New information on economic impacts of emissions trading in maritime transport

The study commissioned by the Ministry of Transport and Communications on the impacts of emissions trading in maritime transport on the costs of shipping, the national economy and Finland's competitiveness has been completed. The impacts on the national economy are negative, but the scale of those impacts is modest.

The European Commission is expected to propose emissions trading in maritime transport as part of the extensive Fit for 55 climate package to be published in mid-July.

A key question regarding the impacts on Finland's national economy is how emissions trading in maritime transport and the alternative ways of implementing this would affect the transport costs of Finnish exports and imports and, through these, the prices of products and services in Finland. The changes in transport costs will also have an impact on the international competitiveness of Finland's export sectors.

Impacts on costs and competitiveness

The first part of the study assesses the impacts of emissions trading on the national economy. The second part focuses on competitiveness. The study is based on the emission volumes from Finland's commercial shipping calculated with the MERIMA model of Sitowise and estimates of the direct costs of emissions allowances made by the Ministry.

After the estimates for the direct cost impacts were available, Ramboll Finland Oy and Merit Economics constructed a model for the impacts of emissions trading on the national economy. In addition, foreign trade statistics were used to conduct a qualitative analysis of the impacts on competitiveness. 

Geographical coverage of emissions trading the key question

The impacts of emissions trading depend a great deal on the choices made concerning its execution. The content of the Commission's proposal is not yet fully known. One important decision to be made concerns the geographical area that will be covered by emissions trading. The options are 1) emissions trading applicable only to voyages between ports within the EU, 2) emissions trading that also covers voyages between EU ports and ports in third countries, or 3) some intermediate scenario.

In the study, four different scenarios were used to assess the impacts of emissions trading. The assessments are based on the estimated direct costs of emissions trading on the prices of maritime transport operations, produced by the MERIMA model. The factors that varied in the scenarios were the geographical coverage of emissions trading and the lower limit for the vessel size to be set for the application of emissions trading. The assumed price for the emissions allowance in 2025 is EUR 35 per tonne CO2 and EUR 50 per tonne CO2 in 2040. However, there is a lot of uncertainty about these assumptions concerning the price.

In terms of the climate, a wider geographical coverage of emissions trading would be more effective because more emissions would be included. The study shows that the more widely maritime transport is covered by emissions trading, the higher the emissions reductions that will be achieved and the more expensive it will be from the perspective of logistics costs and the national economy. Based on the models, a more narrow coverage of emissions trading will reduce negative impacts on sectors that are frequent users of maritime transport such as the forest and chemical industries and, in the end, on the national economy. In the models, the national income will be 0.04-0.08% lower in 2040 compared to the baseline scenario without emissions trading in maritime transport. 

According to a competitiveness analysis, there is considerable variation between and within the sectors in whether a wide or narrow geographical coverage would be a better option.

Roughly speaking, in Finnish sectors where exports are mainly targeted to third countries outside Europe, a wide geographical coverage leads to higher costs than in sectors aiming for the same market located in the competing countries. It seems that a wide geographical coverage of emissions trading partly improves the relative competitiveness of export sectors that engage in trade mainly with other EU countries.

Measures for reducing maritime emissions are expected to create business opportunities for the Finnish maritime cluster, which could lead to positive outcomes in terms of the national economy and competitiveness in the long term. These outcomes were not included in the modelling.

Next steps

Negotiations on Maritime emissions trading are due to begin after the European Commission submits a proposal to amend the Emissions Trading Directive. The negotiations and implementation are expected to take several years to be completed. 

Since last year, the Finnish Government has actively presented its views on emissions trading to the Commission. Measures to reduce maritime emissions have to be climatically efficient and create opportunities for the innovative Finnish maritime cluster. Finland's foreign trade is very dependent on maritime transport. Especially winter navigation and Finland's geographical location increase logistical costs. Winter navigation should be taken into consideration in emissions trading.

Inquiries:

Juha Honkatukia, Merit Economics, tel. +358 40 304 5561 (study on the impacts on the national economy and competitiveness)

Heikki Savikko, Specialist, Ramboll Finland Oy, tel. +358 40 304 1194 (study on the impacts on the national economy and competitiveness)

Ilkka Salanne, Senior Consultant, Sitowise, tel. +358 40 821 4883 (calculation of emissions volumes, MERIMA model)

Juha Tervonen, Senior Specialist, Ministry of Transport and Communications, tel. +358 295 342 070 (impacts of emissions trading in maritime transport on the national economy and competitiveness)

Eero Hokkanen, Ministerial Adviser, Ministry of Transport and Communications, tel. +358 295 342 021 (other questions related to emissions trading in maritime transport)