendly practices.

To answer the key question in this study, it is necessary to focus the direct impacts of ocean transportation to the environment. For the first time, a lifecycle approach is considered for emission generation, involving a holistic energy chain of fuel consumed and electricity produced. This has not been regarded in the context of container trade activities.

Methodology

In this study, the calculation of the amount of emissions is based on a new approach and data methodology, the web-based online tool ‘EcoTransIT World’. This application is publicly accessible and allows the calculation of energy consumptions and emissions for global transportation according to specific input parameters. By means of compiled input data from the Hong Kong Census & Statistics Department EcoTransIT World is applied to Hong Kong container trade activities or more precisely to specific trade-lanes. Container trade is a vital pillar in Hong Kong due to its strategic location at the mouth of the Pearl River Delta (PRD) with great access to the hinterland and its gateway function for the Chinese mainland in addition. It was necessary to request dedicated information by a third party agency because public macroeconomic data has limited availability in terms of the details required (e.g. ports of origin for inward container movements or ports of destination for outward container movements) in order to facilitate a reliable use of the online application model. The data available covers the period between 1999 and 2010 and encompasses selected trade-lanes for both inward and outward activities for container trade activities. As a hub of global importance, Hong Kong shipping activities rely most on container trade. Ultimately, the results are expected to promote a clear understanding of the different trade-lane related emission performances and efficiencies in particular. This will provide useful data for other researchers to conduct more in depth analysis in this regard and stimulate governmental and industrial thinking necessary to successfully set up initiatives mitigating the impacts of emissions generated by international trade activities on sea. Indeed, the author is only aware of this first attempt in measuring accurate emissions, energy consumption and calculating performances for identified container trade-lanes. Besides, the author applies a top-down approach in order to estimate the costs of emissions for the container trade activities specified.

While the method used in this writing still faces some unimposing limitations the assumptions in terms of the shipping parameters, allocation and calculation rules as well as environmental data for ocean vessels are deemed to present an explicit frame of maritime trade-lane related emissions.

The structure of the Project is as follows: in Section 2, the role of global transportation and its link to worldwide CO2 emissions is discussed. Section 3 describes the context between emissions and costs by transportation and justifies a monetary evaluation approach to estimate the costs of the emissions measured in this writing. In Section 4, the literature on web-based calculation methods of emissions for international shipping activities is reviewed. Section 5 is dedicated to EcoTransIT World. The author designs a holistic framework for the measurement of energy consumption and emissions linked to container shipping by ocean vessels. EcoTransIT World uses key indicators that are identified and are precisely taken into account in order to perform the measurement of emissions according to specified input data available. In Section 6, EcoTransIT World is applied to Hong Kong economy with respect to the total inward and outward container trade. Finally, Section 7 presents the conclusions.

2 Shipping and Air Pollution

2.1 Global Transportation and CO2 Emissions

Transportation and environment

Increasing internationalization driven by world-wide liberalization trends has shaped transportation to a fundamental element supporting globalisation. Transportation links world economies by moving commodities and passengers by road, rail, ocean or air and serves the demand in overcoming the distance between the point of origin and the point of destination. In particular, the tremendous economic development in Asia and China has been the dominant factor behind the growth of international transportation. Where international transportation is to be considered as enabling factor for growing world trade, the transportation process inevitably affects the global environment. Its activity typically increases with economic activity and increasing gross domestic product (hereafter GDP).

At the same time, environmental issues have also become more salient with the growing tendency of the public sector to regulate components of international transportation that are judged to have a negative impact on the environment. In this regard, the rise in greenhouse effects is a major environmental problem with ever rising concern for the economies. Global greenhouse gas (hereafter GHG) emissions caused by human activities which increased by 70 percent between 1970 and 2004 are held responsible for increasing the Earth’s surface temperature. Estimates therefore range from 1.8°C to 4.0°C by 2100, which may significantly change the climate of the Earth by means of enhanced greenhouse effect (IPCC, 2007, p. 36). Carbon dioxide (hereafter CO2) is the most crucial GHG in addition to several others that result in emissions from human activities, such as methane (CH4), nitrous oxide (N2O) and halocarbons (IPCC, 2007, p. 37).

