For Official Use COM/TAD/ENV/JWPTE(2008)29/REV3 - OECD

For Official Use COM/TAD/ENV/JWPTE(2008)29/REV3 Organisation de Coopération et de Développement Économiques Organisation for Economic Co-operation and Development 27-May-2011 ___________________________________________________________________________________________

English - Or. English TRADE AND AGRICULTURE DIRECTORATE ENVIRONMENT DIRECTORATE

Joint Working Party on Trade and Environment

TRADE, TRANSPORT AND CLIMATE CHANGE

9-10 June 2010, OECD Conference Centre, Paris, France

Purpose and action required: This paper examines the interlinkages between international trade, transport and climate-change-mitigation strategies in the context of trade liberalization. An interim draft version of the paper was discussed at the 3-4 December 2009 meeting of the JWPTE. It has been updated and revised in light of comments from delegates. It is submitted for discussion with a view to its declassification. Link to Programme of Work and resource implications: This study was foreseen in the 2009-10 PWB under output area 3.1.3, "Trade and Environment". It was funded by existing Part 1 resources, augmented by voluntary contributions. Co-operation and context: Besides the Environment Directorate, this work has been undertaken in consultation with the IEA and the International Transport Forum.

Contact persons: Ronald Steenblik, tel.: +(33-1) 45 24 95 29; e-mail: [email protected]; Ysé Serret, tel.: +(33-1) 45 24 13 83; e-mail: [email protected].

JT03302574

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TABLE OF CONTENTS

TRADE, TRANSPORT AND CLIMATE CHANGE .................................................................................... 4

Executive summary ..................................................................................................................................... 4 I. Introduction .......................................................................................................................................... 6

Study outline and method ........................................................................................................................ 6 II. Current and expected future emissions from international freight transport .................................... 7 III. The link between international trade and the transport of goods.................................................... 12 IV. The technical and economic potential for reducing GHG emissions from freight transport .......... 16

Short-term opportunities ........................................................................................................................ 17 Medium-term opportunities ................................................................................................................... 17 Longer-term opportunities ..................................................................................................................... 18 Reducing fossil-fuel use from the transport of goods through modal switching ................................... 18

V. Policy instruments to reduce CO2 emissions from the international transport of goods ................ 20 Existing transport-related policies that affect CO2 emissions from freight transport ............................ 20 New policy directions ............................................................................................................................ 26 Plurilateral and multilateral approaches to regulating GHG emissions from freight transport ............. 28

VI. Winners and losers from greater internalization of climate-change measures in the transport sector35 VII. Concluding observations ................................................................................................................ 40

REFERENCES ............................................................................................................................................. 42

APPENDIX 1. TECHNOLOGICAL POSSIBILITIES FOR REDUCING FOSSIL-FUEL USE IN FREIGHT TRANSPORT ............................................................................................................................. 50

Maritime shipping ..................................................................................................................................... 50 Operational changes .............................................................................................................................. 50 Improvements in ship design ................................................................................................................. 51 Propulsion improvements (propellers) .................................................................................................. 53 Propulsion improvements (machinery) .................................................................................................. 53 Fuel substitution .................................................................................................................................... 55

Air-freight transport .................................................................................................................................. 57 Operational changes .............................................................................................................................. 57 Technological innovations ..................................................................................................................... 59 Fuel substitution .................................................................................................................................... 62

Road transport ........................................................................................................................................... 64 Operational improvements..................................................................................................................... 65 Technological innovations ..................................................................................................................... 66 Fuel substitution .................................................................................................................................... 67

Rail transport ............................................................................................................................................. 68 Operational and infrastructure improvements ....................................................................................... 68 Technological innovations ..................................................................................................................... 68 Fuel substitution .................................................................................................................................... 69


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Tables

Table 1. IMO consensus estimate of CO2 emissions from shipping in 2007 ....................................... 9 Table 2. CO2 emissions associated with different modes of transport ................................................ 19 Table 3. Taxes and subsidies for petroleum diesel, kerosene, and gasoline: end-2007 ...................... 21 Table 4. Summary assessment of the environmental effectiveness of selected policies ..................... 37 Table 5. Impacts of possible policy options to address CO2 emissions from transport ...................... 38 Table 6. Potential specific fuel consumption savings from improved design features on cargo ships 52 Table 7. Potential specific fuel consumption savings from improved propeller design and operation53 Table 8. Potential specific fuel consumption savings from improved propulsion machinery ............ 54 Table 9. Relative life-cycle GHG emissions for aviation fuel through various fuel pathways ........... 63

Figures

Figure 1. World seaborne trade by commodity in 2006, in tonne-miles ................................................ 8 Figure 2. Estimates of recent trends in fuel consumption by ocean-going civilian ships. ..................... 9 Figure 3. Evolution of the global air-freight fleet by type of aircraft: available tonne-kilometres (ATKs) in 2007 and projected for 2027 .................................................................................................... 11 Figure 4. Estimated changes in international freight transport (tonne-km) with full liberalization ..... 14 Figure 5. Estimated changes in international freight transport (tonne-km) with full liberalization ..... 15 Figure 6. Greenhouse-gas efficiency of different freight modes, 2007 ................................................ 19 Figure 7. Changes in fuel-excise taxes and transport-fuel use intensity and in Turkey, 1994-2004 ... 23 Figure 8. Normal excise taxes on gasoline (petrol) and automotive diesel in selected OECD countries24 Figure 9. Changes in the total cost of a shipping as a function of bunker fuel cost and speed ........... 51 Figure 10. Engine fuel reductions in large commercial jet aircraft since the late 1950s .................... 59 Figure 11. The basic parameters of aircraft design ............................................................................ 61

Boxes

Box 1. Emissions from aviation and their impacts on climate .................................................................. 16 Box 2. IEA Technology Agreements in the area of end-use technologies for transport ........................... 26 Box 3. Emissions Trading Sechemes and Aviation .................................................................................. 28 Box 4. The IMO's energy-efficiency standards for ships .......................................................................... 32 Box 5. What characteristics of environmental policies induce innovation? ............................................. 36 Box A.1. Examples of private-sector initiatives to reduce fuel use from delivery vehicles and lorries ... 65


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TRADE, TRANSPORT AND CLIMATE CHANGE

Executive summary

This paper presents the results of a study of how liberalization of trade can be expected to ultimately affect emissions of greenhouse gases (GHG), mainly carbon dioxide (CO2), and how national measures to reduce GHG emissions from transport may affect a country’s trade. Transport is only one element in the total GHG emissions associated with trade, of course: to compare total changes one has to assess emissions over the whole life-cycle of a good’s production chain. However, the contribution that transport makes to the total “carbon footprint” of a traded good is often poorly understood, and merits deeper examination than has heretofore been undertaken.

The empirical basis for the research stems from the strong links between trade and transport, and between transport and the combustion of fossil fuels. If trade leads to increases in tonne-kilometres transported, as it is often argued, additional greenhouse gases will be emitted. Such simplistic reasoning lay behind early private-sector attempts to raise awareness of the climate implications of trade through the labelling of goods (notably food) according to the distance they had travelled from the producer. The flaw is that the mode used to transport a good can matter more than distance, and transport is but one factor in changes induced by trade, which also include changes in the scale and techniques of production.

According to the International Energy Agency (IEA, 2010a), the CO2 emissions from the transport sector as a whole accounted for 22.5% of anthropomorphic (human-caused), energy-related CO2 emissions in 2008, and about 16% of total anthropomorphic GHG emissions. That contributed by the international transport of goods is reckoned to be somewhere around 4–6%. However, as a result of numerous demographic and economic forces — growing world population, increasing per-capita income, and globalization — the international transport of goods (as measured by tonne-kilometres shipped) is expected to grow strongly over the next 40 years. Among other questions addressed, the paper asks: How much additional transport demand would be generated by further multilateral liberalization of trade? And how would CO2 emissions from transport be affected?

The extent to which growth in transport of internationally traded goods translates into similarly rapid increases in fossil-fuel consumption and CO2 emissions will depend, over the long term, on technological developments in propulsion technology, fuels, and system operational optimisation. Both the pressure of higher fuel costs and explicit government policies are already driving changes in these areas. This study finds that there remains significant scope for reducing GHG emissions from transport, but that the potentials differ considerably by transport mode. Over the short term, some efficiencies can be reaped through improvements in operations, traffic management and the use of infrastructure. Over the medium term, these steps, plus the increased availability of lower-carbon fuels, and greater diffusion of currently available innovations, such as the use of more-efficient propulsion technologies, can be expected to help constrain CO2 emissions. Over the long term, much more profound changes to technologies and fuels are conceivable.

In the future, efforts by governments to internalize carbon-related externalities in the transport sector, including the freight segment, can be expected to accelerate the pace of change. The potential for large relative improvements in the energy efficiency of ground transport is greatest in non-OECD countries, where transport corridors are often less well developed and the technologies in use are older and less well maintained. Any policies aimed at mitigating increases in GHG emissions from transport induced by trade


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liberalization should therefore consider how developing countries can also be encouraged to improve their performance in this area. Indeed, if multilateral measures to address GHG emissions from international aviation and maritime shipping are to succeed, developing countries must be an integral part of a binding global regime. Anything less would result in carbon leakage and induce trade distortions.

That growth in international trade may lead to increases in total CO2 emissions generated by the transport of goods is not an argument for restraining trade, or holding back further trade liberalisation. Far better is to target CO2 emissions directly. If trade policymakers cannot obviously change the need for transport, they can at least work with their environmental and transport counterparts to ensure that whatever climate-change mitigation measures are applied to transport are as cost-effective as possible. Encouraging R&D on better propulsion technologies and lower-carbon fuels is one way to reduce CO2 emissions without adversely affecting trade. Whether or not increasing the availability of better technologies and fuels may be sufficient to control CO2 emissions from these sectors remains to be seen. Currently, discussions are on-going in the two inter-governmental organizations responsible for regulating international shipping and air transport — respectively, the International Maritime Organization (IMO) and the International Civil Aviation Organization (ICAO) — on how best to address on a global basis international CO2 emissions from shipping and air transport.

It is not known to what extent policies that artificially reduce prices of transport costs within countries affect trade, but it is likely that they are having some effect. Currently, the price of petroleum diesel is subsidized in at least 32 countries, including several emerging economies that are important exporters. It would seem likely that if road haulers in those countries were to pay the full market price of transport fuels, steps would be quickly taken to improve the efficiency of the existing vehicles, and to rationalize transport logistics. Charging an excise tax proportional to CO2 emissions would induce additional changes. Problems caused by subsidizing transport-fuel prices have been recognized for two decades, but attempts to reform pricing policies through multilateral action have been confined so far to hortatory language in multilateral environmental agreements and non-binding expressions of intent.

The question of how different policies (unilateral and multilateral, and various combinations of carbon taxes or emission caps), might impact trade will be discussed in greater depth in the next version of the paper. Clearly, if countries impose measures to reduce CO2 emissions from transport, they may raise trading costs, and thus make both their imports and exports more expensive. But by examining the changes in trade patterns that have taken place over the last five years (i.e., since the price of crude oil surpassed USD 40 per barrel), one can develop an initial impression of the direction of change in trade patterns that would occur were co-ordinated international action to be taken that increased the cost of international maritime and air-freight transport. Basically, cost increases would both dampen and divert international trade, depending on how stringently and rapidly emissions are controlled. Over time, however, improvements in transport logistics, technologies and fuels can be expected to exert a downward pressure on costs, to the benefit of both climate-mitigation goals and trade.


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I. Introduction

1. Trade in goods generally involves transport, and transport in the modern era relies on the combustion of fossil fuels. Combustion, in turn, releases carbon dioxide (CO2), a greenhouse gas implicated in climate change. The contribution that all transport makes to global anthropomorphic emissions of CO2 is indeed large — some 23% and growing fast. The contribution that transport makes to total greenhouse-gas (GHG) emissions, however, is only 13%, and that contributed by international transport of goods is reckoned to be around 4%. Nevertheless, it is significant enough to warrant the attention of policy makers, especially given continued growth in world trade, and the popular perception that the transport of internationally traded goods is a major contributor to global greenhouse-gas emissions.

2. Questions that seem the most relevant for trade and environment policymakers include the following:

• What contribution is the transport of internationally traded goods making to global emissions of CO2? How does that contribution compare with emissions associated with the production and use of the traded goods themselves?

• Given the current structure of world trade, and the nature and height of remaining trade barriers, how would further liberalization of trade in goods affect transport patterns at the margin, both internationally and within countries?

• What is the scope for reducing CO2 emissions from transport? To what extent can policymakers influence CO2 emissions specifically related to transport in the service of trade, given the difficulty of regulating emissions from international maritime shipping and air transport, and the fact that national transport policies by their nature affect all transport within their borders? Are there trade, transport or environmental policies that could allow the world to reap gains from trade without stimulating increased CO2 emissions? If some countries decide to fully internalize the externalized costs of GHG emissions from transport, how will that affect their terms of trade?

3. This study attempts to provide answers to these questions. Its aims to: (i) put into perspective the contribution that transport related to international trade is making to global emissions of CO2 and to assess the likely changes in CO2 emissions that would be generated by further trade liberalization; (ii) take stock of the technical possibilities for reducing CO2 emissions per tonne-kilometre transported, not just for the international but also the domestic segments of international goods transport; (iii) review the policies that countries have enacted or are contemplating to minimize CO2 emissions from goods transport, especially transport in the service of international trade; and (iv) identify the likely winners and losers (sectors and countries) if more transport externalities were to be internalised.

4. These issues might merit several studies. To keep the task manageable, however, this study focuses on a limited number of issues where the OECD may have a comparative advantage, taking into account that some of these issues are being dealt with elsewhere.

Study outline and method

5. Section II sets the scene, showing the evolution of international trade in goods, the modes by which those goods are transported, and the associated energy use and CO2 emissions. It also puts trade-related transport emissions into perspective, comparing them with emissions associated with the production and use of the goods themselves. Information has been gathered from various national and international statistical sources, including industry sources and the OECD’s International Transport Forum. In the case of maritime shipping, detailed inventories of fuel consumption, both by type of vessel and geographic


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region have recently been published by or for the IMO (e.g., Endresen et al., 2007; National Technical University of Athens, 2008; Buhaug et al., 2009).

6. Section III analyzes the implications for transport of a multilateral liberalization of trade. This section draws on the results of a recent CGE model simulation, as well as illustrative examples from the literature. The effects of other types of trade liberalization (regional tariff reform, and reductions in tariff escalation) are also be discussed. This section also comments on the relative importance of transport vis-à-vis other trade-induced changes, such as in the volume of GHG-generating manufacturing and agriculture, resulting from changes in the scale, composition and techniques of global output (see, e.g., OECD, 1999). The aim of this section is to provide a better understanding of the elasticity of transport demand to changes in trade.

7. Section IV provides a succinct review of technical possibilities for rationalizing transport demand, and for reducing energy use and hence CO2 emissions, based in part on analyses provided for the International Transport Forum (ITC) and the International Energy Agency (IEA). (Details are provided in an Appendix.) Section V considers the policy options open to governments to address CO2 emissions resulting from increases in transport in the service of international trade, illustrated with examples of policies already being applied. The aim of these two sections is to provide policymakers with an overview of the degree to which trade-induced increases in transport-related emissions can be partially or wholly mitigated through both new policies, improved logistics, and technological change.

8. Section VI discusses the implications for trade and the environment of possible measures that countries may take — both unilaterally and multilaterally — to internalize the externalized costs of CO2 emissions associated with transport. One important aim of this section is to discuss the sensitivity of trade flows to increases in transport costs in the context of the interactions studied in Sections III-V. To inform this discussion, the Secretariat is working with other researchers that are trying to measure the impacts on industry “competitiveness” of climate-mitigation policies, to help isolate the impacts of measures specific to transport. This may necessitate the commissioning of separate model runs.

9. Section VII, Policy Conclusions, suggests messages that policy-makers may wish to convey when discussing the complex relationships along the links connecting international trade, transport and climate change. If trade policymakers cannot obviously change the need for transport, they can at least work with their environmental and transport counterparts to ensure that whatever climate-change mitigation measures are applied to transport are as cost-effective as possible. Lessons learned in OECD countries may also help to reduce GHG emissions associated with the transport of traded goods produced in developing-countries. Suggestions for further research are also be provided.

II. Current and expected future emissions from international freight transport

10. Prior to the late-1800s, all waterborne trade in goods had a small carbon footprint: ships were made of wood and powered by wind or oarsmen. With the advent of iron- and then steel-hulled ships, and steam-fired and then compression-ignition propulsion, however, the carbon footprint of waterborne transport, and therefore of international trade, soared. In the mid-1900s, airplanes became a second means for long-distance transport of goods, particularly high-value and quickly perishable goods. A few passenger-carrying airlines began flying freight in the late 1920s, but the first commercial airlines that were all-cargo did not emerge until after 1945. Since freight-carrying airplanes have, since their inception, been powered by petroleum-derived fuels, air transport of goods also involves emissions of CO2 and other greenhouse gases.

11. Currently, total emissions from all transport is estimated to be around 6 800 million tonnes of CO2-equivalent (JTRC, 2008). Of that, light-duty vehicles (mainly private automobiles), buses, and 2- and


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3-wheel vehicles account for half of emissions. The four main freight-transport modes — heavy-duty road vehicles (trucks), airplanes, ships and barges, and trains — account for the other half. The shares of the emissions from this group attributable to freight transport are highest for trucks, ships and barges, and less for trains and airplanes. The proportion of freight volume carried by these modes that is involved in international trade also varies.

12. The following section explores the contribution of each mode to CO2 emissions in greater detail, focussing on the contribution that can be attributed to international merchandise trade. The future projections referred to should be regarded, at this stage in the analysis, as only indicative, as they have been made by different groups, using different assumptions, especially as regards developments in the main drivers of international transport demand — GDP growth, trade, developments in transport technologies and infrastructure, fuel prices, and government trade and climate-change policies.

Emissions related to the maritime transport of merchandise

13. Ships transport approximately 90% of goods entering international trade, as measured by tonne-miles or tonne-kilometres. According to Fearnley's Review1, over the last four decades total seaborne trade quadrupled from just over 8 000 billion tonne-miles in 1968 to over 32 000 billion tonne-miles in 2008. Roughly one-half of the volume transported in 2007 was fossil fuels — crude oil, oil products, natural gas or coal. Other bulk cargoes (iron ore, coal and grain) accounted for slightly more than one-third of the volume, and other cargoes (mainly containerized merchandise) slightly less than one-third (Figure 1).

Figure 1. World seaborne trade by commodity in 2006, in tonne-miles

Source: Fearnleys, as reported by Buhaug et al., 2009, p. 18.

14. Annual consumption of fuel by ocean-going vessels, having remained within the range of 100-140 million tonnes between 1970 and 1990, has since risen steadily (Figure 2). How much is actually being consumed today is currently a matter of debate (for an in-depth discussion see, Endresen et al., 2008). One estimate places fuel consumption by ships in 2007 at around 300 million tonnes, corresponding to CO2 emissions of around 840 million tonnes (National technical University of Athens, 2008). More recently, using a bottom-up activity-based model of the world shipping fleet, the International Maritime Organization’s Marine Environment Protection Committee (MEPC), has developed a consensus estimate of around 1020 million tonnes of CO2 emissions from shipping in 2007 (Table 1). This suggests that CO2 emissions from international shipping account for approximately 2.7% of world CO2 emissions from fossil 1 As cited in Buhaug et al. 2009, www.marisec.org/shippingfacts/worldtrade/volume-world-trade-sea.php


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fuel combustion, and that all shipping activity (including domestic and international fishing) represents approximately 3.3% of global CO2 emissions from fuel combustion (Van Dender and Crist, 2009).

Figure 2. Estimates of recent trends in fuel consumption by ocean-going civilian ships.

