Emissions of sulphur dioxide are the chief source of serious problems that exist today in large parts of Europe through the acidification of soil and water. Sulphur dioxide can also be converted into sulphate particles. These are very small and form a significant proportion of airborne particles, which are believed to cause serious health problems.

Emissions of nitrogen oxides, like sulphur dioxide, contribute to acidification and the formation of very small particles. Nitrogen oxides also contribute to the formation of low-level ozone, which damages vegetation and human health. They also lead to eutrophication, which reduces biodiversity on land and in coastal waters.

You can learn more about the effects of pollutants in the report Economic instruments for reducing emissions from sea transport (see back) or on the Internet at www.acidrain.org (choose the heading "Acidification").

The costs of typical measures to reduce emissions of sulphur dioxide and nitrogen oxides at sea are in the range 0.5–1.2 and 0.35–0.80 euro per kg, respectively. The measures needed to further reduce emissions of nitrogen oxides from land-based sources are usually more costly, and in some cases much more costly.

One important reason for the lower costs at sea is that the cheapest and easiest measures have already been taken on land, but on the whole these measures have yet to be taken at sea.

The cost-effectiveness of abating sea transport emissions was studied by the International Institute for Applied Systems Analysis (IIASA), while investigating the EU strategy to combat acidification. It was shown that if the proposed interim environmental quality target for acidification for the EU was to be achieved solely by relying on additional technical measures to reduce land-based emissions, the annual cost would amount to about 7 billion euro by the year 2010. However, this cost could be reduced by 2.1 billion – about 30 per cent – if cost-effective measures were introduced to limit shipping emissions of sulphur and nitrogen oxides in the Baltic, North Sea, and north-east Atlantic.

So if international shipping were included in the programme of measures it would be possible to achieve the proposed environmental target at considerably reduced cost, or alternatively achieve a considerably more ambitious environmental target for the same cost.

So far there have been few international initiatives to tackle this problem, although some countries have acted independently.

Because shipping is largely an international business, a logical step is to try and bring about global agreements to limit its emissions. The institution dealing with this matter is the Marine Environment Protection Committee (MEPC) of the United Nations’ International Maritime Organisation (IMO).

Following several years of negotiations, agreement was reached in autumn 1997 on an air pollution annex to the MARPOL 73/78 Convention. This was however very weak and it is obvious that it will not have any major effect on reducing emissions from shipping. The voting rules of this convention and experiences so far indicate that any significant moves to reduce emissions of sulphur and nitrogen oxides from shipping by the IMO cannot be expected in the foreseeable future.

The recently signed protocol to reduce emissions under the Convention on Long-Range Transboundary Air Pollution does not extend to international shipping and it has long been the opinion within the European Union that these issues should be regulated by the IMO. Recently, however, the EU Commission commissioned a consultant to carry out a study of the economic, legal, environmental and practical implications of an European Union system to reduce shipping emissions of SO₂ and NOx, which is expected to be finalised by the end of 1999. The EU Commission is expected to present its proposed measures next year.

Since 1998, Swedish fairway dues have been differentiated according to environmental criteria (see box). Harbour dues are also differentiated in several ports, although each port is independent and competes with its neighbours. For this reason harbour dues are not differentiated to the same extent as fairway dues.

Shipowners who verify and state their continuous operation of ships on bunker oil of a sulphur content of less than 0.5 per cent by weight for ferries and less than 1.0 per cent for other ships get a discount of 0.10 euro per gross tonne (GT).

The NOx-related reduction in dues is based on emissions measured in grams per kWh. If the emission level at 75 per cent engine load is above 12 g/kWh, no discount is given. Below this level the discount increases continuously down to a level of 2 grams per kWh, where the discount amounts to euro 0.18 per GT. This means that a ferry or general cargo vessel that runs on low-sulphur bunker oil and applies the best available technology for reducing NOx emissions enjoys a total discount of 0.28 euro per GT. Consequently the remaining fee is only 0.28 euro per GT, which is 0.13 euro below the level applied prior to 1998. A similar vessel that does not take any emission control measures must pay 0.56 euro, which is 0.16 euro more than the pre-1998 level.

In combination with environmental demands from major customers, the system of imposing environmentally differentiated fairway and harbour dues in Sweden contributed to a rapid increase in vessels operating on low-sulphur oil. Currently more than 1300 ships calling at Swedish ports run on low-sulphur bunker oils. Some of them had however already begin doing so before differentiated dues were introduced.

When it comes to reducing NOx emissions the response to date has not been so marked – only eleven ships have applied for reduced fairway dues (as of October 1999), although this figure is expected to rise in the next few years.

One important explanation of the rapid switch to low-sulphur fuels is that the added cost is considered moderate and this measure is easy to implement. Reducing NOx emissions on the other hand requires a bigger investment and commercial considerations are therefore holding back development. If more countries imposed similar environmentally differentiated dues there would however be a greater incentive.

One weakness of the Swedish system is that the journey distance – which is very important for the amount of pollutants emitted – is not reflected in the size of dues. Ships that make short journeys pay relatively more than those travelling longer distances between ports. This effect, however, is at least partly counteracted by discounts given to frequent visitors. One way of making the dues fully reflect emissions would be to take account of the distance travelled from the last port of call and refrain from giving frequent visitors a favourable treatment.