Figure 1: GHG emissions of different modes

Note: grams of GHG emissions per tonne-km

Abbildung in dieser Leseprobe nicht enthalten

Source: IEA, 2009, p. 52

Figure 1 depicts the vehicle efficiencies in grams of GHG emissions per tonne-km for freight per mode in relation to the means of transport employed. From what is illustrated, shipping is the most efficient mode. Its impact becomes very significant when recognizing that approximately 90 percent of the worldwide commodities traded by volume are being transported by sea. Because of its large capacities up to 18,000 TEU (container vessel) or 550,000 DWT (ULCC) the energy required per transport unit is relatively small. Transport by water requires less energy due to the water resistance that facilitates the movement. That is why shipping is regarded as an environmentally friendly mode of transport compared to others.

World CO2 emissions

Chinas emissions have almost tripled between 1990 and 2008 and the economy has become the world’s largest emitter of GHG/ CO2 in 2008 for all sectors with more than six billion tonnes of CO2. That is equal to 22 percent of global emissions (IEA, 2010, p. 24). According to the IEA, total world CO2 emissions in 2008 were approximately 29.4 giga-tonnes. The transport sector contributes up to 22.5 percent of the total CO2 emissions in the world according to the latest estimates by the IEA (2010, p. 9) more than China’s total CO2 emissions from all sectors. Ranked number two of the world’s top emitting countries, transportation in the United States accounts for roughly 1.7 giga-tonnes of CO2 which is the biggest individual share (IEA, 2010, p.65). Freight transportation represents more than 25 percent of the total emissions in the United States and about 9 percent of the total GHG emissions worldwide (Eyefortransport, 2008, p. 12). International marine bunkers originated a total of 578.2 million tonnes CO2 in 2008 which is more than the entire CO2 emissions caused by China’s transportation sector, including Hong Kong (Figure 2).

Figure 2: Total transport CO2 pollution from world economies and shipping in 2008

Abbildung in dieser Leseprobe nicht enthalten

Source: Compiled by the author based on data from IEA, 2010

Broadly speaking, transport emissions from CO2

“[…] have grown an average of 1.5 percent annually since 1990.” (Black, 2010, p. 24)

The Second IMO GHG Study 2009 (IMO, 2009, p. 1) states that international shipping accounts for 2.7 percent of the global emission in 2007, equal to 870 million tones which are roughly 300 tonnes more than estimated by the IEA in 2008. Nevertheless, other sectors also contribute considerably to the emission of greenhouse gases. Figure 3 presents the development of CO2 emission between 1970 and 2008 for different sectors. Apparently, the trend of transportation is going to have a noticeable impact on the overall emissions with increasing activity. Apart from the illustration, a tremendous rise in transportation demand will be driven by growing GDP and expanding population (Lenzen et al., 2003, p. 57).

Figure 3: CO2 emission development per sector

Abbildung in dieser Leseprobe nicht enthalten

Source: IEA, 2010, p. 120

Carbon dioxide is not the only contributor that causes air pollution by combustion of fuel. GHG emissions contain various gases promoting global climate change. At the same time, Particulate Matter is becoming more obvious in urban life and is jeopardizing the inhabitant’s health. The next section differentiates both GHGs and Particulate Matter more accurately.