0

50

100

150

200

250

300

1970 1975 1980 1985 1990 1995 2000 2005 2010

Fuel

con

sum

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Endresen et al. (2007), activity based (ocean-going civil ships)

Eyring et al. (2005), activity based (ocean-going ships, also some navy ships)

Corbett and Koehler (2003), activity based (ocean-going ships, also navy)

Activity based (ocean-going civil ships, preliminary figures)

Endresen et al. (2007), fuel based (totale marine oil equivalents)

Source: Endresen et al., 2007, cited in Endresen et al. (2008).

Table 1. IMO consensus estimate of CO2 emissions from shipping in 2007

(Million tonnes)

Low estimate Consensus High estimate Total Shipping Emissions 854 1019 1224

Less fishing (activity-based) (58) (65) (74) Total International and Domestic (activity-based) 796 954 1150

Less IEA domestic shipping (marine bunker- fuel-based)

(111) (111) (111)

International Shipping (hybrid estimate) 685 843 1039 Source: Van Dender and Crist (2009), based on Buhaug et al. (2009).

15. Not all shipping is related to goods trade, of course. Cargo-carrying ships (including passenger ships) currently account for roughly half of the world’s 96 000 vessels of 100 gross tonnes capacity or larger; the other half is used for non-trading activities, such as servicing off-shore oil rigs and fishing, and by military vessels. Assuming that 70% of all fuel consumption, and therefore CO2 emissions from shipping can be attributable to the cargo fleet (Corbett and Winebrake, 2009), and that 90% of shipping activity is international (Table 1), we estimate that CO2 emissions from international maritime merchandise trade was on the order of 650 million tonnes in 2007.2

2 1019 million tonnes x 0.7 x 0.9 ≈ 650 million tonnes.


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16. The IMO study (Buhaug et al., 2009) also provides central estimates for future activity. Compared with 2007, it expects that overall tonne-miles will grow 30% to 46% by 2020 and by 150% to 250% by 2050. Container activity is projected to expand by more than double those rates. The growth in container traffic, if realized, has important implications for fuel use and CO2 emissions because container vessels have more powerful engines and operate at higher speeds than most other civilian vessels (Van Dender and Crist, 2009). In a separate, model-based analysis, Endresen et al. (2008) estimate future fuel consumption by the world’s maritime fleet, and project that fossil-fuel consumption in 2050 could fall anywhere within the range of 453–810 million tonnes, corresponding to CO2 emissions of between 1 300 million and 2 300 million tonnes. The lower estimate assumes some degree of improved technical and operational conditions, alternative fuels and propulsion systems. Again, if one assumes that two-thirds of those emissions would be related to international maritime trade in goods, the appurtenant CO2 emissions would be 850–1500 million tonnes — i.e., roughly double today’s.

Emissions related to international air transport of merchandise

17. Total emissions of CO2 from civilian aircraft (passenger as well as freight) have been estimated by several sources (e.g., Kim et al., 2005; Horton, 2006) to have been in the neighbourhood of 500-600 million tonnes in 2002. However, 2002 was an aberrant year, given the depressing effects that the 11 September 2001 attacks, the outbreak of the SARS (severe acute respiratory syndrome) epidemic, and the economic downturn, had on airline passenger traffic in that year. A more recent review by Lee et al. (2010) estimates that by 2005 civilian aircraft were emitting around 641 million tonnes of CO2.

18. Of that total, the demand for air-freight transport attributable to international trade was smaller, and can only be estimated roughly. Worldwide air-freight traffic peaked in 2007 at around 191 billion revenue tonne-kilometres (RTKs), of which 7 billion was mail (Boeing Commercial Airplanes, 2010, p. 88); it then declined in 2008 and 2009, and is expected to be back to 2007 levels by the end of 2010. Of the RTKs in 2007, just under two-thirds was carried on three major inter-continental routes, dominated by the Asia-North America3 (22%), Asia-Europe (19%) and Europe-North America (10%) routes. Another 8% took place on intra-Asia routes. Flights within North America, Europe and China accounted for the bulk of the remaining traffic (15%). Since Boeing does not report the shares on all routes, it is not possible to give an exact number of the RTKs pertaining to international air transport. But a rough estimate, assuming that the relative shares between international and intra-national of the “remaining traffic” category are the same as for the specific shares reported4, would put total international air cargo traffic (excluding airmail) in 2007 at around 150 billion RTKs. At an emission rate of 750 grams per tonne-kilometre (approximately the mid-point in Table 2), that would imply an order-of-magnitude level of emissions in 2007 of 115 million tonnes.

19. Boeing Commercial Airplanes (2010) expects that air-freight traffic will grow by an average annual rate of 5.9% between 2009 and 2029 — almost twice the rate of global economic growth — reaching 525 billion RTKs (of which 10 billion RTKs for mail) by the end of the period. Its projections foresee the shares carried on the two dominant routes (Asia-North America and Asia-Europe) increasing by two percentage points each, and that of the third, the Europe-North America route, declining by two percentage points. Applying the same assumption regarding the share between international and intra-national traffic as for 2007 yields an estimate that international air-freight traffic in 2029 will reach around 500 billion RTKs, implying a tripling in air-cargo traffic over 20 years. The CO2 emissions associated with

3 All figures refer to two-way traffic — i.e., traffic between Asia and Europe includes both Asia-to-Europe

and Europe-to-Asia flows. 4 The resulting estimated share for international activity, 82%, is close to the 85% inter-continental share

given by Button (2008); for 2027 we estimate the international share to be 86%.


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that traffic, assuming an improvement to 500 grams per tonne-kilometre, would be around 250 million tonnes.

20. Available tonne-kilometres (ATKs) are forecast by Boeing (2008) to grow from around 425 billion in 2007 to around 1200 in 2027 (Figure 3), implying a capacity utilization rate of around 50%. Boeing expects a gradual but continuous increase in the share of the available capacity that is provided by dedicated freighters (predominantly large and medium-body aircraft), growing from 48% to 54%. Given that 46% of the available capacity will nonetheless be provided by passenger airplanes, economic developments and policies that affect passenger transport will also affect that segment of the air-freight market (Brooks, 2005).

Figure 3. Evolution of the global air-freight fleet by type of aircraft: available tonne-kilometres (ATKs) in 2007 and projected for 2027

1. Including the small number of “combi aircraft”: aircraft that carry predominantly freight, but also a small number of passengers. Data source: Boeing Commercial Airplanes (2010), p. 112.

Emissions related to international surface transport of goods

21. Of the approximately 1 500 million tonnes of CO2-equivalent emissions generated by freight trucks in 2007, and the lesser amount (probably less than 200 million tonnes5) of emissions generated by rail freight in the same year, only a small proportion was generated by the cross-border transport of goods by those modes. However, both road and rail transport play important roles as feeder modes for international maritime and air transport (Woodburn et al., 2008), and if the emissions from that traffic were attributed to international trade, the share of total emissions from surface modes would be higher.

22. To date, no estimate has yet been made of global emissions associated with the international transport of goods moving by surface modes (truck, rail and pipeline). However, McAusland (2008), citing a few studies of regional trade patterns, suggests that, between countries sharing a land border, surface modes seem to account on average for 90% of cross-border trade as measured by value. Berthelon and Freund (2004) estimate that just under 25% of global trade (measured by value) is between countries bordering one another. If one assumes that one-quarter of this share applies to global trade measured by tonne-kilometres, then perhaps around 5% of global trade is carried by surface modes.

23. The share of surface transport induced by international trade varies considerably from one country to another. Generally, the larger the country, the smaller the share. In the United States, for

5 Provisional OECD Trade and Agriculture Directorate estimate).


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example, 100 billion litres (35 billion gallons) of diesel fuel are consumed each year to deliver goods by truck and rail within the country. This consumption (20% percent of all energy consumed in the country) generates about 350 million tonnes of carbon dioxide (CO2) emissions a year, according to the U.S. Environmental Protection Agency's SmartWay Transport Partnership (Gale, 2008). However, according to the U.S. Federal Highway Administration’s Office of Freight Management and Operations (2007), road freight that crossed an international border (mainly into Canada or Mexico) accounted for just 2% of total road freight lifted to, from and within the United States in 2002. That number does not include road freight lifted within the country for export by sea or air, or the onward road transport of freight arriving in the United States by these modes, however.

24. As neighbouring countries continue to reduce trade barriers, through regional trade agreements (RTAs) or economic integration, road and rail transport can be expected to increase strongly. Woodburn et al. (2008), for example, note that, thanks in part to the kind of regional co-operation that often accompanies closer economic ties, “ever-longer international road and rail transport options are becoming viable”. They conclude that “land-based modes are likely to increase their modal share of international goods movements as they offer services that are cheaper (but slower) than airfreight, and faster (but more expensive) than sea.”

III. The link between international trade and the transport of goods

25. A popular perception of trade liberalization is that it engenders an increase in the volume of exports and imports, which automatically leads to a proportional increase in tonne-kilometres transported, fuel use and CO2 emissions. But empirical evidence and theoretical models have shown that predicting changes in transport demand following liberalization is far from straight-forward. Even looking at individual classes of goods in isolation, it is not always the case that reducing tariffs and non-tariff barriers would lead to substantial increases in international transport, except in the extreme case in which no prior trade had taken place. Rather, what has happened, and what can be expected to happen, is that the pattern of trade will seek a new equilibrium: some trade flows will lengthen, while others will shorten (see, e.g., OECD, 1997). Such an outcome can be expected if, for example, the reductions in tariffs were disproportionally greater in respect of trade from countries that are relatively proximate than for those that are relatively more distant. Overall, it is likely that, on average, reducing tariff barriers would lead to an overall increase in transport demand. But by how much, and what effect that would have on emissions, is a question that can only be answered empirically.

26. Other changes in transport demand induced by trade liberalisation are more subtle. For example, tariff escalation — the practice of charging higher tariffs on manufactured or processed goods than on semi-processed goods or raw commodities — was once thought to lead to more international transport of raw materials, and less of finished products, than would otherwise be the case. Hence reducing tariff escalation — i.e., flattening tariff peaks — would eventually lead to new international patterns of production. However, other writers (e.g., Hecht, 1997) have argued that tariff escalation is not likely to be a significant source either of economic distortion or of environmental harm. In sum, whether CO2 emissions would change significantly, and if so by how much, following a lowering of tariff peaks is an empirical question that cannot be determined a priori.

27. Answering these kinds of empirical questions requires the use of economic models. In 2005 and 2006, a number of trade-liberalization experiments (usually including full liberalization, and perhaps one or more alternatives) were undertaken by researchers using computable general-equilibrium (CGE) models of the world economy (see Hess and von Cramon-Taubadel, 2008, for an exhaustive listing). When simulating full trade liberalization (generally over 10 or 15 years), virtually all models showed large increases in agricultural trade at the global level, especially of products from developing countries. Bouët (2006a), in his full-liberalization scenario, for example, obtains a 5.25% increase in global exports of


13

manufactured goods, but an almost 34% increase in world exports of agricultural goods in 2015 compared with the base-case scenario. The countries that would stand to gain from reductions in agricultural tariffs and domestic support, and the elimination of export subsidies, would logically be those with land-intensive agriculture, notably Argentina and Brazil (Postel, 2006). This implies that full, multilateral liberalization would see an increase in shipments in grains and sugar, among other bulk agricultural commodities, though such gains in export from such countries would be partially offset not just by reduced domestic production elsewhere, but also by reductions in exports from some countries.

28. The 2005 and 2006 modelling efforts were based on databases that are now outdated. For this study, the OECD commissioned an outside expert, David Hummels, to conduct a trade-liberalization experiments (full liberalization) using the GTAP-E model. Because CGE models like GTAP-E do not generate information on physical trade flows, additional analysis had to then be undertaken by the modellers to generate estimates of physical trade flows, by commodity group, for each of the bilateral trade flows generated by the model. This information was then analyzed by Dr. Hummels, who assigned modes (chosen from among truck, rail, air freight, and up to 40 ship-vessel types) to the trade flows, and estimated the CO2 emissions associated with those flows. The result is a comparison of CO2 emissions from international transport, with and without liberalization.

29. Hummels’ study (2011, forthcoming) estimated that full trade liberalization would lead to modest 5.8% growth in trade by value. This growth would be concentrated in those products (agriculture, textiles and wearing apparel) that are currently subject to the highest rates of protection. More importantly, liberalization would eliminate tariff preferences enjoyed primarily by nearby trading partners (as in NAFTA and the EU). This would result in a shift in trade away from proximate partners and towards distant partners, especially those who cannot be reached by land transport (Figure 4a). Under this scenario, trade measured in tonne-kilometre (tonne-km) terms expands at twice the rate of growth in trade by value — again, led by agriculture, textiles and wearing apparel (Figure 4b). In terms of modal use, this leads to significant contraction in the world-wide use of road and rail transport and an expansion in air and ocean transport.

30. Combining this information with emissions data by mode, Hummels calculates that CO2 emissions associated with international transportation would rise by as much as 10% compared with the baseline scenario (i.e., no further liberalization), with emissions associated with air cargo responsible for more than half the transportation-related total (Figure 5). By contrast, production-related emissions would see no growth overall as a result of trade liberalization.


14

Figure 4. Estimated changes in international freight transport (tonne-km) with full liberalization

(a) Total, by transport mode

(b) Leading sectors, by transport mode

Source: Hummels (2011, forthcoming).


15

Figure 5. Estimated changes in international freight transport (tonne-km) with full liberalization

Note: The range in estimates between the low and high scenarios reflect the range of uncertainty in air-cargo emission factors.

Source: Hummels (2011, forthcoming).

31. Hummels points out that the several important caveats need to be borne in mind:

First, the exercise only considers the effects of trade liberalization, and is not a projection of trade growth that would result from a combination of liberalization and growth in output worldwide. As such, it almost certainly understates likely increases in CO2 emissions associated with international transport. Second, the scenario relies on data for product weight/value and transport mode that is extensive, but not universal. Some imputation and estimation was necessary in the construction of the primary datasets. Domestic transportation use and its complex interactions with international transportation is largely neglected. Three, beyond capturing broad modal use by country pair and product, the treatment of international transport was somewhat simplistic. In particular, in an effort to get world-wide scope and coverage it was necessary to abstract from considerable heterogeneity in emissions across ship and plane types.

32. Finally, fully modelling the endogenous choice of transportation mode in international trade was beyond the scope of the current study, but could be extremely useful for understanding interactions between trade, transportation and emissions. In particular, it would be interesting to understand how trade liberalization affects relative prices of transport modes through shocks to transport inputs or through the realization of economies or diseconomies of scale. Similarly, the much higher fuel intensity of air cargo, and its associated CO2 emissions, suggests that any climate mitigation policy such as a carbon tax could have pronounced effects on how goods move and the kinds of goods that nations trade.

33. In an update of the earlier study, Avetisyan et al. (2010) collected extensive data on worldwide trade by transportation mode and used this to provide detailed comparisons of the GHG emissions associated with the production of and international transportation of traded goods. They found that international transport represents only 3.5% percent of worldwide anthropogenic GHG emissions, but some 37% of trade‐related emissions. North America is especially reliant on air cargo, and as a result 67% of its export‐related emissions are due to international transport. Among goods sectors, over 80% of total emissions associated with the export of machinery comes from international transport. The authors then simulated trade growth associated with growing world GDP and tariff liberalization in order to calculate emissions growth. Their results suggest that full liberalization of tariffs would lead to transport emissions


16

growing at a rate twice as fast as growth in trade as a result of trade shifting toward distant trading partners. However, emissions growth from increases in GDP would dwarf any growth in emissions due to tariff liberalization.

34. Of course, not only international transport is affected by trade liberalization. Because not all traded goods are produced or consumed near ports, transport to and from each country’s hinterland is also affected. Besides increasing the tonnes and distance of goods that are transported, trade liberalization may change the volume and pattern of internal trade as well. Some internal flows will increase and others diminish. The mode of transport also may change. For example, reductions in tariffs on dairy products might lead to a reduced demand for refrigerated milk-tanker trucks and a reconfiguration of internal transport of products in refrigerated lorries. Changes of this kind are not currently measureable with global-scale CGE models. Yet, clearly, changes induced in internal transport matter. The lowering of trade barriers among regional partners on several continents has already led to considerable growth in freight transport by road in Europe and North America, and is starting to in Africa, Asia and Latin America.

IV. The technical and economic potential for reducing GHG emissions from freight transport

35. The actual effects on transport costs and trade of government policies aimed at reducing fuel use, vehicle-kilometres or, ultimately, CO2 emissions themselves, will depend in part on progress in the technologies (including management systems) that will enable the transport sector to continue to move more goods with a given quantity of fuel.

36. Opportunities for reducing CO2 emissions associated with transport, including the transport of merchandise moving in international trade, differ by mode and over time. Also, CO2 emissions are not the only GHG emissions from transport (Box 1). Generally, for any mode, reductions in the short term, and possibilities for mode rebalancing, are limited by the existing capacity, infrastructure and technologies. Over the medium term, the replacement of the existing transport fleet with the latest technology can be expected to improve the efficiency of freight transport, as will any increase in the supply of lower-carbon fuels. However, the speed at which newer, more-efficient propulsion technologies and vehicle, vessel or airframe designs are taken up will depend on the rate of replacement in the industry. Over the longer term, more radical new technologies, system optimisation and designs can be expected to emerge.

Box 1. Emissions from aviation and their impacts on climate

Aviation’s contribution to climate change is more complex than that of other transport sectors. Besides CO2, airplane engines emit also nitrous oxides (NOX), which contribute to the formation of ozone and methane (CH4) in the atmosphere. In addition, they emit black-carbon soot and sulphates, which affect radiative forcing (RF) through absorbing or reflecting sunlight. Water emissions from combustion create condensation trails (contrails) and enhance the formation of cirrus clouds, which also have an impact on RF.

Some steps, such as reducing the share of freight shipped by aircraft, may reduce aviation’s GHG emissions across the board. But other measures, such as improving aircraft engine efficiencies, may result in trade-offs between different pollutants — e.g., reducing CO2 emissions but increasing NOX emissions.

Understanding of the magnitude of the climate impacts of each of these shorter-term contributors to RF from aviation is still incomplete. Complicating matters further, the altitude at which these emissions occur can also affect RF significantly. Nonetheless, as a rough guide Gupta (2011) has estimated that non-CO2 gases emitted by aviation could equal or even exceeds that of aviation CO2 emissions alone.

Sources: IEA (2009); Lee et al. (2010).


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37. This section summarizes the various options discussed in Appendix 1 (which is organized by mode), and looks at the potential for reducing fossil-fuel use in goods transport in the short-, medium- and long term. For the purpose of this paper, the following definitions apply:

• Short term. This is the period of time over which economic agents can change their behaviour only with the existing transport fleet and associated capital, subject to the capacity limits of existing infrastructure.

• Medium-term. This is the period of time over which most factors are variable, but changes in technology (including fuels) are determined largely by what is currently, or soon to become, commercially available. For practical purposes, it is the period from 2011 through 2020.

• Long term: the period of time over which all factors are variable, and technologies and fuels that are still under development may possibly enter widespread use. For practical purposes, it is the period from 2020 through 2050.

Short-term opportunities

38. Short-term opportunities to reduce the energy-intensity of goods transport are to be found mainly in changes to the operation of existing vehicles, vessels and aircraft. For all modes except aircraft, which is more limited in this respect, operating at slower speed and accelerating less aggressively can save up to 10% compared with “normal” speeds. However, there is a trade-off in savings to the extent that slower ships and trucks mean more have to be deployed at any given time in order to deliver the same amount of goods over a given period. In the case of road transport, additional fuel economies can be obtained through optimizing logistics and, in the case of lorry drivers, teaching them ways to drive that use fuel more efficiently. Short-term options typically involve better optimization of route planning, and relatively simple modifications to vehicles and vessels.

