Floating hotels

Cruising is booming. Over the past two decades, the cruise ship industry has expanded dramatically, with ships doubling both in size and in number, leading to a significant increase in their environmental footprint. In 2025, in the West European Mediterranean basin where most cruise ships sail, air pollution and greenhouse gas (GHG) emissions from cruise ships cost the community between €550 million and €930 million. When we include cruise operations along the Atlantic coastlines of these same countries, these external costs rise to between €790 million and €1.3 billion annually.

Regardless of their climate and environmental impact, cruises often remain largely outside the scope of standard regulatory and fiscal frameworks. They benefit from numerous exemptions or preferential regimes in areas such as Value Added Tax (VAT), energy taxation on fossil fuels, tourism levies, and tonnage taxes, resulting in a comparatively low tax contribution to national budgets.

Cruises are often seen as a symbol of mass and unsustainable tourism. They are perceived as contributing disproportionately to pollution while failing to pay their fair share of taxes. To put this into perspective, a night on board a cruise is taxed on average 40% less than a night in a hotel. This constitutes a major distortion of competition, given that cruise activity is much closer to tourist accommodation than to a mode of transport.

This has fuelled growing public opposition in many destinations. In response, an increasing number of port cities, regions, and national governments are considering or implementing measures to restrict cruise ship access or to introduce passenger-based levies, in line with the polluter pays principle.

Cruise ships have become one of the most visible symbols of mass tourism in European port cities, imposing a staggering cost on the environment and on local communities. The cruise industry is responsible for the resulting public health and environmental impacts of their economic activity. Today, these costs—which reached a total of €790 million to €1.3 billion in France, Spain, and Italy combined in 2025—far exceed existing environmental tax revenues, particularly in areas of the Mediterranean basin.

In this particular area, the level of impact can be perceived as overcoming the benefits of this economical activity. By way of an example, in the Balearic Islands, the accumulation of passengers in a short time can overload local transport, infrastructure, and public space.The phenomena of mass tourism has often led to local protests against cruise ships. Places such as Venice, Barcelona, Marseille, Dubrovnik and Santorini have become focal-points of the anti-cruising movement, where citizens and activists organized numerous demonstrations against large cruise ships.

Among the environmental damages, the easiest to quantify are greenhouse gases (GHGs), including carbon dioxide [CO₂], methane [CH₄], and nitrous oxide [N₂O], as well as air pollutants such as nitrogen oxides [NOₓ], sulfur oxides [SOₓ], and particulate matter [PM]. The Mediterranean regions are particularly exposed, together France, Spain and Italy’s cruise ships emitted 2.7 Mt CO₂e, 40.5 kt of NOₓ, 5.5 kt of SOₓ, 2.3 kt of PM2.5 and 2.5 kt of PM10 in 2025.

These pollutants have different impacts but all impose costs on society. GHGs contribute to climate change, while air pollutants contribute to respiratory and cardiovascular harm. The European Environment Agency identifies air pollution as the largest environmental health risk in Europe, with long-term exposure to fine particulate matter and nitrogen dioxide linked to major health impacts.

When the existing policies are not sufficient to tackle the environmental footprint of an economic activity, these costs are called negative externalities or external costs.

In the west Mediterranean basin alone - including France, Spain and Italy, the external costs of cruise ships (GHG and air pollutants) reached between €557 million and €930 million in 2025. When we include cruise operations along the Atlantic coastlines of these same countries, these external costs rise to between €792 million and €1.3 billion annually.

Italy and Spain carry the largest absolute external costs in the assessment, reflecting their high cruise activity in the Mediterranean and, for Spain, the additional West Atlantic region. France’s costs are lower in absolute terms but still significant, with impacts spread across the Mediterranean, Atlantic and North Sea/Channel areas. As cruise activity in Europe continues to grow, these externalities are expected to increase further.

The distribution of costs also shows why cruise pollution is not only a climate problem.

Depending on the climate valuation, air pollutants represent between 25 and 40% of the costs from cruise ship emissions, with the remainder costs coming from GHG emissions. This matters for policy design, even a strong carbon price would not address the full unpaid bill unless it is accompanied by measures targeting NOₓ, SOₓ and PM.

This massive footprint is driven by their scale and nature: these vessels are among the largest ships ever built, carrying thousands of passengers and requiring immense amounts of energy not just for propulsion, but to power energy-intensive amenities, hospitality services, and onboard entertainment.

The deployment of alternative-fuel engines in the cruise sector is a recent phenomenon. Among available options, only synthetic e-fuels offer genuine potential regarding deep emission reductions, sustainability, and scalability. Despite tightening EU decarbonisation targets, the industry remains heavily reliant on fossil fuels: out of the ten highest-emitting ships in the EU in 2024, four were cruise ships.

Currently, the global cruise fleet’s transition away from fossil fuels is moving very slowly:

• 6% run on Liquefied Natural Gas (LNG)

• 0.3% on methanol

• 1% on hydrogen

• 3% on plug-in hybrid power

Consequently, roughly 90% of the cruise ship fleet still relies entirely on conventional, highly polluting marine fuels. This heavy lock-in to fossil fuels is structurally reinforced by the long operational lifespan of these vessels, which typically remain in service for several decades.