2.2 Effects of Atmospheric Pollution

Greenhouse gases (GHGs)

Air pollution is a very complicated process that depends on many factors. Generally speaking, emission is determined by fuel composition (e. g. sulphur and lead content), engine maintenance (e.g. filters, pollution control devices, fuel systems), vehicle age (older vehicles have higher emissions), engine temperature, road geometry (speed greatly affects emissions), type of vehicle (the larger the engine the larger the pollution) and the overall traffic situation in terms of congestions or drawbacks. According to the definition of the Environmental Protection Agency (EPA / Online, 2011)

“Biogenic greenhouse gas emissions are those generated during combustion or decomposition of biologically-based material, and include sources such as utilization of forest or agricultural products for energy, wastewater treatment and livestock management facilities, and fermentation processes for ethanol production.”

While this thesis focuses gases generated by human activities such as transportation and energy extraction from oil, it is noteworthy that the largest share of GHGs is almost entirely derived from natural sources, first and foremost water vapour (Black, 2010, p. 24). GHG emissions refer to gases in the Earth’s atmosphere that prevent the release of the heat into space and therefore maintain heat retention in the atmosphere of the planet. The climate change is related to changes in the concentration of GHGs which is a natural phenomenon. When fuel is combusted in engines, GHG emissions are generated. There are a variety of different GHGs, but in December 1997 six categories were agreed upon the Kyoto Protocol (UN 1998) to reduce emissions significantly, namely:

- Carbon dioxide (CO2)
- Methane (MH4)
- Nitrous oxides (NOx)
- Hydrofluorocarbons (HFC)
- Perfluorocarbons (PFC)
- Sulphur hexafluoride (SF6)

Between 2008 and 2012 the signing countries of the Protocol agreed to reduce their overall emissions of these six GHGs by an average of 5.2 percent below the level of 1990. The gases are different in terms of their effects and extents which are expressed by their global warming potential (hereafter GWP). Reports focusing GHG emissions are supposed to be reported in carbon dioxide equivalents (hereafter CO2e) but there is sometimes little confusion between GHG and CO2e. The CO2e is described as

“[...] a measure used to compare the emissions from various greenhouse gases based upon their global warming potential. For example, the global warming potential for methane over 100 years is 21. This means that emissions of one million metric tons of methane are equivalent to emissions of 21 million metric tons of carbon dioxide […]” (OECD 2001, pp. 389)

This definition allows considering different greenhouse gases and other factors to be compared by using CO2 as a standard unit for reference. In other words, CO2e is a quantity that clearly states the amount of CO2 that would have the same GWP for a given mixture and amount of greenhouse gas. As CO2 accounts for the largest proportion (approximately 85 percent) of GHGs caused by human activities and for purposes of simplicity carbon dioxide is often used solely. In fact, the amount of other GHGs is very small and mostly neglected. The IMO presented the relative importance of GHG emissions according to the Kyoto Protocol in his latest GHG Study 2009 as shown in Table 1.

Table 1: Relative importance of GHG emissions from ships in 2007

Abbildung in dieser Leseprobe nicht enthalten

Source: IMO, 2010, p. 56

Particulate Matter (PM)

Another very serious air polluting concern is Particulate Matter that can cause severe health problems. Particulate Matter is

“[…] also known as particle pollution or PM, is a complex mixture of extremely small particles and liquid droplets.” (EPA, 2011a, Online)

The sources of those fine particles can be generated by natural processes (e.g. forest fires and wind erosions) and human activities (e.g. construction and vehicle emissions). The pollutants are very small and vary in their size (Figure 3).

Figure 4: Particulate Matter (PM) in comparison

Abbildung in dieser Leseprobe nicht enthalten

Source: EPA / Online, 2011b

The effects of PM in polluting air are perceived by human beings as dust or some haze. Hong Kong air also encounters a vast concentration of PM, which is why the city appears to be covered in some fog sometimes and that can affect the heart and the lungs causing serious health issues. EPA (2011b, Online) groups PM into two different groups:

Coarse Particles (PM10)

Particles that are larger than 2.5 micrometers and smaller than 10 micrometers in diameter which are often found near roadways and dusty areas

Fine Particles (PM2.5)

Particles which are 2.5 micrometers in diameter and smaller and that can be directly found in smoke and haze.