39. By contrast, given the large share of fuel costs in their total operating costs, the seaborne shipping and air-freight industries have an incentive to run their vessels and their aircraft as efficiently as they can. Nonetheless, both modes can achieve short-term efficiency gains through operational changes, particularly through increasing average load factors. Ships, especially container ships (which tend to be run at higher speeds than bulk carriers), for example, can save fuel and reduce emissions by slowing down their vessels.6 Undertaking more frequent anti-fouling maintenance, optimising routing, and. Many ships may be able to gain increased efficiency through retrofitted propeller enhancements, and improving the energy performance of existing pumps, motors, lighting systems and other essential energy-consuming items. Moreover, there are a number of technologies — notably, waste-heat recovery in ships — that can reduce fuel consumption by as much as 15–20%, even on existing ships. Installing wind kites (to assist in propulsion) may also become a short-term retrofit option for some ships once the technology becomes more widely available.

Medium-term opportunities

40. For any given mode of transport there remain ways in which fuel savings, and hence emission reductions, can be reaped through combinations of better design, new materials, and increased use of computer-assisted operation. Over the last three decades, especially since the oil-price rises of the 1970s,

6 Whether speeds are actually reduced depends on the interaction of the bunker fuel market with the market

for shipping services. Both markets are highly volatile. During the first six months of 2008, very high oil prices had no impact on slow steaming because demand for container ships was high relative to the available capacity. Then the market flipped as over-capacity emerged.


18

both the shipping and the aviation industries have made steady improvements in fuel efficiency. Increased availability of lower-carbon fuels and the diffusion of weight and aerodynamic improvements, can be expected to help constrain CO2 emissions from heavy-duty trucks in the medium term. The medium-term options for achieving significant energy reductions per unit of transport in the maritime and air-freight sectors through diffusion of the technological improvements that can only be realized on new ships and aircraft will be constrained by the rate of fleet turnover, which is slower than for trucks (Van Dender and Crist, 2008). Nonetheless, even the gradual replacement of existing ships and with designs already available can be expected to cut average energy intensities.

Longer-term opportunities

41. Further increases in fuel efficiency in maritime shipping are likely to come about through continued improvements not only in hull design and engine efficiency but also in overall ship-scale systems integration. Emissions may also be reduced through the use of alternative propulsion systems (e.g., fuel cells). According to the IEA (2009; 2010), altogether these various measures, combined with the short- and medium-term actions described above, appear to be capable of cutting average energy intensities in maritime shipping by up to 50% by 2050, compared with current levels. The IMO (Buhaug et al., 2009) reckons that improvements in energy efficiency could be even larger —up to 75% by 2050. Eide et al. (2008) even speculate that on-board carbon capture and storage may become available for large ships in the decade of the 2020s.

42. Obtaining substantial improvements in the performance of air freight will be more difficult, but the potential reductions are as great as for marine shipping. The industry itself considers it highly likely that the U.S. air transport sector will reach carbon-neutral growth by 2020-2025 (sector’s Medium Term view) based on new aircraft technology, ATM improvements, and sustainable alternative fuels. By 2050, most of the airplanes currently flying will no longer be in use, and all the airplanes then in use will have incorporated all the weight-reduction and other innovations currently being installed by the industry. New means of propulsion may also have been invented. Beyond that, the industry hopes to be able to attain substantial reductions in CO2 emissions per tonne-kilometre carried through the widespread use of low-carbon fuels. In its baseline scenario, the IEA (2010) forecasts an average efficiency improvement of 30% by 2050; in its most optimistic (“Blue-MAP”) scenario, it sees the possibility of the stock of airplanes in service by then being, on average, 43% more efficient, and improvements in routing contributing another 5% to fuel reductions.

Reducing fossil-fuel use from the transport of goods through modal switching

43. Most internal transport, and some international transport, of goods is carried out by vehicles travelling by road, by freight trains, or by steel pipelines. For many categories of goods, transport by rail or inland waterway requires less energy per tonne-kilometre than by road. Thus one way in which fossil-fuel consumption in transport can be reduced, in theory, is to shift more of the freight-transport burden from modes that generate a relatively high rate of CO2 emissions per tonne-kilometre carried to modes that generate relatively lower rates of emissions (also called “modal switching”).7

44. Generally, the faster the mode of transport, the greater the CO2 emissions per tonne-kilometre (Table 2 and Figure 6). The main exception is between road and rail: transport by road is not always faster than transport by rail (once the goods are underway), but because it is less dependent on a fixed, and

7 Some of these transport modes are not dependent necessarily on the combustion of fossil fuels, as their

motors run on electricity, which can be generated from energy sources other than fossil fuels. However, if at the margin incremental electricity supply is generated by fossil fuels, any reduction is CO2 emissions through mode switching is likely to be minimal.


19

comparatively limited, infrastructure, it has the advantage of being more flexible. However, great care should be taken when comparing modal energy intensity data across modes, because of the inherent differences between the transportation modes in the nature of services, routes available, and many additional factors.

Table 2. CO2 emissions associated with different types of marine vessels

Mode of transport CO2 emissions(grammes per tonne-

kilometre)1 Small general cargo vessels 30–40 Handysize (15-25 feet) 9–14 Oil products 5.5–15 Large container ships 11–14 Large LNG carriers 13 Crude oil tankers 3.6–6.5 Large dry-bulk carriers 2.7–6.3

1. Point estimates for energy use in non-container ships are central estimates; actual energy use and emissions may differ from those shown. Source: National Technical University of Athens, 2008.

Figure 6. Greenhouse-gas efficiency of different freight modes, 2007

Source: IEA, 2010.

45. For a company shipping goods, its choice of transport mode (or combination of modes) is determined by the cost and the value of service. Goods differ in terms of their perishability and other time-sensitive factors — both of which are influenced by the speed of the transport mode and the distance covered — and also in terms of their value per volume or weight (which affects the opportunity cost of tying up the goods in transit). Changing the relative prices of transporting goods by different modes, and the costs of transferring goods from one mode to another, will affect the relative demand for transport


20

services across modes. To the extent that the shift favours those transport modes that are more fuel-efficient, fewer CO2 emissions will be generated compared with a business-as-usual scenario.

46. The IEA (2008) estimates that if 25% of all trucking over 500 km were shifted to rail, for example, perhaps 400 million tonnes of projected CO2 emissions (in 2050) could be avoided.8 This would require a “dramatic increase” in investment in rail infrastructure investment around the world (a tripling of rail capacity), the IEA adds. Currently, the potential for mode shifting, particularly from road to rail, is limited by existing infrastructure, and by regulations.9 In some countries, rail networks are purely domestic, and cross-border links have either never been constructed or have been closed. Rail links that once existed between Colombia and Venezuela, and between Guatemala and El Salvador, for example, are no longer maintained. Even where a physical cross-border connection does exist, one of the biggest infrastructure constraints for international shipment of goods by rail is difference in track gauge (i.e. the distance between the two rails). Notable examples are rail connections in south-western Europe (France, Portugal and Spain), between China and Russia, and between southern Brazil and Argentina and Uruguay. Where a change in gauge exists, goods usually either have to be transferred between rail wagons, or the wagons have to have their axles changed, either of which adds to time and cost.

V. Policy instruments to reduce CO2 emissions from the international transport of goods

47. In this section, we examine the various policy options open to countries, both at the national and the international levels to reduce CO2 emissions from transport. The development and diffusion of technologies that enable providers of freight-transport services to reduce their fossil-fuel use is influenced by a wide range of policies. Some, through increasing the cost of fuels, create a demand “pull” for energy-conserving technologies. Others aim to increase the supply of technologies that reduce the energy-intensity of transport. More recently, several OECD countries have adopted policies specifically targeted at reducing CO2 emissions from transport within their own countries, and are even considering applying such policies to international transport, to, from and through their countries. But, in order to understand the opportunities and constraints facing countries as they work through these options, is useful to understand how existing policies are operating on the freight-transport sector.

Existing transport-related policies that affect CO2 emissions from freight transport

48. Traditionally, government policies relating to goods transport have sought to make the sector more efficient, generally in a way that squeezes out more tonne-kilometres carried per litre of fuel consumed, or that reduces congestion. Many of these policies have had an indirect effect of encouraging the purchase of more energy-efficient, and therefore less-polluting, vehicles, and to encourage optimization of transport and logistics. Other policies have, basically, aimed at making transport cheaper.

Transport subsidies

49. All countries finance transport infrastructure. In some countries, the net cost to government is recuperated through either user fees, hypothecated fuel taxes, or both. In many others, a significant proportion of the costs of transport infrastructure are underwritten by central and sub-national governments. Transport services are also subsidized in some places, notably for rail freight, and often (as

8 The IEA report does not distinguish between international and purely domestic transit in this regard. Since

a large proportion of truck journeys in the world are within countries, it is likely that the majority of these gains would come from modal shifts involving domestic shipments and the domestic leg of international shipments.

9 The on-going process of deregulating rail-freight transport in Europe, for example, is expected to facilitate increases in the amount of freight carried by rail across that continent.


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exists in some countries of Europe) intended to reduce local pollution from lorries and road congestion (see, e.g. McEnaney, 2003).10.

Fuel-price controls and subsidies for petroleum-based fuels

50. Despite reforms over the last two decades, many countries still keep down the retail prices of petroleum transport fuels (and, in some cases, liquid biofuels used for transport), through a combination of price regulation and subsidies (McAusland, 2008). This practice is common in net oil-exporting countries as well as in lower-middle-income countries. Some price intervention, especially in countries plagued with volatile prices, takes the shape of price-stabilization. During periods of rapid increases in petroleum prices, the failure to pass through international price rises to domestic end-user prices can lead to enormous gaps between internal and external prices. Though such policies may interfere with the supply and demand signals in international markets, averaged over several years they may be blanced by periods over over-pricing. Among the countries that the IMF identified as subsidizing petroleum fuels at the end of 2007, gasoline was the most heavily subsidized fuel (as a percentage of market value), followed by petroleum diesel and kerosene (Table 3).

51. Of the three liquid petroleum fuels that are subsidized, diesel is the most important from the standpoint of international trade. Although most petroleum diesel consumed in the world is for the transport of goods from domestic producers to domestic consumers, some is used to power trucks hauling goods that originate in, or are destined for, other countries. To the extent that diesel fuel is on average subsidized, however, it artificially reduces the cost of one important leg in the supply chain of international trade. The consequence of that, ultimately, is greater fuel consumption and GHG emissions than would obtain if diesel everywhere were priced at least at the world (before-tax) price.

Table 3. Taxes and subsidies for petroleum diesel, kerosene, and gasoline: end-2007

Fuel: Petroleum diesel Kerosene Gasoline (petrol) Countries: with net

taxes with net

subsidies with net taxes

with net subsidies

with net taxes

with net subsidies

Number of countries 61 32 12 27 74 19 Average1 price (US$/litre) 1.32 0.55 0.84 0.56 1.06 0.32 Average1 net tax (US$/litre) 0.52 -0.23 0.09 -0.22 0.36 -0.34 Average1 net tax rate (%) 65 -30 12 -28 51 -52 Global2 consumption (%) 69 31 4 96 88 12 1. Weighted by quantities consumed. The aggregate net tax rate is the mean tax as a percentage of the mean before-tax price. 2. Based on the 93 countries examined for gasoline and petroleum diesel, and the 39 countries examined for kerosene.

Source: IMF (2008), based on OECD and IEA data, and data provided by country authorities.

Policies to encourage the use of alternative transport fuels

52. In recent years governments have also sought to replace petroleum fuels with other energy sources (e.g., hydrogen, synthetic fuels, biofuels) for propelling vehicles, initially to reduce petroleum use,

10 Even air transport is subsidized in some places. For example, in a study of 514 locations served by one or

more airline connection in 1995, Goetz and Sutton (1997) found that connections to 77 locations were being subsidized by the government. Subsidies for small or remote airports and passenger connections to those airports, still exist, even in some OECD countries (see, e.g., Frank, 2007; see also the articles archived at www.airlines.org/news/releases/2007/APnewslinks4-16-07.htm). However, while a small amount of goods may be transported in the cargo holds of these flights, the amount is unlikely to be of significant magnitude, and the cost charged for the shipping may not be lower than by alternative means.


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but also to reduce urban air pollution and CO2 emissions.11 Alternatives to middle-distillate fuels (kerosene or diesel) — such as biojet (synthetic paraffinated kerosene), biodiesel (methyl ester), straight vegetable oil, and so-called “renewable diesel” — have been more important for the transport of goods than the main alternative to gasoline, ethanol, given the dominance of kerosene in air transport and diesel fuel in over-land goods transport. Today, most OECD countries require that a minimum share (e.g., 2%) of “renewable fuels” be used in road-transport fuel. Several countries are also sponsoring research into the development of fuel cells for powering heavy trucks.

53. There are two generic problems with many current policies intended to encourage the greater use of renewable liquid-fuel substitutes for petroleum diesel. One is that, in many countries, the retail price of these fuels is kept artificially low through production subsidies, excise-tax reductions, or both. Since in such countries the transport sector is not confronted with the true cost of producing these fuels, these policies cannot truly be regarded as internalizing the cost of GHG mitigation. Second, the life-cycle GHG emissions of these fuels compared with the petroleum fuels that they displace depend critically on how and where they are produced, and whether they displace agricultural production elsewhere. Yet many policies still do not differentiate renewable fuels on that basis (though several countries are starting to do that).

Excise taxes

54. Excise taxes on fuel purchased for use in vehicles travelling on public roads, including vehicles transporting goods, have long exerted a dampening effect on fuel consumption (Figure 6), but mainly in OECD countries. Fuel taxes are primarily designed to raise revenues for general government expenditure. The relatively high level of fuel taxes for road transport (compared with taxation of other inputs in other sectors) is a result of the relatively inelastic demand for transport services, which means taxes can be levied on transport with less distortion on the allocation of resources than taxes levied on many services. In a few countries, such as the United States, fuel taxes are designed primarily for infrastructure cost recovery. Currently, fuel taxes for diesel fuel differ considerably from one country to another, ranging from less than € 0.15 per litre in Canada and the United States to around € 0.70 per litre in the United Kingdom (Figure 7).

55. The situation with respect to excise taxes on aviation fuels is mixed. In the United States, the per gallon General Aviation Fuel Tax is 19.4 cents per gallon (USD 0.05 per litre) on aviation gasoline, and 21.8 cents (USD 0.0576 per litre) on jet fuel; the Commercial Fuel Tax is 4.3 cents (USD 0.01136 per litre). These rates compare with Federal Motor Fuel Excise Tax rates of 18.4 cents per gallon on motor gasoline, and 24.4 cents per gallon on diesel fuel. The revenues from the taxes on aviation fuels are hypothecated to the Airport and Airways Trust Fund. A number of individual U.S. states also charge excise taxes on aviation gasoline and jet fuel, as do Australia, Brazil, Canada, China, Japan, and Norway, and Thailand.12 Other countries, like the Russian Federation, charge no taxes on either aviation gasoline or jet fuel.13 In all cases, aviation fuel is taxed only when it is used in domestic flights. Under the Chicago Convention of 1944, aviation fuel for international flights is, by mutual agreement, not taxed. This exemption is based on the international legal principle of “reciprocity” whereby States agree to mutual tax exemption in order to avoid unilateral imposition of fiscal measures.

11 Whether these fuels actually do reduce GHG emissions, on a life-cycle basis, especially when made from

feedstocks other than waste products, is a subject of considerable debate. Atmospheric chemists have also begun to question the overall impact on air-pollutant emissions. Biodiesel, for example, produces lower particulate matter emissions, but higher NOx emissions.

12 This list is not necessarily exhaustive. See http://www.thepep.org/CHwebSite/chviewer.aspx?cat=d10. 13 See http://en.wikipedia.org/wiki/Fuel_tax.


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56. The effect of excise taxes on fuel consumption and hence on emissions of certain air pollutants and CO2 was initially incidental. Over time, however, countries have come to regard these incidental effects as worthy objectives in themselves. A few countries have added charges to road-transport fuels specifically targeted at the sulphur content (in order to reduce emissions of SO2) and the carbon content (in order to reduce emissions of CO2) of fuels.

Figure 6. Changes in fuel-excise taxes and transport-fuel use intensity and in Turkey, 1994-2004

Source: OECD, based on IEA data.

57. While the impact of excise taxes on road freight traffic has been significant, they have not been enough even in countries with high taxes to constrain growth in traffic and emissions. Several countries have committed to bring down their CO2 emissions in 2010 to the same level as in 1990. Hemery and Rizet (2007) have shown that applying this objective to road freight traffic (without technology evolution) in France, for example, would imply a 45% decrease from 2007 to 2010. They find that, without any other policy measure, almost a trebling (an increase of 191%) of the diesel price would be necessary to obtain a reduction of 45% of vehicle kilometres in the freight segment, assuming a constant price elasticity of -0.24.


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Figure 7. Normal excise taxes on gasoline (petrol) and automotive diesel in selected OECD countries

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

€pe

r lit

re

P - 1.1.2011 D - 1.1.2011

P - 1.1.2000 D - 1.1.2000

Source: OECD/EEA database on instruments for environmental policy, accessible at www.oecd.org/env/policies/database.

Saftey and environmental regulations

58. Gehring (2008) and Corbett and Winebrake (2008) point out that safety and environmental regulations can create an extra layer of challenge in seeking to address GHG emissions. Examples of such safety measures in the maritime sector include those that limit cargo carrying capacity for a given weight of vessel (e.g. double-hulling) and measures that lengthen voyage time or distance (e.g. traffic routing). In the latter case, however, it could just as easily be the case that new, satellite-based navigational equipment allows for optimization of routes, thus shortening travel distances, and thus yielding a net decrease in energy consumption. Examples of environment-related measures include requiring ships to retain their slops, to reduce NOX and SOX emissions, and to manage their ballast water management. This is not to suggest that there should be any relaxation in safety or environmental regulations.

Fuel-economy regulations for road vehicles

59. Many countries apply fuel-efficiency regulations to small trucks and vans. These regulations have helped to stimulate innovation that has helped over time to economize on fuel consumption, and some of these innovations have spilled over to heavy-duty vehicles (HDVs). A major barrier to applying such regulations to HDVs is the vast number of possible configurations and load conditions.

60. To date, only Japan has applied fuel-economy regulations directly to heavy-duty vehicles. Japan introduced fuel-efficiency standards for HDVs in 2006 and based them on the Top Runner programme it already had for cars. Top Runner requires current best-in-class performance to become the average


25

performance level by a target date. Under the programme, manufacturers are required to improve the fuel economy of HDVs until the target year 2015. The fuel economy of HDVs strongly depends on gross vehicle weight, and so the target standard values are classified into 11 classes for trucks and 2 for tractors, differentiated by gross vehicle weight. As of May 2008, about 20% of the new truck vehicle types already exceeded the 2015 fuel-efficiency standards (Kojima and Ryan, 2010).

61. More recently, the U.S. Administration has directed the National Highway Traffic Safety Administration (NHTSA) of the U.S. Department of Transport, and the U.S. Environmental Protection Agency (EPA), to create a national policy for, respectively, improving fuel efficiency and reducing GHG emissions from medium and heavy-duty trucks. A Proposed Rule on “Greenhouse Gas Emissions Standards and Fuel Efficiency Standards for Medium and Heavy-Duty Engines and Vehicles” was published in the Federal Register at the end of 2010.14 EPA’s proposed GHG emission standards would begin with model year 2014. NHTSA’s proposed fuel-consumption standards would be voluntary in model years 2014 and 2015, becoming mandatory with model year 2016 for most regulatory categories.