This makes cruises an exceptionally high-impact form of tourism, far exceeding the footprint of alternative holiday options. To better contextualise this impact, it is useful to compare cruise tourism with functionally similar sectors, in particular land-based accommodation such as hotels and resorts, rather than transport modes alone. To put this footprint into perspective, independent analysis by the International Council on Clean Transportation (ICCT) exposes the true scale of the industry’s climate impact:

Driven by global competition, the shipping industry has always enjoyed favourable tax treatment. However, cruise ships represent a completely different reality: they are primarily tourism and leisure destinations rather than transport services. A more appropriate benchmark is the land-based hospitality sector, with which cruise ships directly compete for tourists and holiday spending.

When considering high-end cruises, the difference is even starker: cruises pay seven times less tax than hotels. In a high-end hotel, taxes account for 20% of the total overnight price. By contrast, taxes represent less than 3% of the ticket price for a night onboard a high-end cruise ship. This figure demonstrates that the wealthiest tourists, who can afford luxury vacations at sea, contribute a disproportionately low amount to public finances.

This regression occurs because the levies applied to international cruises are predominantly flat. Because these charges do not scale with the price of the ticket and therefore revenues, they represent a negligible fraction of the total revenue generated by premium and luxury cruise lines.

The high level of environmental and public health impacts of the cruise sector have sparked widespread community protests globally, particularly across Mediterranean port cities.

In response, several governments have introduced dedicated cruise ticket levies to address this fiscal loophole, while others have enacted stricter operational limits, including total bans or capacity caps in historic city centres.

A flat-rate passenger tax represents the most transparent and straightforward mechanism for a cruise levy.

In most jurisdictions, this takes the form of a "day-tripper tax" assessed at the port of call, calculated dynamically based on the exact number of passengers onboard or disembarking. Alternatively, the levy can be structured using different ranges based on the vessel's total passenger capacity. Furthermore, several countries apply the tax across all operational phases, no matter whether the vessel is at berth, anchored offshore, or transiting through territorial waters.

A phased implementation timeline or a time-limited transitional framework could also be deployed. For instance, Mexico adopted a multi-year scale that applies a flat €4.5 tax per night per passenger starting August 1st, 2025, rising incrementally to €18.5 as of August 1st, 2028.

In the EU, a national levy could function as a temporary measure until the broader EU legislative framework becomes sufficiently stringent and effective. This levy would bridge the gap until EU ETS carbon prices fully internalize the cost of CO₂ emissions, onshore power supply (OPS) becomes legally mandatory for all port calls, and FuelEU GHG reduction targets require switching to green fuels. Beyond the EU framework, the International Maritime Organization (IMO) could expand Emission Control Areas (ECAs) to comprehensively regulate not only SOₓ emissions, but also NOₓ and particulate matter. The use of exhaust gas cleaning systems (i.e. scrubbers), as an option to comply with air quality standards should also be banned under international, regional, or national frameworks.

Existing global cruise taxes typically range from a few euros to over €20 per passenger. Notable examples include:

T&E has modelled the impact of a standard €15 levy per disembarking passenger across France, Italy, and Spain. This figure sits within the mid-to-high range of current European benchmarks.

In terms of passenger optics, a €15 charge is virtually negligible compared to standard onboard upsells, such as premium Wi-Fi packages, averaging around €20 per day.

Such a measure could raise hundreds of millions of euros in yearly revenues - €145m in Italy, €134m in Spain and €55m in France.

In order to ensure a fair and effective tax model, the design of the levy could incorporate targeted exemption regimes and explicitly earmark revenues toward environmental mitigation.

A cruise passenger levy will not detrimentally affect local tourism

Because many modern cruise levies have been adopted recently, long-term empirical data on passenger elasticity remains limited. However, historical performance suggests that existing global levies have had zero negative impact on overall passenger volumes.

In the case of Barcelona, the city quadrupled its local cruise tax over a ten-year period, yet experienced a 30% increase in cruise tourist arrivals during that exact timeframe. Similarly, Greece recorded an 11% surge in total visitor numbers within a single year, even with its nationwide cruise levies fully active. In the Caribbean, the market leaders in cruise volumes—Mexico and the Bahamas—are the nations that impose the highest baseline cruise fees.

A formal impact assessment by the Scottish Government corroborates this resilience, noting the following trends:

Ultimately, a cruise passenger tax is an essential economic tool designed to internalise the hidden costs of the sector into the ticket price. However, price signals alone cannot solve the physical challenges of overtourism as the cruise ship industry continues to grow.

A tax alone fails at bridging the gap of the external costs of cruise ship

While a €15 passenger levy generates vital revenue, it remains insufficient on its own to offset the total environmental costs of the cruise sector. Indeed, the revenues of a cruise ship levy combined with the revenues generated by the ETS mechanism would still be insufficient to cover the negative externalities caused by the cruise ship sector.

Thus, a cruise ship levy must be viewed as part of a broader regulatory mix.

To fully mitigate the sector's environmental footprint, parallel supply-side policies are necessary, including strengthening EU regulations on sustainable marine fuels (FuelEU Maritime) and tightening energy efficiency benchmarks (slow steaming, wind propulsion, electrification and onboard efficiency technologies). To drive industry leadership, cruise ships should face more stringent environmental performance standards than standard commercial cargo vessels.

If the primary objective of local and national policymakers is to systematically reduce localized environmental degradation and crowding, economic instruments must be coupled with strict operational caps.

Several pioneering European destinations have already deployed successful non-fiscal caps to stabilize visitor flows:

Recommendations at EU level

Recommendations at national level