Atmospheric pollution is becoming a major environmental risk and is estimated to cause two million premature deaths worldwide per year according to the WHO. It is also know that PM is detrimental to human health and affects humans more than other pollutants. In addition, further sets of emissions, rarely being taken into consideration in terms of transportation, are examined in future to assess the impacts on public health hazards. So-called ‘air toxics’ have not yet sufficiently been researched but it is well known that these toxics from mobile sources also generate cardiovascular, respiratory diseases and birth defect (Black, 2010, p. 40).

The combustion of fossil fuels is considered an increasing indicator for outdoor pollution which makes it necessary to develop new technologies to mitigate GHG and PM. The use of alternative fuel types (e.g. LPG) and new vehicle types with more efficient combustion technology can bring some enhancements. Further considerations in this study will refer to GHGs and PM due to the pollutants covered by the data methodology in Section 5.

2.3 Emissions Pathway in Transportation and Shipping

An independent research that was conducted by ADB (2009, p. 7) found that a strong urbanization rate would become the major originator of CO2 emissions in the future, since there is no hint that increasing mobility will be decoupled from economic growth and a rising demand in energy use. As a matter of fact, the transport sector is almost completely relying on petroleum products and the industry already begins to develop solutions in order to tackle the increasing air pollution problem, such as Liquefied Petroleum Gas (LPG), Liquefied Natural Gas (LNG), Compressed Natural Gas (CNG) or more advanced engines for energy efficient combustion. Regulatory guidelines and policies in sustainability were recently elaborated across the shipping and logistics industry, mainly focusing the crucial reduction of emissions, such as the “30-BY-30” (IRU, 2009) initiative and the NOx Emission Standard for diesel engines in control areas adopted in October 2008 by the MARPOL Convention in Annex VI (MARPOL, 2008). China aims to find practical ways to limit growth in CO2 emissions and announced in late 2009 to reduce the CO2 emissions per unit of GDP by 40 percent to 45 percent in 2020 compared to 2005 as demanded by the Copenhagen Accord (IEA, 2010, p. 25). Global transport is unlikely to decrease in future and the World Energy Outlook projects a rise from 22 percent to 32 percent by 2035 (IEA, 2010a, p. 12).

International marine bunkers CO2 emissions increased substantially between 1990 and 2008, augmented by about 63 percent (IEA, 2008, p.). This share is likely to rise further in future as indicated by the trend (red line) in Figure 5.

Figure 5: International marine bunkers 1990 to 2008

Note: million tonnes CO2

Abbildung in dieser Leseprobe nicht enthalten

Source: Compiled by the author based on data from IEA, 2010

Despite the growing actions being taken by MNCs (e.g. Green Logistics and Carbon Footprint), international shipping is still a trading area where no generally accepted criterion for pollution allocation is available. More importantly international shipping is not included in international emissions trading systems. In contrast, the ICAO (2007) endorsed a new resolution that requires states to reduce climate impact caused by GHG emitted from the aviation sector by adopting measures related to emissions trading, Carbon offset and Clean Development Mechanism. Moreover, there is no clear resolution whether emissions generated by international shipping activities are assigned to the producer or the consumer.

2.4 Regulatory Requirements to Greener Shipping

Green shipping describes a sustainable approach to make the transport by sea more environmentally friendly. There are various pollutants in shipping (e.g. ballast water and oil) but this thesis focuses emissions. For their propulsion and on-board power generation, seagoing cargo vessels usually rely on diesel engines fuelled by bunker oils. Larger vessels are equipped with so-called “slow-speed diesel engines”, whose power can range from 10 to over 100 megawatt (Boyce, 2002, p. 15). Most of the fuels used are residuary products of the petrochemical industry. The sulphur content is usually 4.5 percent, which is why their toxicity is approximately 3,000 times higher than that of car fuels.