Road Pricing

62. Charging vehicles for the marginal contribution that they make to congestion (in a sense, their demand on a share of the capacity of a road), and to the cost of maintaining highways, has long been advocated by transport economists. Toll roads have existed in a number of countries, but their pricing is crudely targeted and can lead to the diversion of traffic onto other roads. Switzerland was the first to introduce road pricing on a national scale. The federal tax is levied on the basis of total weight (if over 3.5 tonnes), emission level and the kilometres driven in Switzerland and the principality of Liechtenstein.15

63. In 2002, Germany passed the Motorway Toll Act, which introduced road pricing for trucks from the beginning of 2005. All goods-carrying road vehicles of over 12 tonnes in total permissible weight are subject to the charge, which averages around € 0.124 per vehicle-kilometre (Kossak, 2006). The calculation of road pricing is based on the number of kilometres subject to road pricing covered by the vehicle, and is further differentiated by the vehicle’s number of axles; and its pollutant class. As with any charge on the transport of goods by road, the charge indirectly affects fuel consumption and hence CO2 emissions. Austria has since introduced road-pricing schemes as well, and several other European countries are considering doing the same.

Encouragement of mode-switching

64. Austria and Switzerland are two mountainous countries that are encouraging intermodal transport to reduce the environmental impacts of truck traffic. In 1994, Switzerland passed a plebiscite banning foreign-origin trucks from carrying freight across Switzerland for delivery to another country. The law was due to come into force in 2004, but never did. Instead, an agreement was signed in 1998 to implement road pricing and quotas for heavy trucks, and to improve intermodal services using the rail system. Two-thirds of the revenues collected from the charge have been hypothecated to build two rail tunnels to cut rail freight costs for crossing the Alps. One result of those investments is that, today, in addition to offering car-load, container and piggyback services, the Swiss Federal Railway operates a “rolling highway” rail service that takes the whole truck and provides its driver with couchette sleeping accommodation on trans-Alpine trains (Caceres and Richards, 2001). Truckers pay only the marginal cost of this service.

14 http://www.federalregister.gov/articles/2010/12/29/2010-32726/greenhouse-gas-emissions-standards-and-

fuel-efficiency-standards-for-medium--and-heavy-duty-engines 15 www.ezv.admin.ch/zollinfo_firmen/steuern_abgaben/00379/index.html?lang=en


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Elimination of transport bottlenecks

65. Delays along the entire transportation supply chain due to congestion or a number of other factors can lead to inefficiencies that increase fuel consumption. Indeed, addressing these factors in order to speed up the entire supply chain may well present new opportunities for specific transport modes such as maritime shipping to take complementary measures. In 2002, for example, the Los Angeles/Long Beach area completed construction of a dedicated rail-freight transport corridor (“The Alameda Corridor”), designed to avoid all other traffic in a heavily congested and polluted metropolitan area that also includes the two largest ports in the United States. While not sufficient in its own right, the freight corridor helped to get maritime carriers to agree to “slow steam’ on their approach to the ports in order to reduce emissions.16

New policy directions

Accelerating the development and diffusion of low-carbon freight-transport technologies

66. The historical period of relatively low prices for petroleum products that lasted from 1986 through 2003, when crude-oil prices stayed below USD 40 per barrel (in U.S. dollars of 2007), is thought to have had a dampening effect on the search for better fuel economy and alternative energy sources in the transport sector. In the area of vehicle technology, much more of the emphasis of research, invention and innovation was put on reducing emissions of local air pollutants than on improving fuel efficiency and reducing CO2 emissions (Volleburgh, 2008). Since 2004, the pace of R&D carried out by private producers of transport technologies and alternative fuels has increased considerably, and is already starting to bear fruit. But there may be a role for national governments to help accelerate that pace through investments in related research. By pooling resources with other countries, governments can reduce duplication and share in the fruits of research, development and deployment of new transport technologies (Box 2).

Box 2. IEA Technology Agreements in the area of end-use technologies for transport

For more than 30 years, international technology collaboration has been a fundamental building block in facilitating progress of new or improved energy technologies. To encourage collaborative efforts to meet the various energy challenges, the International Energy Agency (IEA) created a legal contract — the Implementing Agreement (IA) — and a system of standard rules and regulations to govern it. Each IA allows interested member and non-member governments or other organisations to pool resources and to foster the research, development and deployment of particular technologies. In the area of end-use technologies for transport, the IEA currently administers four IAs:

Advanced Fuel Cells — Fuel cells have the potential to convert fuels to electricity at very high efficiencies compared with conventional technologies. In addition to reductions in emissions of greenhouse gases resulting from the increased efficiency, their use does not result in the production of the other noxious emissions that are usually associated with combustion.

Advanced Materials for Transportation — This IA is looking into the use of ceramics, among other materials, in engines. Ceramic engines can operate at higher temperatures than conventional engines, and thereby achieve better combustion efficiency.

Advanced Motor Fuels — Alternative motor fuels are important to increasing the diversity of supply. In addition, many alternative motor fuels, either from fossil fuels or from renewable resources, offer advantages over conventional petroleum fuels in terms of emissions of greenhouse gases and other pollutants.

Hybrid and Electric Vehicles — Hybrid and electric vehicles offer an opportunity to reduce the dependence of transport on oil and at the same time, can offer the potential to reduce adverse environmental impacts of energy supply and use. The use of hybrid-drive systems incorporating an electric motor together with another power source may be the best way to capitalise on the potential benefits of electric traction systems.

Source : based on www.iea.org/Textbase/techno/technologies/transport.asp

16 http://www.acta.org/projects/projects_completed_alameda.asp


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67. There are also a number of other actions that can be taken at the multilateral level. One is for countries to agree to liberalize trade in technologies that help to reduce fossil-fuel use and GHG emissions in the transport sector. Negotiations at the WTO to reduce or eliminate tariff and non-tariff barriers to trade in environmental goods have already listed several categories of goods that could help mitigate GHG emissions (e.g., solar photovoltaic cells) as possible candidates for accelerated tariff reductions. However, in general, the focus of those discussions has been more on technologies for reducing fossil-fuel use in electric power generation and by heavy industries than in transport. Another would be to engage multilateral development banks to help developing countries put in place more efficient, safer infrastructure, including modern air traffic management systems and clean-fuel-burning ground-support equipment at airports.

68. Although such actions by countries are not specifically targeted at the transport of goods engaged in international trade, to the extent that they improve the efficiency of technologies used in transport, or reduced their GHG emissions, the improvements are also likely to affect emissions associated with international goods trade.

Including transport in GHG emissions-trading schemes

69. Several OECD countries, including Australia, New Zealand and the European Union, have recently announced that they will incorporate aviation into their respective GHG emission-trading schemes (ETSs), and several others are contemplating taking such action. An ETS is a hybrid policy instrument which combines some of the certainty of a regulation with some of the flexibility of a market-based instrument (Box 3). Australia and New Zealand plan to cover domestic aviation only in their ETS initiatives. New Zealand’s ETS, which originally planned to phase in liquid fossils and transport by 2009 now aims to do that in 2011 (SITA, 2009). The European Commission’s ETS differs from these others in that it would bring both domestic and foreign-originating commercial aviation, including the transport of goods by air, into its Scheme.17 This is because it has decided to set emission limits imposed from 2012 on all domestic and international flights to and from EU airports, as well as airports in Iceland, Lichtenstein and Norway. For the period from 1 January 2012 to 31 December 2012, the total quantity of allowances to be allocated to aircraft operators shall be equivalent to 97% of the historical aviation emissions. Beginning on 1 January 2013, and for each subsequent period, the total quantity of allowances to be allocated to aircraft operators shall be equivalent to 95% of the historical aviation emissions multiplied by the number of years in the period.18

70. International reaction to the national ETSs has been cautious. The International Civil Aviation Organization members, meeting in Assembly in September 2007, agreed that market-based options are valuable tools for addressing aircraft emissions. However, a majority of the delegations felt that States should not apply emissions-trading systems to the airlines of other States except pursuant to mutual agreement.” The European Commission has observed that it is important that schemes cover international transport emissions in a similar way, so as to avoid double counting, simplify administration and allow trading between schemes.

17 Although there have been no concrete proposals to include waterborne shipping under the EU’s ETS, the

industry expects that such a proposal is only a matter of time. 18 Directive 2008/101/EC of the European Parliament and of the Council of 19 November 2008 amending

Directive 2003/87/EC so as to include aviation activities in the scheme for greenhouse gas emission allowance trading within the Community (Text with EEA relevance). Official Journal L 008 , 13/01/2009 P. 0003 – 0021.


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Box 3. Emissions Trading Sechemes and Aviation

An Emissions Trading Scheme (ETS) is an economics-driven measure used to control emissions by providing incentives for achieving reductions. It is sometimes called ‘cap and trade’. A central authority (usually a government or international body) sets a limit or cap on the amount of emissions. Companies or other groups are then issued emission permits (also known as allowances), which limit them to a certain level of total emissions.

Companies that need to increase their emissions (e.g. because of traffic growth) must therefore buy permits from those who emit less. The transfer of allowances is referred to as a trade. In effect, the buyer pays a charge for emitting beyond its cap, while the seller is rewarded for having reduced emissions below the cap or allowance allocated. In theory, therefore, those that can most easily reduce emissions most cheaply will do so, achieving reductions at the lowest possible cost to society. In practice, however, a portion of the initial amount of emission permits that countries allocate under an ETS is sometimes granted to existing domestic emitters (as opposed to auctioned), sometimes on the basis of politically determined criteria. Moreover, since emissions are traded on the open market, the price of the permits can rise and fall. Such price fluctuations can increase the risk associated with emission-reducing investments, which may lead to sub-optimal outcomes for the environment in capital-intensive sectors.

Source : Based on SITA (2009).

Plurilateral and multilateral approaches to regulating GHG emissions from freight transport

71. For various legal and practical reasons, the regulation of GHG emissions from international freight transport, especially from ships and aircraft, is generally regarded as something that is most effectively addressed by co-ordinated international action. Each sector has its own peculiarities, however, which complicates developing a common framework.

72. In the case of maritime transport, the International Maritime Organization (IMO) pointed out, in a study it undertook in 2000, a number of aspects that must be understood before attempting to seek an effective solution to regulating GHG emissions from ships (summarized here by Gehring, 2010):

1. It is difficult to define the nation or territory where the “generation” of sea transport services takes place.

2. It is also difficult to determine the country of ownership of a vessel, or who is the real owner or responsible for its operation.

3. The majority of the world’s bulk shipments either start or finish their journey in an Annex I [of the UNFCCC] country.

4. Bunker-fuel is commonly sold to ship operators by dealers independent of the major oil companies, making tax collection administratively difficult.

5. Measures to reduce industry-wide emissions must be global in scope if they are to be equitable and avoid “free riders”; [nonetheless,] some actions taken by Annex I countries may have a significant impact on global emissions.

6. The international shipping industry has a history of adopting solutions to common safety and pollution problems through the adoption of global uniform standards.


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73. Some of these verities are becoming less valid than they were in 2000. For example, with respect to Item III. while it may still be true that the majority of the world’s bulk shipments either start or finish their journey in an Annex I country, the dramatic economic growth of China, India and many other developing nations over the last decade or so may have altered the balance. And not only bulk shipments contribute to GHG emissions: so does the containerized movement of the typically higher-value intermediate and final manufactured goods.

74. Only a few of these characteristics also apply to the international transport of freight by air. Importantly, airplanes do not carry bulk cargo, and around half of the freight shipped by air travels in the cargo holds of passenger aircraft, which further complicates the situation.

75. The following paragraphs review, in brief, progress in the main international bodies responsible for international co-operation in the maritime shipping and airline sectors, and some possible international approaches to encouraging improvements in fuel economy in the road-transport sector.

International sea transport19

76. Greenhouse gas emissions from ships plying international waters are not currently regulated by national, regional or multilateral regimes. The need to regulate emissions from the combustion of marine bunker fuel emissions was recognized during the early UNFCCC negotiations, but no decision was taken to allocate ship emissions to national totals. However, Article 2.2 of the Kyoto Protocol did instruct parties included in Annex I of the agreement to “pursue limitation or reduction of emissions of greenhouse gases not controlled by the Montreal Protocol from aviation and marine bunker fuels, working through the International Civil Aviation Organization [ICAO] and the International Maritime Organization [IMO], respectively.”

77. As stipulated in the Convention on the International Maritime Organization, the IMO enjoys a broad mandate to “provide machinery for co-operation among Governments in the field of governmental regulation and practices relating to technical matters of all kinds affecting shipping engaged in international trade” (Article 1(a)) and to “provide for the consideration by the Organization of any matters concerning shipping and the effect of shipping on the maritime environment that may be referred to it by any organ or specialized agency of the United Nations” (Article 1(d)). To fulfil these mandates, the IMO “can consider and make recommendations on matters remitted to it, draft conventions, agreements or other instruments for consideration, and provide machinery for consultation and the exchange of information” (Gehring, 2010, p. 260). The IMO’s large membership (168 members and 3 associate members) makes it one of the most inclusive multilateral bodies in the UN system.

78. The IMO began considering how maritime emissions of GHG might be regulated in 1997, when it adopted a resolution requesting that the Marine Environment Protection Committee (MEPC) consider the feasibility of various strategies for reducing CO2 emissions from ships. The MEPC’s work since then has concentrated on establishing a CO2 baseline, developing a ship-profile index and guidelines for a CO2 emission-indexing scheme, and evaluating various technical, operational and market-based solutions. At its meeting in April 2008 the MEPC recommended a set of fundamental principles on which a coherent and comprehensive framework for regulating GHG emissions from ships should be based. Such a framework should be:

• effective in contributing to the reduction of total global greenhouse gas emissions;

• binding and equally applicable to all flag States in order to avoid evasion;20

19 This section draws heavily on Gehring (2010), pp. 249-274.


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• cost-effective;

• able to limit, or at least, effectively minimize competitive distortion;

• based on sustainable environmental development without penalizing global trade and growth;

• based on a goal-based approach and not prescribe specific methods;

• supportive of promoting and facilitating technical innovation and R&D in the entire shipping sector;

• accommodating to leading technologies in the field of energy efficiency; and

• practical, transparent, fraud free and easy to administer.21

79. At its meeting in October 2008, the MEPC considered various technical and operational measures such as energy-efficiency indexes and efficiency management plans to cover all ships. Although there were submissions on market-based instruments (MBIs) those MBIs are to be discussed at next Committee meeting. These include developing a list of best practices on a range of measures and how they can be implemented by ship builders, operators, charterers, ports and other relevant partners.

80. Among the policy options currently being studied by the IMO are: a global levy on marine bunker fuel (as proposed by Denmark); a sectoral cap-and-trade or hybrid mechanism for shipping; the possible establishment of an IMO requirement that ships to be built in the future must be more energy efficient than comparable ships being built and operating today (this requirement would build on the energy efficiency and CO2 baseline and the energy efficiency index scheme now under development); a requirement that ship operators participate in one of the emissions trading schemes (as proposed by the EU); and the use of the Clean Development Mechanism (CDM) to help fund projects to reduce GHG emissions from shipping in developing countries.

81. In July 2009, the IMO’s Marine Environment Protection Committee (MEPC) agreed to disseminate a package of interim and voluntary technical and operational measures intended to reduce emissions from international shipping and agreed a work plan, for further consideration at future meetings, of proposed market-based instruments to provide incentives for the shipping industry.22 The agreed 20 Gehring (2010) notes that this point was highly contested by Brazil, China, India, Saudi Arabia, South

Africa and Venezuela, with reference to the principle of common but differentiated responsibilities. See MEPC 57/WP.8, 2.2. However, in a speech in Singapore on 16 October 2008 ("Climate change and international shipping", Second Singapore Maritime Lecture), Efthimios E. Mitropoulos, Secretary-General of the International Maritime Organization, stated “My view on this is that, if reductions in CO2 emissions from ships are to benefit the environment as a whole, they must apply globally to all ships in the world fleet. To me, it seems incongruous that two ships, carrying similar cargo, loaded in the same port, sailing at the same speed and having the same destination, should be treated differently simply because they are registered under two different flags - one the flag of a non-Annex I country and, the other, that of an Annex I country. They would each be releasing the same amount of GHGs, wherever they might sail to. If mandatory reduction measures were applied only to ships flagged in Annex I countries, which in today's shipping reality represent a mere 25% of the world's merchant fleet, the net benefit for the global environment would be minimal and that, clearly, given the global mandate and responsibility of IMO, would not be a satisfactory outcome.” www.imo.org/Newsroom/mainframe.asp? topic_id=1698&doc_id=10320.

21 MEPC 57/WP.8, Report of the Working Group on GHG Emissions from Ships, 2.1 22 Source: http://www.imo.org/Environment/mainframe.asp?topic_id=1737


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measures are intended to be used for trial purposes until the Committee’s 60th session in March 2010, when they will be refined, as necessary, with a view to facilitating decisions on their scope of application and enactment. The measures include:

• interim guidelines on the method of calculation, and voluntary verification, of the Energy Efficiency Design Index for new ships, which is intended to stimulate innovation and technical development of all the elements influencing the energy efficiency of a ship from its design phase; and

• guidance on the development of a Ship Energy Efficiency Management Plan, for new and existing ships, which incorporates best practices for the fuel efficient operation of ships; as well as guidelines for voluntary use of the Ship Energy Efficiency Operational Indicator for new and existing ships, which enables operators to measure the fuel efficiency of a ship.

82. The IMO is currently working on ways to control GHG emissions from international shipping, in co-ordination with the UNFCCC Secretariat and processes. In the mean time, it is studying related legal aspects, to decide whether the GHG regulations should form part of an existing convention or whether an entirely new instrument should be developed and adopted.23 In March 2010 the MEPC started to discuss whether to make the technical and operational measures mandatory for all ships irrespective of flag and ownership; this work is expected to be completed by July 2011. According to the IMO’s website,

Having considered means by which technical and operational measures could be introduced in the Organization’s regulatory regime, the Marine Environment Protection Committee (MEPC), at its sixty-first session, noted the desire of some States party to MARPOL Annex VI – Regulations for the prevention of air pollution from ships to request the Secretary-General to circulate proposed amendments to that Annex, to make mandatory, for new ships, the Energy Efficiency Design Index (EEDI) and the Ship Energy Efficiency Management Plan (SEEMP)), both of which have been previously disseminated for voluntary use. The circulated draft amendments would then be considered by the Committee at MEPC 62 with a view to adoption under MARPOL Annex VI. MEPC 61 also noted, however, that some other States did not support the circulation of such amendments.

Although decisions as to how to proceed with the next step of IMO’s climate change strategy were not reached by consensus at MEPC 61, the Committee made noteworthy progress on all three elements of its GHG work, namely technical, operational (description of the package of technical and operational reduction measures for ships agreed by MEPC 59) and market-based measures, and it is expected that further substantial progress will continue to be made at its next meeting in July 2011.

A description of the Energy Efficiency Design Index (EEDI) and the Ship Energy Efficiency Management Plan (SEEMP) are given in Box 4.

83. Private standards relating to the energy efficiency of shipping are also starting to emerge. In December 2010, a not-for-profit group, the Carbon War Room, launched a web site, ShippingEfficiency.org, that aims to provide details of of ships that have a bearing on their energy efficiency for about 60 000 vessels, including most of the world’s container ships, tankers, bulk carriers and general cargo ships. The web site assigns a simple A (for best) to G (for worst) labelling system, based on the methodology developed by the United Nations' International Maritime Organization's (IMO) for the Energy Efficiency Design Index (EEDI) and data from the world's largest ship registry, IHS Fairplay. Ship- 23 www.imo.org/Safety/mainframe.asp?topic_id=1709&doc_id=10247


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owners and operators are encouraged to update the records on their ships after making efficiency improvements to their vessels. The website also hosts a searchable tool based on leading carbon calculation methodologies. It currently uses the Clean Cargo Working Group's methodology for benchmarking ocean container vessels’ CO2-emission efficiency against other vessels plying the same major container routes (e.g., Asia to Europe).24

Box 4. The IMO's energy-efficiency standards for ships

The most important technical measure is the Energy Efficiency Design Index for new ships (EEDI), which would require a minimum energy efficiency level per capacity nautical mile (e.g. tonne-mile) for different ship types and size segments. With the level being tightened incrementally every five years the EEDI would stimulate continued technical development of all the components influencing the fuel efficiency of a ship, affecting the energy efficiency of ships for many decades to come. On the operational side, the IMO has also developed a management tool for energy efficient ship operation (SEEMP) to assist the shipping industry in achieving cost-effective efficiency improvements in their operations.