It should also be mentioned that the port of Mariehamn on Åland is likely to introduce harbour dues that are differentiated on the basis of emissions of sulphur and nitrogen oxides with effect from the year 2000, and that Norway will probable introduce a system of environmentally differentiated tonnage tax, also in the year 2000. The Norwegian system however offers much weaker incentives to reduce emissions than the Swedish one.

The infrastructure costs of shipping are related to fairways and ports. However, all countries do not charge shipowners for costs related to investment in and maintenance of fairways.

National fairway dues exist in Estonia, Finland, Latvia, Norway and Sweden, but the degree of cost recovery differs greatly among them, being the highest in Sweden. Elements of fairway charging exist in the harbour due systems of Lithuania, Russia and the UK. Denmark, Germany, Poland and the Netherlands do not, in principle, charge sea vessels for the costs of providing and maintaining fairways.

The system for harbour dues differs greatly between countries and sometimes even among ports in the same country. Growing competition between ports, as well as shipowners, has resulted in an unwillingness to share real prices with third parties. This lack of transparency is an obstacle to environmental differentiation.

As already pointed out, it is cost effective to reduce emissions of sulphur and nitrogen oxides from shipping. And the technology is available:

Emissions are directly proportional to the sulphur content of the fuel. The simplest and cheapest way of reducing emissions is to switch to bunker oil with a low sulphur content. The average sulphur content of today’s bunker oils is around 3 per cent. Low-sulphur oils are already available on the market. They require no mechanical modifications and entail marginal additional costs for shipping companies: The added cost for oils with a sulphur content of 1 and 0.5 per cent is around US$10 and US$30 respectively per tonne – while high-sulphur oil currently costs around US$130 per tonne. A positive side-effect is that the higher quality of the low-sulphur bunker oil leads to smoother running of the ship’s engines and hence less risk of operating problems.

There are a number of technical solutions, of varying cost and efficiency, for controlling nitrogen oxides.

Water injection and water emulsion techniques are both based on using water (injected into the combustion chamber or mixed with the fuel) to lower the temperature of combustion and hence reduce NOx formation. The maximum emission reduction potential is around 50 per cent, but at the cost of increased fuel consumption. The installation costs are however lower than for the following methods.

HAM stands for Humid Air Motor and is a technique for preventing NOx formation during combustion by adding water steam to the engine’s combustion air. The method is independent of the bunker oil quality and the engine’s workload. It is able to reduce NOx by 70–80 per cent. In contrast to SCR, the HAM technique provides a similar reduction across a range of load conditions. HAM also has the advantage over SCR of somewhat reducing operating costs instead of increasing them. Trials indicate reduction costs similar to those of SCR installations.

Selective catalytic reduction, SCR, is a system for after-treatment of exhaust gases by which emissions can be reduced by something like 95 per cent. Ammonia or urea is sprayed into the gases before they pass through a catalytic converter, where the nitrogen oxides are reduced to nitrogen gas, with water as a by-product. The drawbacks of this method include fairly bulky installation and a 2–3 per cent increase in operating costs. It also requires fuel with a low sulphur content. SCR systems are currently installed on around 40 vessels worldwide, of which half are Swedish and most of the rest frequent Swedish ports. Reduction costs are up to 0.80 euro per kg NOx on existing vessels, but are lower if the equipment is installed at the time the vessel is built.

Every country has a lot to gain from the introduction of measures to reduce emissions from shipping, since reduced emissions at sea reduce the demand for considerably more expensive land-based measures. The following measures are recommended:

• Since regulation does not appear to be the best option to limit emissions from international shipping, the main option is to introduce environmentally differentiated charges and to treat all vessels alike.

• Because methods of charging shipping dues vary between countries the EU should adopt a directive that makes all member states and accession countries that have not already done so, introduce fairway dues that take account of the distance travelled. It would be better to introduce differentiated fairway dues than to impose environmental differentiation on existing harbour dues, since the former can be made non-negotiable and completely transparent.
• The EU Commission’s White Paper on infrastructure charging, states that all forms of transport should pay their own marginal costs, including damage caused by emissions, but since no other forms of transport do so at present, environmental charges on shipping should initially be differentiated in a way that is revenue neutral.
• The level of charges should be related to the quantity of pollutants emitted and be set so that it is financially beneficial for shipowners to switch to low-sulphur fuel and invest in technology to considerably reduce NOx emissions from those vessels that regularly frequent the area.
• If there is fear that limiting sulphur and NOx charges to ports north-east of a certain line would distort competition between ports located close to that border, it may be worth considering a geographical differentiation of the charge. A negative border effect could presumably be avoided by reducing the level of the charge stepwise in a south-westerly direction.

• If a common charging system cannot be achieved then the second-best solution is that other coastal countries introduce differentiated fairway and harbour dues analogous to those used in Sweden. The fact that these do not reflect distance and that they include different kinds of basic or negotiable discounts somewhat erodes the cost-effectiveness of the scheme. However, if other countries adopted the Swedish approach, the combined effect on emissions from shipping would nevertheless be significant.
• There may also be cause to consider measures on ships used in parts of the Mediterranean and on barges on inland waterways. At present there is a shortage of statistics for the Mediterranean. Inland barges usually run on gas oil with a low content of sulphur (in the EU limited to 0.2 per cent). However, emissions of NOx are high and could be reduced by SCR or HAM techniques.

The facts and conclusions presented in this leaflet are described in more detail in the report Economic instruments for reducing emissions from sea transport by Per Kågeson. The report can be downloaded in full (in pdf format) from the website of T&E or the Swedish NGO Secretariat on Acid Rain.

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