The regulatory requirements for the regulation of emissions by sea transport have been mentioned in 1973 through the Inter-Governmental Maritime Consultative Organization (IMCO), renamed as International Maritime Organization (IMO) in 1982. The specialized agency of the United Nations in London brought the International Convention for the Prevention of Pollution from Ships (MARPOL Convention) on its way, amended it 1978 and finally becoming effective in 1983. By the terms of this convention, the contracting parties are obliged to implement its marine environmental protection regulations in all ships operating under their sovereignty. Current regulations regarding the handling of pollutant substances in shipping are meanwhile being elaborated via the IMO’s Marine Environment Protection Committee (MEPC) and ultimately detailed in annexes to the MARPOL convention. Annex VI, which came into effect on 19 May 2005, refers to the air pollution caused by ships. It sets limits for the emission of substances that cause greenhouse gases and harm the ozone layer. However, CO2 emissions are not considered in Annex VI. Since some of the stipulated substances are directly linked to the quality of the fuels used, the MEPC in its 57th session, held in April 2008, agreed to amend the content of Annex VI in specifying the maximum limits for the sulphur concentration in fuels. Furthermore, the sulphur content of fuels is defined in dependence on the waters shipped.

In 1992 the United Nations Framework Convention on Climate Change (UNFCCC) was agreed and came into force in 1994 and March 2009. Under the Convention, 192 parties pledged to share and gather data, discuss strategies and cooperate for adoptions dedicated to the emissions on climate change (IMO, 2009, p. 20). The study does not force commitments to reduce emissions effectively. In contrast, the Kyoto Protocol sets binding goals for the Annex I countries and targets to reduce atmospheric pollution.

Considering the variety of players involved in the ownership, management and operation of a ship, often located in different countries, it is well noticed

“[…] that about three quarters of the world tonnage, by deadweight, of all merchant vessels engaged in international trade is registered in developing countries […]” (IMO, 2009, p. 21).

Developing countries, however, are not covered in Annex I of the Kyoto Protocol. This delicate situation shows the inefficiency of any regulatory regime to act quite plainly. To date, no international emissions standard has been adopted or ratified. During the UN Conference on Trade and Development in 2009 it was said by experts that reducing GHGs in the maritime transportation sector would require close cooperation between the IMO and the UNFCCC. The experts emphasized that governments and other stakeholders need to perform costs-benefit analysis to examine whether mitigation and adaptation solutions should be based on market-based or standard-based principles. In this regard, the IMO presented a market-based instrument called International Maritime Emission Reduction Scheme (IMERS). The core idea of IMERS is that a levy is taken on fuel sold for international shipping, which could be directed to Least-Developed Countries (LDCs) and Small Island Developing Countries (SIDCs) (ICTSD, Online, 2009, p. 5).

At the time being the IMO is working to establish a GHG regulation framework for international shipping. In this regard, various cost effectiveness approaches have been suggested to identify the emission reductions required from shipping. Eide et al. (2011) made use of a model that sets emissions reduction measures in relation to expected future fleet development. The cost scenarios that have been performed are seen as useful input data for the industry and policymakers in selecting cost effective solutions for reducing GHG emissions from the world fleet. It is tedious to speculate how much policies might restrain or reduce future CO2 emissions from freight. The prompt treatment of measures designed to address CO2 emissions could break the rigid mindset in the transport sector.

3 Environmental Costs

The significance of environmental costs is sometimes regarded with disorientation because the damage to the environment is not automatically considered when transportation occurs. Indeed, it is reasonable to expose how cost allocations and estimations are justified. In the end of this Section, the author discusses different approaches and derives the evaluation model of emission costs in international container trade activities applied in this thesis.