The EEDI is a non-prescriptive, performance-based mechanism that leaves the choice of technologies to use in a specific ship design to the industry. As long as the required energy-efficiency level is attained, ship designers and builders would be free to use the most cost-efficient solutions for the ship to comply with the regulations. The reduction level in the first phase is set to 10% and will be tightened every five years to keep pace with technological developments of new efficiency and reduction measures. The IMO has set reduction rates until the period 2025 to 2030 when a 30% reduction is mandated for most ship types calculated from a baseline representing the average efficiency for ships built between 1999 and 2009.The EEDI has been developed for the larger and most energy intensive segments of the world merchant fleet and will embrace 72% of emissions from new ships covering the following ship types: oil and gas tankers, bulk carriers, general cargo and container ships. For ship types not covered by the current formula, suitable formulas will be developed in the future and will address the largest emitters first.

The SEEMP establishes a mechanism for a shipping company and/or a ship to improve the energy efficiency of ship operations. The SEEMP provides an approach for monitoring ship and fleet efficiency performance over time using the Energy Efficiency Operational Indicator (EEOI) as a monitoring tool and benchmark. The SEEMP urges the ship owner and operator at each stage of the plan to consider new technologies and practices when seeking to optimize the performance of a ship.

Source : Adapted from http://www.imo.org/OurWork/Environment/PollutionPrevention/AirPollution/Pages/Further-Progress-Made-by-MEPC-61---September---October-2010---on-Technical,-Operational-and-Market-Based-Measures.aspx

84. A similar, but more regionally focused project is the Clean Shipping Project, which was started in 2007 with the aim of creating a tool for large Swedish cargo owners to evaluate the environmental performance of carriers when procuring shipping services. The Clean Shipping Project is sponsored by several regions and cities in southern Sweden. As with the, The Clean Shipping Index relies on voluntary reporting by shipping companies and covers not just CO2 emissions but also emissions of nitrogen oxides (NOX), sulphur oxides (SOX), and particulate matter (PM), as well as the ship’s water and waste control practices and use of chemicals for anti-fouling and other purposes.

85. The idea of both the ShippingEfficiency.org and the Clean Shipping Project is to provide information that will enable shippers of goods to evaluate the environmental performance of carriers when procuring shipping services and, it is hoped, opt for the most energy-efficient (or cleaner) vessels.

24 Source: http://www.shippingefficiency.org/about-us.


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International air-freight transport25

86. The principal legal instrument regulating international air transport, including the transport of freight, is the Chicago Convention of 1944, which established the International Civil Aviation Organisation (ICAO). In 1983 the ICAO set up a Committee on Aviation Environmental Protection (CAEP) to address the environmental impacts from international air transport, including noise pollution and engine emissions.

87. At its 36th session (18–28 September 2007) the ICAO Assembly recognised that “Contracting States are responsible for making decisions regarding the goals and must use appropriate measures to address aviation’s greenhouse gas emissions taking into account ICAO’s guidance.”26 However, it also recognised that “the majority of the Contracting States endorse the application of emissions trading for international aviation only on the basis of mutual agreement between States”, which resulted in the “need to engage constructively to achieve a large degree of harmony on the measures which are being taken and which are planned [to be taken].” However, all 44 Member states of the European Civil Aviation Conference (ECAC) expressed a reservation. In this connection, the CAEP has developed a guidance document, adopted by the Council and the Assembly, for the use by states use when including aviation in an ETS. This guidance stipulates that states must seek mutual agreement of other states to cover foreign carriers in an emissions trading scheme, in keeping with international aviation law and practice over the past 60 years.

88. At its September 2007 Assembly, ICAO members agreed to formulate an “implementation framework” consisting of strategies and measures that Contracting States of ICAO can use to achieve emissions reductions for air transport (Assembly Resolution A36-22 Appendix K). The program will identify fuel efficiency goals and means of measuring progress. Options to be considered include voluntary measures; a comprehensive framework for encouraging technological advances in both aircraft and ground-based equipment; more efficient operational measures; improvements in air traffic management; positive economic incentives and market-based measures; and the monitoring of climate-change mitigation efforts.

89. The Assembly also created the Group on International Aviation and Climate Change (GIACC), a high-level group to develop a global, flexible framework to address international aviation emissions. This framework would be performance-based, using aspirational fuel-efficiency goals for the short, medium, and long terms. The GIACC is comprised of 15 members participating from all regions and representing both developed and developing countries.27 Measures under consideration include: aircraft-related technology development, including alternative fuels; improved air traffic management and infrastructure; more efficient operations; and economic and market-based measures. The group’s work was presented to the 15th Conference of Parties (COP15) of the United Nations Framework Convention on Climate Change (UNFCCC), at Copenhagen in December 2009, and to COP16, at Cancun in December 2010.

Road freight transport

90. Currently, no single dominant inter-governmental body — analogous to the IMO or ICAO —regulates international road-freight. Rather, there is a patchwork of regional U.N. bodies and bilateral and regional institutions that regulate or co-ordinate issues such as safety regulations. Some observers have

25 This section draws heavily on Gehring (2010), pp. 249-274. 26 Resolution A36-22, Preamble to Appendix L. 27 In 2006, more than half the world’s freighters were based in North America; by 2026, almost one-third are

expected to be based in the Asia-Pacific region, the number of which is expected to increase five-fold by 2025.


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therefore suggested that, supplementing regulations at the national level, opportunities also exist for international law to address CO2 emissions from road-transport. Gehring (2008) suggests, for example, that emissions standards for new vehicles could be harmonized across countries. “[T]hat could support international trade in vehicles themselves, by removing the technical barrier of a multiplicity of standards,” he observes, “while also serving to impose limits on NOX pollution and GHG emissions.”

91. McAusland (2008) points to another issue that, while more bilateral or regional than multilateral, could nonetheless benefit from capacity building: wait times at land borders. Fernandez (2008, cited in McAusland) estimates that, in the El Paso-Ciudad Juarez area on the U.S.-Mexican border, as much as 22% of emissions may be attributable to vehicles idling while waiting to cross the border. Woodburn et al. (2008), citing data from UNESCAP (2003), find that crossing times for goods trucks on the Lao and Mongolian borders can often take a full day, and that on the Uzbekistan border they can take several days. Of course, reduced delays will lower transport costs, leading to greater transport demand.

92. Another possible area that could benefit from concerted international action is to negotiate an end to the subsidization of transport fuels, or at least transport fuels used for freight hauling. Reducing fuel subsidies should encourage more efficient use of fuel by goods-hauling vehicles, and also re-orient the pattern of trade towards supply chains that involve shorter road transport. The money thereby saved could be used to compensate the most vulnerable in society from any negative impacts from removing the subsidies. Currently, hortatory language exists in the Kyoto Protocol calling on parties to the agreement to end subsidies that encourage the consumption of fossil fuels (Article 2.1.(a) of the Kyoto Protocol), and in the Plan of Implementation (PoI), issued at the end of the United Nations World Summit on Sustainable Development (WSSD) in September 2002. However, since the language on energy subsidies in these documents are not legally binding, there is no way to use them to enforce subsidy reductions. For this reason, calls for developing an international agreement to discipline subsidies to fossil fuels are becoming more frequent.28

93. One initiative has already been taken at the plurilateral scale. In September 2009, the Leaders of the G-20 economies, meeting in Pittsburgh, Pennsylvania, made a commitment to “rationalize and phase out over the medium term inefficient fossil-fuel subsidies that encourage wasteful consumption”, asking that their Energy and Finance Ministers develop implementation strategies and timeframes, and report back to the Leaders at the next Summit”, in Canada in June 2010. In their joint communiqué, the leaders observed that “Inefficient fossil fuel subsidies encourage wasteful consumption, distort markets, impede investment in clean energy sources and undermine efforts to deal with climate change."29

94. Since then, some progress has been made towards phasing out fossil-fuel consumption subsidies. As documented by the IEA (2010):

• In Iran, a far-reaching subsidy reform law was enacted in 2010 which seeks to introduce market-based pricing of oil products, natural gas and electricity over 2010-15, and replace subsidies by targeted assistance to low-income groups.

• China has made significant progress over recent decades in bringing its domestic energy prices closer to global market levels, and is continuing to push ahead with reforms. As of mid-2010,

28 On 1 October 2008, for example, the Executive Board of the International Monetary Fund (IMF) held a

seminar on Fuel and Food Price Subsidies and considered several reform options. While there seemed to be broad agreement of the distortionary effects of subsidies to fuels, there was not unanimity among the Directors as to whether international co-ordination of subsidy policies may be the appropriate approach to take to tackle global and regional spillovers associated with those subsidies.

29 http://www.g20.org/Documents/pittsburgh_summit_leaders_statement_250909.pdf


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however, some energy prices were still being set or guided by the central government in pursuit of various socio-economic goals.

• India has been actively reforming its energy-pricing policy to reduce the fiscal burden on the state budget. In 2010, the government made major changes to pricing arrangements for refined oil products, targeting those used disproportionately by wealthier consumers.

• Indonesia has set a goal of a 40% reduction in spending on energy subsidies by 2013 and eliminating them entirely by 2014. To lessen the adverse impact of these reforms on the poor, the government plans to increase targeted assistance to low-income groups.

As the IEA (2010, p. 593) concludes, “If lasting reforms are achieved, they will have a noticeable effect on supply and demand balances in each country’s domestic market, as well as important implications for global energy and emissions trends.” Nonetheless, there remain a large number of countries that continue to subsidize the domestic price of transport fuels, especially in Africa, the Middle East and Asia (Coady et al., 2010).

VI. Winners and losers from greater internalization of climate-change measures in the transport sector

95. This section considers the possible effects of different unilateral and multilateral policies aimed at reducing CO2 emissions from transport, including transport carrying imported goods, and goods for export. As shown in the preceding sections, these measures can involve a wide mix of voluntary standards, mandatory regulations, government support for R&D, and market-based instruments, at both the national and the international levels. Striking the right balance in their use will be a challenge for governments and the international community given the large numbers of uncertainties relating to the factors that drive the demand for transport, the price of fuels, and autonomous technological change.

96. Each policy option has advantages and disadvantages when looked at from the standpoint of environmental effectiveness, cost, distributional consequences and the degree to which it spurs innovation. Tables 4 and 5 provide brief summaries of these, informed by analyses conducted for the IMO (Buhaug et al. 2009) the International Energy Agency (IEA, 2009b), OECD (2010) and other sources. , As Johnstone et al. (2010) point out, the effectiveness of different policies depend crucially on their stringency, predictability, flexibility, incidence and depth (Box 5). Moreover, some types of measures may be more effective when used in combination with other policies. And many policies can be environmentally effective, but at very different costs per marginal tonne of CO2 emissions abated.


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Box 5. What characteristics of environmental policies induce innovation?

Rather than assessing the innovation impacts of environmental policies in terms of broad ‘types’(i.e. market-based instruments vs. direct regulation) it is helpful to think in terms of the more specific characteristics of different instruments, and what effect each of these characteristics has on innovation. The relevant characteristics would include at least the following: stringency, predictability (or certainty), flexibility, incidence, and depth. While related, each of these characteristics is distinct and they can be summarised as follows:

• Stringency – i.e. how ambitious is the environmental policy target, relative to the ‘baseline’ trajectory of emissions?

• Predictability – i.e. what effect does the policy measure have on investor uncertainty; is the signal consistent, foreseeable, and credible?

• Flexibility – i.e. does it let the innovator identify the best way to meet the objective (whatever that objective may be)?

• Incidence – i.e. does the policy target the externality directly, or is the point of incidence a ‘proxy’ for the pollutant?

• Depth – i.e. are there incentives to innovate throughout the range of potential objectives?

From the perspective of innovation, the ideal policy instrument is one which is: stringent enough to encourage that level of innovation which results in the optimal level of emissions; sufficiently stable to give investors the necessary planning horizon to undertake risky investments in innovation; sufficiently flexible to encourage innovators to identify innovative solutions which have not yet been identified; targeted as closely as possible on the policy objective in order to avoid misallocation of innovation efforts; and, provide continuous incentives to develop abatement technologies which could (in theory) drive down emissions to zero.

[D]ifferent environment-related taxes may have very different attributes. A tax on CO2 is flexible, targeted, deep, and often stable. However, a differentiated value-added tax for ‘environmentally-friendly products’ is not very flexible, targeted or deep. Indeed, depending upon how the tax rate is determined, such a measure may actually have more similarity with technology-based standards than with an emissions tax in terms of impacts on innovation. Similarly, a performance standard may have more similarities with a tax than with a technology-based standard. While it does not provide the same ‘depth’ of incentive – i.e. there is no incentive to innovate in a manner which allows regulated firms to exceed the standard – if it is flexible and targeted it is likely to have similar innovation impacts to an emissions tax.

The key point is that correlation between instrument types and policy design attributes is imperfect. Any incentives for innovation arise out of the underlying policy characteristics. As such, it is important to assess incentives for innovation in terms of their specific characteristics rather than by broad instrument type. Because of this imperfect correlation, it is necessary to disentangle the innovation effect of each of these characteristics.

Source : Johnstone, Haščič and Kalamova (2010).


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Table 4. Summary assessment of the environmental effectiveness of selected policies

Policy Environmental effectiveness

Eliminate subsidies for transport fuels Potentially very high for domestic emissions in countries that subsidize motor diesel; effect depends on current level of subsidization.

Increase government funding for R&D on new designs, materials, technologies and fuels

Potentially high, especially if combined with limits on total emissions.

Increase development-bank funding of infrastructure Good for countries with poor infrastructure, but in absence of emission limits may be offset by increased traffic.

Establish voluntary energy-efficiency design standards Effect mainly through increased information; higher if ambitious and combined with continuously upward-adjusting mandatory design standards.

Establish mandatory energy-efficiency design standards Effect mainly over the long-term; higher if periodically upward-adjusting and combined with ambitious voluntary design standards. Less flexible than operational standards.

Establish mandatory energy-efficiency operational standards

Effect would be immediate, but degree of effectiveness depends on stringency. Would allow flexible responses.

Apply a uniform carbon tax on all fuels Very high; effectiveness dependent on stringency. However, could be partially offset by the dampening effect a tax would have on pre-tax prices for fuels.

Apply sector-specific caps on emissions from international shipping and air transport, no offset through trading credits allowed

Effect would depend on level of the caps; less flexible than cap combined with offset through trading credits.

Apply sector-specific caps on emissions from international shipping and air transport, offsets through trading credits allowed

Effect would depend on level of the caps.

Source: OECD Secretariat.


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Table 5. Impacts of possible policy options to address CO2 emissions from transport

Policy International shipping and air freight Domestic transport modes among sectors of innovation

Eliminate subsidies for transport fuels

Minor impact; reduced demand for domestic transport fuels could reduce prices in unsubsidized markets

Internal transport costs increase in previously subsidizing countries

Would depend on dominant mode of shipping; high-unit-value goods and low-unit-value goods (shipped by rail or barge) likely least affected

Proportional to size of starting subsidy

Increase government funding for R&D on new designs, materials, technologies and fuels

Major cost-reducing impact over the long run, especially if innovations are diffused around the globe

Major cost-reducing impact over the long run, especially if innovations are diffused around the globe

Likely would favour transport modes with greatest potential for technological improvements

Depends on nature of R&D and the sector

Increase development-bank funding of infrastructure

Potentially large cost-reducing impact in developing countries

Potentially large cost-reducing impact in developing countries

Resulting reduced transport costs could lead to increased trade

Not significant.

Establish voluntary energy-efficiency design standards Low Low Low Moderate, mainly limited

to technical measures

Establish mandatory energy-efficiency design standards

Would depend on stringency of standard, speed of introduction, and availability of technologies


Unclear High, but limited to technical measures

Establish mandatory energy-efficiency operational standards


Administrative costs would be high for trucking, less so for rail and inland barges

Depending on how designed, would affect trade and transport of low-unit-value goods proportionally more than high-unit-value goods

Allows for flexible responses; degree of effect depends on stringency.

Apply a uniform carbon tax on all fuels Would increase the price of bunker and jet fuels, by a modest amount, depending on basis

Could lead to increases in fuel prices in some countries, no change or even a reduction in road-fuel prices in others

Would reduce trade and transport of low-unit-value goods proportionally more than high-unit-value goods

Allows for flexible responses, but degree of effect depends on stringency

Apply sector-specific caps on emissions from international shipping and air transport, no offset through trading credits allowed

Could lead to increases in the cost of freight transport, depending on the level of the cap, and how fast it is implemented.

Not applicable If cap is binding, could disproportionally affect goods normally transported by air

Degree of effect depends on stringency

Apply sector-specific caps on emissions from international shipping and air transport, offsets through trading credits allowed

Allows transport companies that could not reduce emissions at low cost to buy credits from other emitters with lower costs of abatement.

Could raise opportunity cost of emissions from domestic transport.

Similar to a carbon tax in that low-unit-value goods would be affected more than high-unit-value goods.

As above, but ability to meet cap through trading would reduce pressure to innovate.


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97. A priori, any policy that increases the cost of internal transport in one country, but not in countries producing competing goods, can be expected to change at least the composition of the first country’s international trade. But if most of its main trading partners are also implementing similar policies, either unilaterally or as part of a co-ordinated international effort, overall international trade — especially in relatively low-value bulk commodities — may be affected, but not the relative standing of a country’s transport-intensive products vis-à-vis producers facing similar transport charges.

98. Clearly geography will continue to play an important role. Overall, by raising delivered costs of low-value bulk goods by proportionally more than high-value goods, exporters of the former will be adversely affected. By how much will depend on the elasticity of demand for the affected goods. In some cases, domestic producers of bulk goods that had previously faced stiff competition from foreign suppliers will see demand for their product increase. Others will experience a decline in sales along with all other producers. It is also important to bear in mind the relatively small share of transport costs in the final delivered price of many manufactured goods. As the IMO points out, transport costs account for only around 2% of the shelf price of a television set and only around 1.2% of the retail price of coffee beans.30

99. To explore these inter-relationships, in 2010 the IMO’s Market-Based Mechanisms Expert Group (MBM-EG) commissioned a study to assess the feasibility and potential economic impacts of options for the reduction of greenhouse gas emissions from international shipping (Vivid Economics, 2010). The report examines the effects of a 10% increase in the bunker fuel price resulting from an unspecified market-based measure applied world-wide31 on the following selection of product markets and shipping routes:

• iron ore shipped by Cape-size vessels to China;

• crude oil shipped by very large crude carriers (VLCCs) to South Korea and the US Gulf Coast;

• grain shipped by Panamax vessels into six developing countries; and

• apparel and furniture shipped by container vessels from Asia to Europe,

100. The results of the analysis suggest that the Chinese iron ore market would witness the biggest impacts of those examined, leading to a 1.5% increase in the landed price of iron ore, and a 13% reduction in the market share of imports. Moreover, the changes in market share would differ among exporting countries: Australia would experience relatively little impact due to its proximity to China and its large, low-cost firms, while Brazil, whose iron-ore production is dominated by one large, low-cost firm, would see a lesser impact than India, whose production is characterised by a large number of higher-cost firms.

101. South Korea (which imports all its crude oil) and the United States are estimated to experience only small percentage changes in the volume and provenance of crude-oil imports, despite a high cost pass-through. Crude oil is a high-value product and a rise in the bunker price would increase the ad valorem freight rate by only a small percentage. Increases in the price of crude oil in the two countries would be on the order of 0.1% or less, and changes in the respective market shares of land (i.e., North American) and sea-based producers in the U.S. case are minimal.

30 “International Shipping: Carrier of world trade” (http://www.imo.org/). 31 That is to say, it makes no assumptions about the type of market-based mechanism which might be

imposed.


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102. The price increases in the grain markets of developing countries following a 10% increase in the bunker price would be 0.7% or less, even for countries that are highly dependent on imports, due to the relative insensitivity of grain freight rates to bunker prices. In most cases, the analysts found, the estimated cost of bunker-price increases would be largely borne by domestic consumers of grain, but where the cost pass-through is low the cost increases would be more evenly shared between producers and consumers.

103. Finally, the shipping of apparel and furniture from Asia to Europe by container was also examined. The analysts estimated that cost pass-through rates would be around 50% for apparel and 60-90% for furniture, depending on the share of the domestic market supplied from overseas. Higher freight rates as a percentage of the c.i.f. value of the goods, and a greater share of sea-borne imports, induce greater consumer impacts for furniture than for apparel. The analysts point out, however that container freight rates exhibit considerably lower price elasticity with respect to increases in the bunker price than do bulk freight rates. Hence product prices in Europe increase by 0.2% or less.

104. In interpreting the results of model-based studies, it is important to bear in mind that more than just geography determines transport demand nowadays. Just a few short years ago, Brooks (2005), observing the effect of falling transport costs and globalization costs on trade, noted that

The growing specialization of world trade has played a significant role in the shifting transport dynamic as companies trade off greater economies of scale in production against transport costs and the environmental impacts of that transport. Such production specialization has encouraged the development of supply chains that may see products in various stages of production transported many times from the raw material input stage to final delivery to the retailer (or consumer). This specialization in production leads to larger trading areas. Furthermore, during the past two decades, the cost of transporting containerized goods by sea has fallen and the world has witnessed an increase in the supply of container capacity that far outstrips the rise in the value of world trade.

As Brooks points out, lower transport costs promotes the expansion of the market for goods, which leads to greater market integration and regional specialization. That, in turn, “leads to greater intra-industry and inter-regional trade and freight movements over an expanded production space” (Lakshmanan and Anderson, 2002). Data on the full extent of intra-company international trade are not collected systematically, but in a study published 10 years ago (Dunning, 1998) it was estimated that one-half of trade in non-agricultural products takes place within multinationals. To the extent that future internalization of climate-related externalities increases the costs of transport, therefore, some gradual reversal, or at least a slowing, of the prior trend might be expected.

VII. Concluding observations

105. Despite the pressures driving growth in the volume and distance of goods transported between countries, there remains significant scope for reducing GHG emissions from transport, through a combination of improvements or changes in propulsion technologies and fuels, better routing, and shifting goods to transport modes that are more fuel-efficient. Both the pressure of higher fuel costs and explicit government policies are already driving changes in this direction. In the future, efforts by governments to internalize carbon-related externalities in the transport sector, including the freight segment, can be expected to accelerate the pace of change.

106. The potential for improvement is especially large in non-OECD countries, where transport corridors are often less well developed and the technologies in use are older and less well maintained. Any policies aimed at mitigating increases in GHG emissions from transport induced by trade liberalization will need therefore to consider how developing countries can also be encouraged to improve their performance in this area.


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107. That growth in international trade may lead to increases in total CO2 emissions generated by the transport of goods is not an argument for restraining trade, nor of holding back further trade liberalisation. Far better is to target CO2 emissions directly through the appropriate international fora. Trade policymakers can work with their environmental and transport counterparts whenever climate-change mitigation measures are applied to transport to take into consideration criteria such as environmental effectiveness, cost-effectiveness and effect on technological innovation and diffusion, as well as their political and administrative feasibility. Encouraging R&D on better propulsion technologies and lower-carbon fuels is one way to reduce CO2 emissions without adversely affecting trade. Development of global standards and regulatory measures to address the environmental impact of transportation, such as those being developed for air transport by the International Civil Aviation Organization, could also contribute to the reduction of CO2 emissions from international transport.


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APPENDIX 1. TECHNOLOGICAL POSSIBILITIES FOR REDUCING FOSSIL-FUEL USE IN FREIGHT TRANSPORT

108. Technological developments over the years have contributed to enhancing efficiency in the use and combustion of fossil fuels in the transport sector. Equally important have been operational improvements in terms of scheduling or logistics planning and the overall handling of cargoes carried by various modes of transport. This section of the paper examines for each mode of freight transport; (a) significant changes at the operational level which would mitigate CO2 emissions; and (b) technological possibilities that exist for bettering energy efficiencies.

Maritime shipping

Operational changes

109. Traditionally, the main tactic for improving fuel economy in shipping in the short term has been through running ships at a slower speed. Because the higher the speed the more fuel is consumed over a given distance, reducing speed means savings in fuel costs. Operating at slower speed, however, means that less cargo can be moved with the same number of ships during a given time period (Adams, 1995). The cargo consequently spends more time at sea, which adds to financial carrying costs. And, since a slower ship requires the same number of crew as a faster one, labour costs per unit of cargo carried are increased. That reduces the rates that shippers of goods are willing to pay for time-sensitive cargo.

110. Whether or not it is profitable for a ship to reduce its operating speed depends on the cost of its fuel and the market for shipping services. A typical 6,000 TEU container ship operating at its full speed consumes about 200 tonnes of fuel and emits CO2 in excess of 600 tonnes per day. The drag force (friction) caused by seawater increases roughly proportionally to the square of a ship’s speed, while fuel consumption and CO2 emissions increase proportion to the cube of the ship’s speed. Because the impact of speed reductions on the time required to travel the same distance is given by the inverse of the speed, total CO2 emissions for a given voyage rise proportionally to the square of the speed. In theory, therefore, a 10% reduction in speed would cut CO2 emissions by 20%.

111. Figure 8 shows the total shipping costs for a hypothetical ship with a payload of 80 000 tonnes travelling between between South America and Northern Europe. In 2004/5, such a journey took about 24 days. Slowing down the ship by 5% (adding 1.2 days) to save fuel would reduce total fuel consumption by 9%, but add 0.4% to the total cost at a bunker price of USD 300 per tonne. At a bunker price of USD 650 per tonne, the ship operator would save 2.1% of total costs.

112. Nowadays, small general-cargo and container ships can also install wind propulsion systems based on large towing kites to augment engine power. Currently, one company, SkySails (www.skysails.info), is manufacturing towing-kite propulsion systems for cargo vessels with an effective load of between 8 and 32 tonnes. It plans to eventually offer such systems for ships with effective loads of up to 130 tonnes. SkySails claims that, depending on the prevailing wind conditions, a ship’s average annual fuel costs can be reduced by 10–35% using its system. Under optimal wind conditions, fuel consumption can be reduced for short periods by up to 50%. The first pilot systems are in operation on-board two cargo vessels.


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Figure 8. Changes in the total cost of a shipping as a function of bunker fuel cost and speed

Sources: CE Delft (2005), Bunkerworld, and MTRU calculations, cited in Bucher (2008).

Improvements in ship design

113. Design improvements in shipping aimed at reducing fossil-energy consumption focus on the vessel’s hydrodynamics, and the use of energy on-board the ship. Hydrodynamics relates to the ship’s hull — its resistance as it passes through water at different speeds, and how it interacts with the propeller. The simplest way to reduce a vessel’s drag is to keep the hull clean of barnacles. Numerous coatings are now available that impede the growth of barnacles and thus increase the intervals between which the hull has to be cleaned.

114. One way relatively straight-forward way to reduce to fossil-fuel consumption from shipping is to eliminate the need for on-board generation of electric power by the ships themselves when they are docked in a port. Already, several ports (Gothenburg, Sweden; Zeebrugge, Belgium; and Los Angeles and Long Beach, California in the United States) provide high-voltage lines to ships equipped with appropriate cables. By plugging into the local power grid, the ships that use this service can turn off their engines and thus avoid burning diesel oil or sulfurous bunker fuel.

115. Only a small fraction of ships are equipped with the necessary plugs, so the benefits of shore-side electricity so far have been limited. Among the barriers to greater diffusion of this technology are the up-front cost for a system, which can run from € 70 000 ($109,000) to € 640 000 per land-side outlet, largely depending on how easy it is to connect to a nearby power grid (Kanter, 2008). Another factor hindering expansion of shore-side power is the fact that electrical frequencies are not standard across ships. And, finally, electric power, especially carbon-free electric power, often costs more even than power generated by the ship itself from bunker fuel.

116. The consumption of fuel for on-board electricity requirements can also be reduced through the installation of solar photovoltaic panels on ships. (On-board wind turbines are not an economic option for most ships, as the drag they would create would offset the electricity they would generate, except when the ship is in port.) Such panels have already been installed on yachts and a few car ferries, but could in theory be installed on, for example, the roof of a ship’s bridge, or even its deck. That is the approach being taken


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by Nippon Yusen KK, Japan's biggest shipping line, in co-operation with Nippon Oil Corp. The solar panels being installed on top of one of its 60 000 tonne car carriers (used by Toyota Motor Corp), when it goes into service in 2009, will be capable of generating 40 peak kilowatts of electricity. According to one press report (Tsukimori, 2008), the solar panels would help conserve up to 6.5% of the fuel oil normally used in powering the ship’s engines to generate electricity. The 150 million yen (USD 1.4 million) system is expected to help reduce the vessel’s CO2 emissions by 1-2%, or by about 20 tonnes per year. A major challenge to installing solar panels on large ships is protecting them from damage due to salt and vibration.

117. Numerous other design changes are being applied, some possible to undertake on existing vessels, others only on new vessels (Table 6). While their aggregate potential is less than the cumulative total, they add up to potential double-digit improvements.

Table 6. Potential specific fuel consumption savings from improved design features on cargo ships

Design feature Potential savings Applications Retrofit or new builds

Minimise resistance of hull openings

Good design of all openings combined with proper location can give up to 5% lower power demand than with poor designs. For container vessel corresponding improvement in total energy consumption is almost 5%.

All kinds of vessels

Add a ducktail waterline extension to the rear of the ship

Results in 4-10% lower propulsion power demand. Corresponding improvement 3-7% in total energy consumption for a typical ferry

Container ships, Ro-Ros and ferries

Add interceptor trim planes Results in 1-5% lower propulsion power demand. Corresponding improvement up to 4% in total energy demand for a typical ferry.

Ro-Ros and ferries

New builds only

Increase ship scale Regression analysis of recently built ships show that a 10% larger ship will give about 4-5% higher transport efficiency.


Optimize main dimensions Adding 10-15% extra length to a typical product tanker can reduce the power demand by more than 10%.


Use lightweight construction A 20% reduction in steel weight will give ~9% reduction in propulsion power. However, a 5% saving is more realistic, as high tensil steel is already used to some extent in many cases.


Reduce ballast Removing 3000 ton of permanent ballast from a Pure Car or Truck Carrier ship, and instead achieving the same stability by increasing the beam 0.25 meters will reduce propulsion power demand by 8.5%.


Provide air lubrication Fuel consumption savings range from around 7.5% for a container ship to 15% for a tanker

Most kinds of vessels, but so far used only on small vessels

Source: based on “Boosting Energy Efficiency”, presentation of 19 September 2008 by Wärtsilä Corporation.

118. Longer term, radical redesigns of vessels are on the drawing boards of a number of companies (Buchan, 2008; Wärtsilä, 2008).

119. Another radical concept, called the pentamaran, reduces water resistance by creating a long, slim central hull and stabilizing it with two sets of outriding fins. This approach can also remove the need for ballast, enabling more cargo to be carried for a given displacement. One concept ship, the E/S Orcelle,


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would use a combination of wind, solar, and wave power, combined with fuel cell storage and electrically powered propeller pods, to achieve zero emissions. The designer, Wallenius Wilhelmsen (2008), envisages a service date of 2025 for the first vessel, a car carrier, based on its design.

Propulsion improvements (propellers)

120. Propellers are key to many potential fuel savings from ships. Table 7 lists a number of improved designs, many of which can be retrofitted to existing vessels.

Table 7. Potential specific fuel consumption savings from improved propeller design and operation

Design feature Potential savings Applications

Retrofit or new builds

Propeller-rudder combinations Rudder drag (~5% of ship resistance) can be reduced by 50% by changing the rudder profile and propeller in combination. Can improved fuel efficiency by 2 to 6%.

Tankers, container ships and Ro-Ros

Advanced propeller blade sections Can improve propeller efficiency up to 2%. All kinds of vessels

Propeller tip winglets Improved propeller efficiency up to 4%. Tankers and container ships

Propeller nozzle Application of nozzles (a wing section shaped ring) around a propeller achieves up to 5% power savings compared with a vessel with an open propeller.

Tankers

Variable speed operation of controllable pitch propellers

Saves 5% fuel, depending on actual operating conditions.

Container ships, Ro-Ros and ferries

New builds only

Counter rotating propellers (CRP) CRP has been documented as the propulsor with one of the highest efficiencies. The power reduction for a single screw vessel is 10 to 15%.


Optimisation of propeller-hull interaction

Redesigning the hull, appendage and propeller in combination will at low cost give better performance up to 4%.



Propulsion improvements (machinery)

121. Improvements in the machines used to propel ships have been continuous since the first engine-powered ships were put into service. Table 8 lists some of the configurations and technologies currently available. Waste-heat recovery in particular can potentially save a large amount of a ship’s energy consumption. Yet very few existing ships use this relatively simple technology, and very few new shipbuilding orders call for use of this technology (source requested).


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Table 8. Potential specific fuel consumption savings from improved propulsion machinery

Design feature Potential savings Applications

Retrofit or new builds

Waste-heat recovery Exhaust waste heat recovery can provide up to 15% of the engine power. Potential with new designs is up to 20%.

All vessel types

Improvements in the thermodynamic efficiency of marine diesel engines

Expected potential: 10% All vessel types

Integrated Automation System (IAS) or Alarm and Monitoring System (AMS)

Engine optimisation control, power generation & distribution optimisation , thrust control and ballast optimisation save fuel consumption with 5-10%.

All vessel types

New builds only

Diesel-electric machinery Operational profile fuel savings typically 5-8%. Ro-Ros and ferries

Hybrid Auxiliary Power generation Consists of a fuel cell, diesel generating set and batteries. Redction of CO2 emissions of around 30%

All vessel types (eventually). Not yet applied.


122. One of the most important projects in this area is the HERCULES-B strategic R&D project, a joint initiative of MAN Diesel and WARTSILA, which together manufacture 90% of the world’s marine engines. The project has a total budget of € 25 million (supported by the European Commission) and involves a Consortium with 32 participants. Its principal aims are: to reduce the fuel consumption of marine diesel engines by 10% and to improve the thermodynamic efficiency of marine diesel propulsion systems to a level of more than 60%, thus reducing CO2 emissions substantially. (Diesel propulsion systems power 99% of the world’s marine fleet.) Additionally, the programme aims to reduce emissions of other exhaust gases — by 70% for NOx, and by 50% for particulate matter, from marine engines by the year 2020. HERCULES-B is targeting the development of engines that can operate under extreme operational pressures and temperatures, and spans the complete spectrum of marine diesel engine technology. Various subprojects are addressing thermo-fluid-dynamic and structural design issues, including friction and wear, as well as parameters relating to combustion, air charging, electronics and control. The interaction of the engine with the ship, as well as the use of combined cycles in overall system optimization, is also being considered. To achieve the project’s emissions target, combustion and advanced after-treatment methods will be developed concurrently.32

32 Source: http://www.hercules-b.com/2/article/english/2/3/index.htm.


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Fuel substitution

123. The following paragraphs discuss some of the current and possible future propulsion technologies and fuels being developed or considered.

Liquefied natural gas

124. Liquified natural gas (LNG) is now being transported around the world, so it is only natural that the huge ships that carry this relatively clean fossil fuel would also start using their cargo as a fuel. Recently, two LNG carriers ordered from France for Gaz de France (Provalys) and NYK Line/Gaz de France (Gaselys) went into service propelled by dual-fuel diesel electric (DFDE) engines (Lysebo, 2007). The ships have been successfully tested running on re-gasified LNG, and have achieved higher propulsion efficiency and reduced emissions compared with propulsion by steam turbine or diesel-powered engine. However, because of the expense of storing LNG safely, it is unlikely that LNG will become a significant fuel for ship propulsion except on LNG carriers.

Biofuels

125. Existing engines used in maritime shipping burn particularly impure forms of middle-distillate oil (MDO) or heavy fuel oil (HFO), which have to be pre-heated to reduce their viscosity. As pointed out by Bucher (2008), one obvious option for ships that use such bunker oils is to switch to using unrefined plant oils. In contrast with high-performance diesel engines, such as those used in cars, the plant oils do not have to be purified and chemically altered into biodiesel (fatty-acid methyl ester) in order to be used in ship engines, which reduces the cost.33 However, the world’s supply of vegetable oils is much smaller than of bunker oils and, as witnessed in 2007 and 2008, has a low price elasticity of supply in the short run. At the end of 2007, for example, the price of crude palm oil was about 25% higher than bunker crude. Over the longer term, new land could be brought into production to produce vegetable oils, but such expansion could be at the expense of tropical rain forests, thus possibly negating the carbon-abatement advantages of using biofuels (Fargione et al., 2008).

126. The future availability of MDF and HFO complements and substitutes is thus likely to be dependent on developments in three areas: (i) the expansion of plant oil production from crops grown on land that does not compete with current arable-crop production; (ii) the development of systems for large-scale production of oil-bearing algae, also on non-arable land; and (iii) the development of renewable diesel substitutes derived from cellulosic biomass.

127. The first pathway to increasing the supply of rewnewable substitutes for petroleum oils involves vastly expanding plantations planted to non-food crops, such as Jatropha curcus, a hardy shrub native to Central America. Already, China has set aside an area the size of England to produce jatropha and other non-food plants for biodiesel. India claims that it has up to 60 million hectares of non-arable land available to produce jatropha, and intends to replace 20% of its diesel fuels with jatropha-based biodiesel. In Brazil and Africa, a number of projects are underway dedicated to producing biodiesel from non-food crops such as jatropha and castor. Given that these projects have been generally supported by a combination of international aid or domestic subsidies, and are intended to serve domestic markets for fuel, it is unlikely that large volumes of biodiesel from these projects will reach international bunker markets.

128. The second pathway involves producing algae and harvesting lipids from them. One popular idea is to install algae-production facilities next to CO2-emitting sources, such as power plants, and use those

33 The Mærsk Line reported in 2007 that it was planning tests onboard its vessels to measure the performance

and investigate the potentials of biodiesel further.


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emissions to help grow the algae. Because of the possibility that algae could be used as a form of carbon sequestration, numerous governments and private companies are exploring the use of algae to produce fuel (Curry, 2008). One company has recently claimed to have produced more than 900 000 litres of algae oil a year per hectacre (Walton, 2008). However, the economics of algae-based biofuels are still uncertain, and current expectations are that it will be at least a decade before commercial quantities start to become available at a price competitive with petroleum fuels.