3.1 Internalization of External Costs

As initially mentioned, transport contributes significantly to economic growth and enables global trade. What becomes more apparent with increasing transport activities, are growing side effects that impact the nature and public life negatively. Taking road traffic as an example, congestions are generated in particular during peak hours within urban areas with high population density. Ships and trains create noise and ocean vessels pollute the air. The effects of transportation are generally referred to as external cost. Examples for external costs are air pollution, congestions, noise, infrastructure and accidents. Economically speaking, external costs are also called ‘externalities’. Loefgren (1995, p.21) distinguishes between positive and negative externalities. He stresses that a positive externality usually benefits the society, but in such way that the producer cannot fully profit from the gains made (e.g. environmental clean-up and research). Negative externalities are more common and it costs the producer nothing, but is costly to the society in general (e.g. pollution). The ‘Handbook on estimation of external cost in the transport sector’ of the European Commission defines external cost as

“[…] costs to society and - without policy intervention - they are not taken into account by the transport users.”(CE Delft, 2008, p. 11).

Internalization is described by McKinnon et al. (2010, p. 68) with the ‘polluter pays principle’ and is essentially regarded as an effective way to limit the negative side effects of transportation. Pigou (1920) argued a model to internalize environmental (social) cost in higher taxes. The European Commission has seen the rising need to internalize the social cost most notably. Various research papers have addressed the effort for internalization, such as the Green Book on fair and efficient pricing (European Commission, 1995), the White Paper on efficient use of Infrastructure, the European Transport Policy 2010 (European Commission, 2001) and the midterm review of 2006. These papers aim to ensure that all external damages caused by personal or freight movement are fully internalized in the price of transport.

Pricing should be fair so that ‘polluters’ are obliged to pay the marginal social cost of their activities, giving them an economic incentive to mitigate and/or limit the negative effects of their transport activities (EEA, 2006). The latest study of the European Commission in applying the polluter-pays principle to transport (CE Delft, 2008) is not implemented yet. Some arguments disagree with internalizing of environmental cost from transport. As a matter of fact, McKinnon et al. (2010, p. 70) argued that there is no guarantee that governments will use ‘green’ taxes to finance environmental projects.

Ocean transportation occurs on the sea and it is obvious that most consumers in any economy do not perceive the activity much. It is simple for them to condemn seaborne shipping and complain about the pollution due to. Besides, there is no guarantee, that environmental cost will raise the price of transport and logistics activity to provide sufficient motivation to the implementation of mitigation measures. Critical tones also come up due to the uniform application of the principle across a national economy and the validity of the monetary valuations of externalities. Succinctly, internalization is discussed controversially among scientists and is regarded difficult to implement. It is argued that

“Its effectiveness as a policy measure depends on the way in which it is applied and coordinated with other sustainability measures.” (McKinnon et al., 2010, p. 72)

Most notably, monetary valuation of environmental damage must be accurate in order to justify policy-making measures by governmental agencies. Thus, a specific valuation method is required.

3.2 Monetary Valuation

External costs must normally carry a value to make internalization successful. The calculations for external costs with respect to the negative effects of air pollution, greenhouse gas emissions, noise, accidents and traffic congestions vary in many different ways. One possibility to estimate environmental cost monetary is to value the damage done to the environment ex post, as introduced by Adamowicz (2003), also known as the so-called Damage Function approach. Another method is to evaluate the costs of avoiding this damage ex ante.

Costs of environmental damage can only partly be measured properly. For instance, costs that occur due to a vehicle accident when a car frontally drives against a safety fence are easy to calculate as the loss of material usually carries a certain value and the repairing cost will be added to the losses that incurred while the road cannot be used without a safety fence. In contrast, atmospheric pollution with adverse health effects is much less direct and much more difficult to observe and quantify. McKinnon et al. (2010, p. 75) indicate that the environmental damage approach is often regarded as more appropriate since it helps to reduce the cost of damage in advance. What becomes increasingly important in this matter is to place a value on the external costs that can compensate the effects of air pollution beyond the visible damages. To be precise, the costs for avoiding environmental damage need to be based on the effects of externalities and the damage to the public that are not visible as well, such as health problems caused by air pollution (e.g. asthma) and possible death in consequence. Considering those circumstances, environmental researchers have to address visible and lateral damages in a long-term perspective when developing adequate methods for making monetary evaluations of environmental effects. It is obvious that such damages can rarely been considered entirely in a monetary context due to the scarcity of information and visibility of effects. Since the entire elimination of environmental impacts cannot be reached in practice, the reduction of it is often objected.