129. There are a number of approaches in the development stage that are competing to produce renewable substitutes for MDOs from cellulosic biomass.34 Generally, liquid fuels made from cellulosic sources can achieve improvements in GHG emissions (on a life-cycle basis) of up to 90% compared with petroleum fuels — if the feedstock comes from a sustainable source and there are no direct or indirect emissions associated with land conversion (Fargione et al., 2008). The most well-established biomass-to-liquids (BTL) technologies capable of producing MDO substitutes involve first gasifying the biomass and then turning the resulting “synthesis gas” into a liquid, such as through the well-known Fischer-Tropsch (FT) synthesis process. One leader in this field, Choren Industries, plans to start building its first industrial-scale BTL plant at Schwedt in the state of Brandenburg, Germany, in 2009, for completion by 2013.35 The 250 million-litre per year plant is expected to cost more than € 800 million, implying an amortized capital cost of around € 0.50 per litre. Operating costs for such a plant would add another € 0.40 to € 0.90 per litre, depending on the nature and availability of feedstock.

130. The expectation is that the capital cost component of BTL could be reduced over time as the industry gains experience with the process. However, it is unlikely that large volumes of competitively priced BTL will become available for at least a decade, and most of what is produced will serve domestic markets for road transport fuels.

Nuclear propulsion

131. Cargo ships can also be propelled by nuclear energy. This was demonstrated several decades ago through the subsidized construction and operation of four nuclear-powered cargo ships by the United States (N.S. Savannah), Germany (Otto Hahn), Japan (Mutsu) and Russia (Sevmorput). The N.S. Savannah was commissioned in 1962 and operated for eight years. The Otto Hahn clocked some 650 000 nautical miles during the 10 years in which it operated on nuclear fuel, without any major technical problems. The 34 000 DWT ice-breaking cargo ship Sevmorput, commissioned in 1988, is still operating along Russia’s Northeast Passage, where refuelling points for marine bunker fuel are few.

132. In the 1990s there was a renewed interest in the idea of nuclear-powered shipping, prompting one analyst (Adams,1995) to enthuse:

The future is bright, the benefits are apparent, and the technology is available. The impact of nuclear power on ocean shipping can be as great as that of containerization. Because of the increased speed and flexibility of operation, atomic energy can allow ships to compete more effectively with aircraft in the market for international deliveries.

As Adams (1995) pointed out, nuclear-powered ships would have several technological advantages over fossil-fuel-powered ships, besides much reduced CO2 emissions (on a life-cycle basis). These include:

• zero emissions of air pollutants, like SO2 and particulate matter 34 A good source of up-to-date information on developments in this area is provided by the Green Car

Congress web site: www.greencarcongress.com/biomasstoliquids_btl/index.html. 35 www.choren.com/en/choren_industries/information_press/press_releases/?nid=177


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• greater power density and speed;

• greater space for cargo for any given ship size (since the space required for carrying fuel would be less);

• greater reliability of the propulsion system.

Increasing the speed and capacity of ships would mean that more cargo could be moved with the same number of ships. Cargo would spend less time at sea, which saves on financial carrying costs. And, since a faster ship requires the same crew size as a slow one, productivity is increased.

133. The main barriers to nuclear propulsion of cargo vehicles are economic and regulatory. Regulatory barriers relate to the unwillingness of countries or port administrations to accept nuclear-powered vessels because of concerns over safety and the proliferation of nuclear material (Buhaug et al., 2008). Decommissioning and waste-disposal issues arising from Russian submarine reactors have already been raised as a concern.

Air-freight transport

134. Because of the sheer size and faster expansion of the market for the passenger segment of the market for air transport, studies on CO2 emissions in aviation have generally concentrated on passenger travel and fuel efficiency in terms of CO2 emitted per seat-kilometre (or passenger-kilometre) flown. Here we are primarily concerned with air-freight transport, but since a majority of aircraft models and designs for cargo transport are drawn on those in the passenger segment, a good deal of data on the efficiency of passenger aircraft can be used as a reasonable proxy to that of cargo planes.

Operational changes

135. The ability of the airline industry to exploit efficiency gains through operational changes is determined by both technological advances and institutional change. As with technological improvements to the aircraft themselves, therefore, it is appropriate to consider what can be accomplished over the short, medium-term and longer term.

136. In the short term, the most important means for an air carrier to reduce its fuel consumption is to increase its load factor. Over the medium term — i.e., given time for the necessary equipment to be installed and training of personnel provided — numerous improvements in procedures are likely to be undertaken by the industry that, as one consequence, will result in more-efficient operation of aircraft. Over the longer term, the modernization of air-traffic management (ATM) systems will play an important role in increasing efficiency.

137. Among the changes to procedures well underway is the adoption of Reduced Vertical Separation Minimum (RVSM). When RVSM went into effect in January 2005 for domestic flights over the United States’ 48 contiguous states plus Alaska, as well as southern Canada36 in January 2005, it reduced the minimum vertical separation between aircraft to 1 000 feet (310 metres), half the distance required before the RVSM rules went into effect. Equipping aircraft for RVSM is not cost free: it requires retrofitting each one with numerous avionics systems, including dual, independent, cross-coupled digital altimeters; a Mode C or Mode S transponder; an automatic altitude hold system; an altitude alerter system; dual air-data computers; and an autopilot able to maintain tight altitude control (Adams, 2006). By enabling aircraft to

36 Because their airspaces are linked, southern Canada had to wait until the United States adopted RVSM

before it could do the same (Adam, 2006).


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follow more optimal flight paths, altitudes and routes, RVSM has already been shown to translate into a 3.5–5% reduction in fuel burn at high altitudes (where water vapour from combustion acts as a greenhouse gas), and a 1.6–2.3% reduction overall.37 So far, RVSM has been implemented in the air spaces of the North Atlantic Ocean, the Pacific Ocean, Europe, Europe to South America Routes, the South China Sea, Australia, North America (U.S., Canada and Mexico), the Middle East, South-East Asia to Europe Routes, and the Caribbean and South America; it is planned for implementation in Japan and the southern half of the Korean peninsula, Eastern Europe and Russia, and Africa.38 Once it is implemented in those regions, that will leave mainly the People’s Republic of China, Mongolia, the northern half of the Korean peninsula, and the Indian Ocean where RVSM is not yet possible.

138. Another approach that is conducive to reducing fuel consumption in aviation involves changing the way planes descend, a technique known as a Continuous Descent Approach (CDA). Currently, the descent of an aircraft into a commercial airport takes place in several steps and additional thrust is required for the aircraft to level off at each of these steps. CDA eliminates the steps and the additional thrust, greatly reducing fuel burn and consequent emissions. Ancillary benefits of CDA include a lower noise level, again as a result of having no thrust during descent and shorter flight time, generating further fuel savings (Air Transport Association, 2006).

139. Airport authorities and air-traffic controls in some OECD countries have shown keen interest in exploring the implementation of CDA and a number of trials have been conducted at a number of airports in Europe and North America. Successful implementation of CDA at London’s Heathrow airport, albeit motivated primarily by the need for noise reduction, suggests that the method is feasible even for the world’s busiest airports with often congested skies. In early 2009, a group of international and European aviation organizations — involving IATA, the Civil Air Navigation Services Organisation (CANSO), the Airports Council International Europe, and EUROCONTROL — launched the European Joint Industry CDA Action Plan to implement continuous descent approach at 100 European airports by 2013 (EUROCONTROL, 2009). Reaching this target is expected to save airlines 150 000 tonnes of fuel a year, while reducing annual CO2 emissions by 500 000 million tonnes.

140. Another sphere at the operational level where there is a fuel saving potential is through improved communications, navigation and surveillance (CNS) and air-traffic management (ATM). The International Civil Aviation Organisation (ICAO) estimates that improvements in CNS and ATM systems in the US and Europe alone are expected to reduce aircraft fuel burn by about 5%, although much of this 5% is likely to be realised in the passenger segment.

141. Considerable efforts are underway in Europe (Single European Sky ATM Research, or SESAR) and the United States (Next Generation Air Transportation System, or NextGen), to define and develop the next generation of ATM systems for deployment within a 15 to 25-year timeframe. As described by Brooker (2008):

The common vision is to integrate and implement new technologies to improve air traffic management (ATM) performance – a “new paradigm”. SESAR and NextGen combine increased automation with new procedures to achieve safety, economic, capacity, environmental, and security benefits. The systems do not have to be identical, but must have aligned requirements for equipment standards and technical interoperability. A key component is a ‘cooperative surveillance’ model, where aircraft are constantly transmitting their position (from navigational

37 The amount of the fuel savings is difficult to estimate precisely, given other changes that have taken place

since the introduction of RVSM. The FAA (Baart, 2002), in a simulation of the effects of RVSM in the United States, estimated it would reduce overall fuel consumption on domestic flights by just under 2%.

38 Source: www.rvsm-monitoring.com/about_rvsm.htm.


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satellites), flight path intent, and other useful aircraft parameters – known as ADS-B (Automatic Dependent Surveillance-Broadcast). The focus for planning and executing system operations will increasingly be aircraft 4D trajectories: a 4D trajectory is the aircraft path, three space dimensions plus time, from gate-to-gate, i.e. including the path along the ground at the airport.

The Sesar Joint Undertaking (2008) estimates that, once up and running in 2020, the new ATM system will reduce the average fuel used per flight in Europe by an average of 300-500 kilogrammes, and average CO2 emissions by 945–1575 kilogrammes. For a Stockholm–New York flight operated with an Airbus A330, it estimates that, as a result of improved air traffic management, savings would be in the range of — or 4,600 kilogrammes of fuel, or 14,400 kg of CO2 in this particular case.

Technological innovations

142. Aircraft that were brought to the market in the late 1990s demonstrate some 55% overall improvement in fuel efficiency compared with their predecessors or older models operating in the early years of the 1960s (Figure 9).39 Part of the efficiency gains was achieved through developments in engine technologies and resulting reductions in fuel economy. Others have been the result of changes to the aircraft design itself, and more generally to growth in the average size of aircraft.

Figure 10. Engine fuel reductions in large commercial jet aircraft since the late 1950s

39 In the literature, an increase in fuel efficiency of 70% is often cited. However, this figure compares current

aircraft with the De Havilland Commet — an aircraft that was used only for a brief period and of which few were sold. The authors suggest, instead, using the much more successful Boeing 707 as the reference aircraft, which yields an improvement of 55% between 1960 and 2000.


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143. A recent report of the Group on International Aviation and Climate Change (ICAO, 2009), notes that fuel-burn reduction technologies can be attributed to developments in one of four core aircraft technology design areas:

• weight reduction using advanced materials and structural layout, including innovative manufacturing methods;

• aerodynamic improvements resulting in lift/drag optimization and configuration refinements;

• engine specific fuel consumption (SFC) reduction: Propulsion and power-generation developments; and

• aircraft configuration optimization and systems integration

144. The report also cautions that, for any technology, one size does not fit all. Rather, the benefit of any specific technology depends on the aircraft and the size of its engine, as well as mission-design parameters.

145. Weight reductionFuel use per tonne-kilometre transported by aircraft can be decomposed into five variables some of which are interrelated: configuration, weight, lift-to-drag ratio, thrust and engine technology (Figure 10). Greater fuel economy, and hence lower GHG emissions per tonne-kilometre, in aviation can be and has been obtained through improving engine efficiencies and increasing lift-to-drag ratio.

146. The lift-to-drag ratio is a function of the aircraft’s lifting force and aerodynamic drag, and this ratio has been increased by various modifications to the overall design and the use of lighter materials. All else equal, the heavier the aircraft, the more fuel it must consume to keep it airborne. There has been a rapid expansion of the use of high-strength, damage-resistant and lightweight composites in aircraft applications and these composite materials have contributed to lowering the weight of aircrafts over the past several years.40 Examples of such composites include carbon-fibre reinforced plastic (CFRP), glass-fibre reinforced plastic, quartz-fibre reinforced plastic and aluminium glass fibre laminate, which are used in wings, fuselage sections, tail surface and doors.

40 The use of GLARE for Airbus’s A380, for example, contributes to a weight reduction of 800 kilogrammes

compared with conventional technologies based on aluminium. (See www.transtex.jp/special/airbus/02/p1.html)


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Figure 11. The basic parameters of aircraft design

Source: U.S. National Aeronautic and Space Administration (http://www.grc.nasa.gov/WWW/K-12/airplane/Images/cruise.gif)

147. CFRP, for example, is at least as strong and stiff as the metals conventionally used for aircraft such as aluminium, titanium and steel, while the relative weight per volume is half that of aluminium and one-fifth of steel. Boeing’s latest freighter, the 747-8 Freighter, incorporates many of the fuel-efficient features of its new Boeing 787 passenger model, of which CFRP will account for 50% of the total weight. Airbus’s A380-800F will have 52% of its fuselage made of CFRP and its wings are of metal-ribbed, three-spar, CFRP construction. These new aircrafts will consequently weigh significantly lighter than comparable existing aircraft.41 Another new innovation is glass-reinforced fibre metal laminate (GLARE), which is starting to be incorporated into the fuselage skin of some aircraft. Although GLARE is more expensive to manufacture, its manufacturers claim that it is stronger and lighter than CFRP, saves on inspection and maintenance costs, and provides greater safety over for its longer lifetime.

Aerodynamic improvements

148. Technological advances in the industry have also contributed to improving the aerodynamics of modern aircraft. Relatively simple modifications in wing design have realised significant savings in fuel consumption already. Wingtip devices or ‘winglets’, for example, are now widely employed, increasing the lift-to-drag ratio by 4% to 7%. For some aircraft used mainly for long-haul flights, a ‘raked wingtip’, which improves cruising performance, is preferred. Boeing has used raked wingtips to enhance the fuel efficiency and climb performance from its long-range 777 series, for example (Boeing, 2002).

149. Less drag naturally improves the energy efficiency of aircraft. A reduction in the pressure drag, which refers to a form of parasitic drag caused by the pressure difference between the front and rear of the airplane, is obtainable through the use of the technologies that improve laminar flow. Already, newly certified aircraft expected to enter into revenue service by 2015 are employing wings designed for natural laminar flow (ICAO, 2009). In the future, it is expected that aircraft will be designed with hybrid laminar flow controls. Full integration of this particular technology could potentially reduce the fuel burn of some medium-range aircraft by over 15% (Greener by Design, 2005).

41 Weight reductions are more apparent for passenger aircraft where the lightweight materials are increasingly

used for the seats and passenger-related equipment. Research by The Japan Carbon Fibre Manufacturers Association, in co-operation with Tokyo University, Kobe Yamanote University, All Nippon Airways and Boeing, claims that a medium-range aircraft using 50% CFRP in its construction would weigh 20% less than a comparable non-CFRP aircraft. (See www.carbonfiber.gr.jp/lcamodel.pdf.)


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Improvements in engine efficiency

150. Developments in propulsion technology have also helped to improve the fuel efficiency of aircraft. Jet engine designs have been modified to achieve greater propulsion efficiency and improved thermal efficiency, resulting in lower fuel consumption.42 A further 20-25% improvement in fuel consumption is still considered attainable through improvement in propulsion technology, while meeting expected future emissions standards (IEA, 2008).

151. The International Coordinating Council of Aerospace Industries Associations (ICCAIA; reported in ICAO, 2009) identifies three pathways for improving the efficiency of an aircraft jet engine of a given design: (i) propulsive efficiency, which refers to how efficiently the exhaust gas of the engine propels the aircraft; (ii) thermal efficiency, which refers to how efficiently the energy content of the fuel can be converted to useful energy (gas-stream horsepower) for subsequently producing thrust; and (iii) transmissive efficiency, which refers to how efficiently the engine’s components work together. ICAO expects that, in future aircraft engines, propulsive efficiency improvements will continue to take place through engine manufacturer’s improvements in fan blades and the fan case, as well as by reducing the weight and drag of the nacelle. Design improvements are also expected to lead to incremental improvements in propulsive and thermal efficiency.

152. Ultimately, new engine-architecture concepts under consideration are expected to yield significant fuel burn improvement relative to today’s engines. The focus of current engine manufacturers’ R&D efforts are on the advanced turbofan (ATF), the geared turbofan (GTF), the (counter-rotating) open rotor engine, and Intercooled and Recuperated cycles. Advanced turbofan engines with higher bypass-ratio configurations, including ones with geared and ungeared fan architectures, are already expected to be used in aircraft expected to go into service by 2015 (ICAO, 2009).

Fuel consumption technology scenarios

153. Based on assumptions on improvements in the core aircraft technologies discussed above, ICCAIA recently concluded that reductions in the rate of fuel consumption by aircraft have been greater than was forecast by the IPCC in its 1999 report. The IPCC’s 1999 scenario produced a 0.95% annual rate of fuel-consumption reduction between 1997 and 2015, and a 0.57% per year reduction from 2015 to 2050. New projections out to 2050 produced by the ICCAIA (cited in ICAO, 2009), using 2006 as the base year, look at two scenarios. Scenario A, which assumes that there will be “intensive current and future research efforts and the introduction of improved products reflecting actual achievements or ambitious targets”, yields a 0.96% per year fuel-burn reduction. Scenario B, which requires “the assumption that ambitious EU and US research programs will be funded and successful”, produces on average a 1.16% per year reduction in the rate of fuel burn. These two scenarios represent, respectively, the possibility of a 52% or a 66% reduction in the rate of fuel burn of commercial aircraft between 2006 and 2050. Of course, total fuel burn will depend on how the volume of air traffic evolves over that period.

Fuel substitution

154. The potential for replacing fossil fuels with lower-carbon energy sources is perhaps more difficult for air transport than for any other mode. Nuclear powered aircraft, while technologically possible,

42 GE’s GE90 turbofan engine family developed in the early 1990s for the large, twin-engine Boeing 777s,

for instance, has produced a world-record thrust of 110 300 pounds in ground testing. Equipped with the world's largest fan (at 123 inches in diameter), it uses composite fan blades, and the highest engine bypass ratio (9:1) to produce the greatest propulsive efficiency of any commercial transport engine. (See www.pilotfriend.com/aero_engines/aero_jet.htm.)


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would be expensive, and are unlikely to be approved by governments for civilian use, given the hazards associated with the release of radioactive material in the event of a high-impact crash. That leaves, for the time being, liquid fuels that are similar in density to today’s aviation fuels (primarily kerosene), but which produce much less GHG emissions on a life-cycle basis.

155. Renewable biomass fuels are one possibility currently attracting a considerable amount of attention. Currently, there are three types of biofuels with possible use in jet aircraft: biodiesel, biojet made from lipids (i.e., vegetable oils or fats), and synthetic jet kerosene made from cellulosic materials through a thermo-chemical process. Biodiesel has been tested in a few aircraft, but is not considered to be a likely substitute in commercial use for jet A1 kerosene because of its relatively high freezing point and its limited storage time (typically around six months, depending on the lipid from which it was made).

156. Much more promising from a technical standpoint is biojet (technically, synthetic paraffinated kerosenes), a fuel that has been refined from plant oils through a staged process of de-oxygenation, selective cracking and isomerisation — i.e., similar to that used to refine crude petroleum oils. The characteristics of this type of biojet have shown it to be as good as, or superior to, conventional jet fuel: it has a lower freeze point, higher flash point, and similar density (g/mL). It is also cleaner burning than conventional jet fuel, due to its lower sulphur and lower aromatics content. In terms of life-cycle emissions (ignoring emissions associated with direct or indirect land-use conversion), the leading manufacturer, UOP, is claiming improvements of 60% or better compared with jet fuel made from crude petroleum oil (Holmgren, 2008). This number is consistent with the findings reported by the IATA in December 2008 (Table 9). However, if carbon emissions from land-use change are factored in, biojet made from vegetable oils can have a worse life-cycle GHG profile than conventional jet fuel, depending on the type of land converted and other assumptions.