3.3 Estimation of Emission Costs in Shipping

Basically, there are two major methods that can be used in order to project fuel consumption, estimate emissions and the related costs for transportation. These approaches are described in this Section are mostly used by governmental agencies. The third approach presented advocates the estimation of costs in maritime transport performed by the author in this thesis.

3.3.1 Top-down Approach

As suggested by the European Commission in the ‘Handbook on estimation of external costs in the transport sector’ (CE Delft, 2008, p. 49) air pollution for external costs is calculated straightforward as follows:

External Air Pollution Costs = Specific emission*Costs factor per pollutant

Where “specific emission” states the total amount of emissions over a certain period (e.g. 4 tons, grams or kilos per day), subjective to the mode of transport and the costs factor carrying a value per pollutant (e.g. EUR 30 per tonne CO2).

Emissions are described in the Guidelines for National Greenhouse Gas Inventories and defined as basic equation in estimating emissions as follows (IPCC, 2006, p. 1.6):

Emissions = Activity Data* Emission Factor

Where fuel consumption (in litres) is used as “activity data” and the mass of CO2 emitted per unit (e.g. grams CO2 per tonne or litre) of fuel consumed is referred to as “emission factor”. The cost factor per pollutant suggested by the European Commission refers to the damage costs that are estimated by another application not involved in this method. The IPCC approach is a top-down approach or fuel-based approach and requires input data on the fuel use or fuel sales to estimate emissions. Marine fuel sales or consumption respectively could be used for shipping activities.

In terms of international ocean transportation, this method appears to be the most reliable approach to estimate total fuel consumption and emissions, if the number of marine fuel bunker reported was reliable. Usually, the bunker supply data is gathered from databases by the Energy Information Administration (EIA) as well as by the International Energy Agency (IEA) and the United Nations Framework on Climate Change (UNFCCC).

Corbett and Koehler (2003) pointed out critically that the fuel consumption for international ocean transports is more than twice the quantity reported as international bunker. As a conclusion of their analysis, they found out that fuel used by internationally registered fleets is obviously allocated to both international and domestic fuel statistics. Thus, it was argued that ships operate either along domestic routes much of the time or that marine fuel sales to these ships might be misallocated. These troublesome results approve the present doubt concerning reliability of bunker fuel statistics as an indicator of actual fuel used in shipping. Eliminating such difficulties in using the top-down approach as an alternative method has given rise. A more advanced approach seeks to estimate emissions by calculating them for all feasible activities.

3.3.2 Bottom-Up Approach

The European Commission has initiated the project ‘ExternE’ in order to value the external costs generated by the production and consumption of energy-related activities, such as fuel consumption, from a macroeconomic point of view (ExternE, 2003, p. 5). Instead of internalizing the external cost in cost-benefit analysis an external cost estimate is used to calculate the value between the costs of measure to reduce a certain environmental burden and the cost of the damage avoided due to this reduction. This approach requires a full set of inputs, such as (CE Delft, 2008, pp. 48):

- Transport flows
- Emissions
- Concentrations and impacts
- Monetary valuation

The transport flows are the basis to calculate emissions as for instance suggested by the IPCC calculus described earlier. In the next step, the method follows an observation of the response of ‘receptors’, such as people, animals, vegetation etc, to these emissions. The concentrations of their respective impact can finally be evaluated monetarily based on specific requirements defined in advance.

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