Table 9. Relative life-cycle GHG emissions for aviation fuel through various fuel pathways

Fuel feedstock and pathway High Low BaselineCrude to jet fuel 1.1 0.9 1.0 Crude to ULS jet fuel 1.1 1.0 1.0 Oil sands to jet fuel (surface mining) 1.4 1.1 1.2 Oil sands to jet fuel (in-situ production) 1.7 1.2 1.3 Oil shale to jet fuel 1.7 1.0 1.4 Coal to Fischer-Tropsch jet fuel (without carbon capture) 1.9 2.3 3.2 Coal to Fischer-Tropsch jet fuel (with carbon capture) 1.5 1.0 1.1 Biomass to Fischer-Tropsch jet fuel 0.2 0.1 0.1 Soy oil to biojet (without land-use change) 0.6 0.4 0.4 Soy oil to biojet (with land-use change) 7.1 1.1 3.4 Palm oil to biojet (without land-use change) 0.4 0.3 0.3 Palm oil to biojet (with land-use change) 7.6 0.4 1.6

Source: Hsin Min Wong, Life-cycle Assessment of Greenhouse Gas Emissions from Alternative Jet Fuels, September 2008, cited by IATA (2008, p. 26)

157. Flight tests carried out in 2008 and 2009 by several airlines (Air New Zealand, Continental Airlines, Japan Air Lines, and Virgin Atlantic) in aircraft equipped with engines made by a wide cross-section of manufacturers (CFM International, GE, Pratt & Whitney and Rolls-Royce), have yielded what some in the industry have called “outstanding” results (Holland, 2009). These tests suggest that modern aircraft would not require modifications to operate on blends of 30% biojet and 70% kerosene, and that with only slight modifications they could operate on 100% biojet. Currently, biojet is not approved by any country for use as a commercial fuel. Consequently, the aviation industry for the moment concentrating on obtaining the necessary approval from airworthiness authorities for the use of various biomass-derived fuels. As a first step, an industry team comprised of original-equipment manufacturers, refiners, airworthiness authorities and other interested parties, is writing an ASTM (American Society of Testing


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and Materials) fuel specification for alternative fuels, with the aim of obtaining certification for blends containing a certain percentage of hydro-processed renewable jet fuel (HRJ) by end of 2010, and for 100% HRJ by 2013 (IATA, 2008).

158. In November 2009, General Electric, Brazilian aircraft manufacturer Embraer, the Brazilian airline Azul Linhas Aereas, and biotech start-up Amyris Biotechnologies, signed a memorandum of understanding to assess technical aspects of using a sugarcane-based renewable fuel in passenger jets, with the aim of launching test flights by 2012 (Grady, 2009). Amyris is developing the fuel and GE will develop the engines that will be used on an Embraer aircraft belonging to Azul.

159. Because the industry is only interested in sourcing biofuels from what it can certify as “sustainable feedstocks”, most of the vegetable oils used in the tests have been derived from oils pressed from the seeds of the poisonous Jatropha curcus plant (a drought-tolerant shrub grown in the tropics and sub-tropics), camelina (a temperate oilseed crop, also known as gold-of-pleasure and false flax), babassu (a palm native to the Amazon Rainforest region in South America), as well as small amounts of oil harvested from salt-water algae. Although none of these are major food crops, there is no certainty their development will not take place on arable land, which deliver higher yields.43 Accordingly, Boeing, Honeywell’s UOP subsidiary (a developer of refining technologies), the Natural Resources Defense Council, the WorldWide Fund for Nature and at least nine leading airline companies44 joined together in September 2008 to create the Sustainable Aviation Fuel Users Group (SAFUG). Members pledge to use only renewable fuel sources that require minimal land, water and energy to produce, and that do not compete with food or fresh-water resources. The Group is currently sponsoring research into Jatropha curcus and algae.

160. According to recent press reports (e.g., Milmo, 2008), Boeing has said that it expects that biofuel-powered aircraft could begin operations sometime between 2011 and 2013. The amount of biofuels that are likely to be used initially will be small, however. Supply and cost are the main constraints, for the same reasons as discussed in the previous section on maritime propulsion. Fuelling the world’s 13 000 commercial planes — which currently consume 320 billion litres of kerosene a year — with first-generation biojet, for example, would require setting aside the equivalent of the entire land mass of Europe, if it were derived from soybean oil, and an area greater than the size of Chad (twice the area of France) if it were derived from the oil of Jatropha curcus.

161. As with other transport modes currently dependent on middle-distillate fuels, any large shift to biofuels could only occur if and when large amounts of 2nd-generation biofuels become available. Among the major contenders are biojet made from the lipids produced by algae, and synthetic jet-fuel substitutes made from thermo-chemical processes, notably either pyrolysis and catalytic stabilization and deoxygenation (see, e.g., Holmgren, 2008), or through the Fischer-Tropsch process (Strahan, 2008). Both of these pathways have been shown to be technically feasible. The main barrier for both pathways is cost.

Road transport

162. Heavy-duty long-haul trucks already benefit from a very efficient propulsion system: diesel engines. However, according to the IEA (2008), reductions in energy intensity of up to 40% can still be gained via a combination of engine and cab-and-trailer (weight and aerodynamic) improvements, and changes in usage patterns (e.g. reductions in empty travel). It estimates (IEA, 2010) that a package of 43 Indeed, camelina is currently being grown on arable land, mainly in the north-western prairie states of the

United States. The goal of biofuel producers is to encourage camelina as a rotation crop with wheat, substituting for green fallow.

44 Air France, Air New Zealand, ANA (All Nippon Airways), Cargolux, Gulf Air, Japan Airlines, KLM, SAS, and Virgin Atlantic Airways.


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measures might be able to improve overall trucking efficiency by 20-30% at low or possibly even negative costs per tonne of CO2-eq avoided.

Operational improvements

163. Reducing fuel consumption in existing road fleets relies on seeking out small, common-sense changes that deliver incremental results, such as reducing idling time and seeking out more direct or less congested routes (Gale, 2008). Spurred by the soaring cost of fuel, several major corporations have already achieved energy savings through “green logistics programs” (Box A.1). The IEA (2009) points out that reducing the amount of time that trucks are carrying no load can also improve overall fuel efficiency. It estimates that empty travel may average as much as 50% of all truck travel in some countries. In Europe it ranges from 15% to 35%, depending on the country, with an overall average of around 25%. Reductions in empty running over time can be expected as a result of, among other developments: the emergence of load-matching agencies and online freight exchanges; a strengthening counter-flow of products along the supply chain going back for recycling and remanufacture; the outsourcing of transport to third-party carriers with multiple loading options. To the extent that these initiatives reduce fuel use, carbon emissions are thereby reduced.

Box A.1. Examples of private-sector initiatives to reduce fuel use from delivery vehicles and lorries

• In 2002, Xerox Corporation set out to cut fuel usage of the company's fleet of 5 000 vehicles 10% by 2005. By instituting small changes — finding the right vehicle for each driver, buying fuel-efficient vehicles, tracking mileage, and using GPS systems to send technicians to the closest client — the company now expects to achieve a 25% reduction in fuel use, and thus a corresponding reduction in CO2 emissions, by 2012.

• Bison Transportation, a truck-load carrier headquartered in Winnipeg, Manitoba, has developed a customized training program for its drivers. The program identifies and shows the value of various methods of cutting fuel consumption, such as from gradual acceleration and reduced idling. As an added incentive, Bison also splits the savings from reducing fuel consumption 50/50 with its drivers.

• In 2007, household-product manufacturer, SC Johnson, cut its fuel usage by 635 000 litres (168,000 gallons), saving approximately USD 1.6 million and avoiding the emission of almost 1 900 tonnes of greenhouse gases, through its Truckload Utilization Project, which combines multiple customer orders and products in individual trucks for maximum efficiency.

• In order to achieve its objective of reducing its absolute CO2 emissions seven percent below 2001 levels, Staples, an office-supply company, has switched half of its truck drivers from five 8-hour days to four 10-hour days, thereby allowing drivers to deliver more freight in a day. The trucks thus deliver more goods in a day while covering fewer miles with fewer trucks. Staples has also implemented a central computer system that ensures that its drivers do not exceed 60 miles per hour (98 kilometers per hour). That yielded a 15% reduction in fuel consumption — the annual equivalent of 40,000 gallons of diesel and roughly 6,000 tons of avoided carbon emissions.

Source: Based on Gale (2008).


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164. Governments are also promoting more-efficient road fleets. The U.S. Environmental Protection Agency’s “SmartWay Transport Partnership” (www.epa.gov/smartway), for example, is helping to increase energy efficiency in diesel-powered freight transport.45 EPA-Certified SmartWay Tractors and EPA Certified SmartWay Trailers are outfitted at point of sale with equipment that significantly reduces fuel use and emissions. Eight major truck manufacturers are now offering at least one long-haul model that meets SmartWay specifications. The programme is not confined only to new tractor-trailers, however. Upgrade kits are available, which bundle fuel-efficient technologies with emission-control devices to reduce fuel consumption and emissions of greenhouse gases and air pollutants. The U.S. EPA estimates that companies that install upgrade kits experience a full return on their investment within one to three years.


165. Although considerable media attention has been given to alternative propulsion systems for trucks, recent research suggests that there remains considerable scope for further increasing the thermodynamic efficiency of diesel-powered propulsion systems. The implications for these developments are significant, including for other transport modes that utilize diesel engines.46 Grave et al. (2005) and Edwards et al. (2008) for example, note that there are a number of near-term pathways for increasing the efficiency of internal-combustion engines. These include the development of high-compression-ratio engines, more effective utilization of waste heat (e.g., through recirculating exhaust gas heat, and introducing multiple work extraction stages), reducing heat loss (through the use of advanced combustion modes and materials), and reducing friction losses (through the use of advanced lubricants and the electrification of accessories). Over the longer term, significant improvements in combustion efficiency will require modifications of the combustion chemistry in the engine in order to reduce the limits posed by combustion irreversibility.47 Staged combustion with oxygen transfer (SCOT) is one radically different type of combustion process for implementing such an approach that is being researched currently.

166. Using different propulsion systems, such as hybrid-electric engines or even fuel cells, may eventually become cost-effective for road transport of freight. There is a broad suite of hybrid technologies under development, such as the hydraulic hybrid drive system that the U.S. EPA and private-sector partners have successfully employed in UPS and FedEx delivery vans and other applications. The most recent project involves the development of a prototype hydraulic hybrid version of the yard tractors (drayage fleets) typically found in ports, rail yards, and distribution centres around the world.48

45 The SmartWay program is also being expanded to a version 2.0 that, among other refinements, will include

maritime and aviation transport modes. 46 Equally, The fruits of research into improving the thermo-dynamic efficiency of off-road (e.g., marine)

diesel engines may also transfer to diesel engines designed for road use. 47 Processes that generate entropy, such as the combustion of fuel in an engine, are said to be

“thermodynamically irreversible”. This irreversibility of unrestrained combustion comes mostly from internal heat transfer between the products (exhaust gases) and reactants (fuel and air). Such heat transfer is inevitable where highly energetic product molecules are free to exchange energy with unreacted fuel and air (Grave et al., 2005).

48 Source: http://www.epa.gov/smartway/transport/partner-resources/resources-publications.htm. Neither are hybrid technologies necessarily restricted to land-side applications; see, for example, the Foss Marine “Green Assist” hybrid tug boat at www.foss.com/environment_hybridtug.html.


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167. Paying greater attention to the energy demand of accessories could reduce emissions as well. One of the most important approaches to reducing energy use relating to accessories has been to install in-cab auxiliary power units (APU) in trucks. Truck idling, in part to run accessories, is responsible for about 20% of the CO2 emissions load of goods trucks. Bison Transportation, a trucking company based in Canada, has installed APUs in all its trucks, thereby reducing the company’s overall greenhouse-gas emissions by 5 percent. The APUs enable the drivers, who are typically on the road for several days at a time, to heat their sleeping compartments and power small appliances without running the truck engine. The units consume one-tenth the power that running the engines would require. They also keep the truck batteries charged throughout the night, which prevents freeze-ups in the cold Canadian winters. The heaters have a payback period of two years on fuel savings alone, not including savings from extending engine life and reducing maintenance costs (Gale, 2008).

168. Another approach to reducing the fuel consumed by idling truck engines is to provide electrified parking spaces, with plug-in electrical hookups for truckers. These have increased in number in the United States over the past couple of years, sometimes supported by the sale of carbon offsets or government initiatives, though as of May 2009 they were available at only around 200 of the approximately 5 000 truck stops across the United States (Gies, 2009). Electrified parking spaces can provide truckers with heat, air-conditioning, electricity, and even access to the Internet and cable television. Two forms exist. Single-system electrification requires no investment from the trucker, apart from a USD 10 window adapter. So-called “shore-based power” requires that the trucker install about USD 2 500 worth of equipment, but the charge per hour of connection is less than for connection to a single-system electrification hook-up.

169. Another area for improvement is lighting. According to Onoda and Gueret (2007), because of the very poor yield of the engines and alternators, external lights on road vehicles account for 3.2% of all road-vehicle energy use (including by passenger cars and busses). This translates into 1.4% of global oil demand — equivalent to 48 million tonnes of oil equivalent per year — and emissions of over 130 million tonnes of CO2 per year. New, more-efficient technologies are being developed that could cut energy use for lighting dramatically. However, growth in the number of vehicles, an increase in the number and power of lights per vehicle, and legislation requiring headlamps to be kept on during the daytime (in response to safety data showing that a significant proportion of head-on collisions can be avoided by making vehicles more visible in the daytime), are likely to partially offset expected efficiency gains.

Fuel substitution

170. For heavy-duty lorries, the main known possibilities for changing the energy source through propulsion resides in substituting lower-carbon fuels for diesel fuel, or switching from internal-combustion to fuel-cell technologies. Fuel substitution is also compatible with hybrid engine technologies.

171. Among the slightly lower-carbon fuels already being used on a small scale for goods transport by road are liquefied propane gas (LPG) and compressed natural gas (CNG). These fuels have been used by light- and medium-duty vehicles for many years now, especially in urban areas where reducing local air pollutants is a priority, and can be adapted to existing spark-ignition engines. LPG is limited in supply, however, and CNG is often more expensive to produce than petroleum diesel fuel. While CNG is taxed at least to some extent in all OECD countries, many apply lower taxes on CNG than on diesel, and a number of non‐OECD countries apply low tax rates or even subsidize natural gas used for transportation. This leads to large differences in CNG prices among countries. Nonetheless, on average, CNG prices at the pump (normalized for energy content) are only 50% to 70% those of diesel.

172. Worldwide, the number of natural-gas powered vehicles has been increasing at an annual growth rate of 25-30% since 2000, and such growth is expected to continue in countries with ample supplies of natural gas, or where the lower particulate emissions from the vehicles are an important feature (Nijboer,


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2010). Currently, the countries with the greatest number of natural-gas vehicle filling stations are Pakistan (3 000), Argentina (1 850), Brazil (1 700), and Iran (1 080). The advent of dual‐fuel technology could increase the use of CNG in long-distance trucks. Methane, the main constituent of natural gas, normally requires spark ignition and is therefore used currently in engines that are designed to run on gasoline. Diesel engines, which are inherently more efficient, use the heat generated by compression to initiate ignition to burn the fuel. In dual‐fuel engines, a small amount of diesel is still used for this purpose, but the rest of the diesel fuel can be replaced by any source of methane (natural gas or bio-gas), especially when the engine is under heavy load.

173. The other possibility is the replacement of diesel fuel with biomass-derived diesel substitutes, such as biodiesel or synthetic diesel. As explained in the section on marine propulsion options, the short-term outlook for substantially increasing the supply of renewable diesel substitutes is limited. However, in contrast with marine bunker fuels, there is a greater chance that as biodiesel from non-food crops starts to become available in places like Brazil, China, India and eastern Africa, it will be used domestically by road-freight haulers.

174. Research on fuel-cell drive trains fuelled with either hydrocarbons (petroleum or biofuels-based) or hydrogen is also underway in several OECD countries. To meet the exacting demands of heavy-duty transport for road (or, indeed for rail or marine applications), fuel cells have to be durable, robust, reliable, highly efficient, with a high power density (above 60%), and capable of producing several hundred kilowatts of peak power. Two of the fuel-cell technologies that look to be among the most promising for heavy-duty transport applications are polymer electrolyte fuel cells (PEFC) and solid-oxide fuel cells (SOFC). Currently neither technology is capable of meeting the wide ranging needs of heavy-duty transport either because of low efficiencies (as is the case of PEFC), or poor transient performance (as is the case of SOFC).49

Rail transport

Operational and infrastructure improvements

175. Because of the large amount of capital tied up in rail stock, and the cost of fuel, most rail companies have a strong incentive to operate their businesses efficiently, and to strive for a high capacity factor. Nonetheless, in the short term, fuel use can be reduced through reducing acceleration and minimizing the transport of empty rail cars.


176. Freight trains have increased their fuel efficiency by 80 percent over the past 25 years and today’s locomotives can move a ton of freight more than 170 kilometres on a single litre of fuel. Recent design improvements to diesel-powered locomotives have been able to achieve even further reductions in fuel use and consequent CO2 emissions. These have been achieved by (NREC, 2006):

• controlling the horsepower and rpm levels for each engine in order to achieve optimal emissions and fuel consumption rates.

• managing “start/stop” functionality to minimize engine idling – e.g., by switching to a sleep mode after a period of inactivity;

49http://cordis.europa.eu/fetch?CALLER=FP6_PROJ&ACTION=D&DOC=1&CAT=PROJ&QUERY=011d53e306f6

:fe7f:47448015&RCN=75806


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• providing all electrical power to a common connection so that power can be managed to individual traction motors for better adhesion to the rail and provide all necessary power for the operator’s cab, air brake system and equipment cooling;

• arranging the major components on the locomotive frame in a way that facilitates ease of replacement.

177. Among the beneficiaries of these innovations have been “switcher” locomotives, the locomotives that are used in the railyards themselves to move freight cars to where they can be loaded and offloaded. Typically, because of the time it has taken to bring switcher locomotives up to speed, the practice has ben to leave them idling for hours on end. The new diesel switcher locomotives can be started up as quickly as a truck engine, however, thus avoiding the need to leave the engines idling (Hurst, 2008). This allows the locomotives to achieve reductions of around 50% in CO2 emissions, as well as reductions of up to 80% in emissions of NOX and particulate matter. These designs of switcher locomotives are only now starting to be adopted by railroads, but are likely to become commonplace within the next decade.

Fuel substitution

178. For rail freight, the two main opportunities for replacing fossil fuels are fuel substitution (including replacing the power train with fuel-cell technology) or electrification. The pros and cons of alternative fuels and fuel cells have been discussed in the previous sections. For rail transport, the situation regarding the availability of lower-carbon fuels, including biofuels, is much the same as that facing road transport. Policies encouraging the production of biofuels are likely to favour domestic consumption in most countries, which could include by diesel-electric-powered locomotives.

179. The electrification of rail lines has been on-going since the end of the 19th century, and electric locomotives are a proven technology. The main disadvantage of electrification is its high capital cost, which can be significant for long-distance lines that do not carry heavy traffic. For this reason, electrified rail systems are found most commonly on main lines carrying heavy and frequent passenger or freight traffic. Nonetheless, the advantages of railway electrification are numerous. The main advantage of electric traction is a higher power-to-weight ratio than types such as locomotives powered by diesel-electric or steam engines, which must, in addition, carry both their fuel and their power generators on board. This enables a faster rate of acceleration and better traction on steep grades. On locomotives equipped with regenerative braking, descending steep grades saves on the use of air brakes as the locomotive's traction motors become generators — sending current back into the electric grid or to on-board resistors (which convert the excess energy to heat). Other advantages include no exhaust fumes at the point of use, less noise and reduced maintenance requirements of the traction units. In countries where electricity comes primarily from non-fossil sources, electric trains also produce fewer carbon emissions than diesel trains.50

50 http://en.wikipedia.org/wiki/Railway_electrification_system; accessed on 31 October 2008.

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