Heine and Dominioni, both PhD candidates in the European Doctorate in Law and Economics (EDLE) programme at Erasmus School of Law, developed together with three other researchers an economically and legally viable mechanism for internalizing marine emissions that makes polluters pay for climate damage caused by maritime emissions. They submitted their proposal to a MIT Climate CoLab contest where it won both the Judges’ Award and the Popular Choice Award in the category Transportation.
The MIT Climate CoLab Contests
Each year, the Climate CoLab, a crowdsourcing platform hosted by the Massachusetts Institute of Technology (MIT), organizes various contests to tackle different aspects of climate change. The goal of the Climate CoLab is to use the collective intelligence of thousands of people from all around the world to address global climate change. Anyone can join the Climate CoLab community and participate. Community members are invited to submit and comment on proposals outlining ideas for what they think should be done about climate change. Experts evaluate the entries and select the finalists. Together experts and community members select the most promising proposals.
Proposal to reduce CO2 emissions from maritime transport
In 2015, a team including Dirk Heine and Goran Dominioni of the Rotterdam Institute of Law and Economics at Erasmus School of Law, participated in one of these contests. In the category Transportation, they proposed an economically and legally viable mechanism for internalizing marine emissions. The proposal is based on their working paper: D. Heine, S. Gäde, G. Dominioni, B. Martinez Romera and P. Pieters: ‘Drying Up Tax Havens - A Mechanism to Unilaterally Tax Maritime Emissions While Satisfying Extraterritoriality, Tax Competition and Political Constraints’. The idea is to make polluters pay for climate damage caused by maritime emissions by overcoming avoidance, legal, data and global coordination issues. A video of their pitch can be found here.
Emission levy on international shipping and fuel levy on domestic shipping
Heine, Dominioni and their fellow team members explain that maritime transport accounts for over 80% of world transport. Unlike all other transport sectors, emissions from maritime shipping are entirely excluded from international climate treaties. Within the maritime transport sector there is an enormous potential to reduce maritime emissions which has yet to be exploited. However, technical measures have not been pursued because implicit tax subsidies for maritime fuels considerably weaken incentives to reduce emissions, such that ships today are even less efficient than 25 years ago.
Amongst academics and policymakers it is generally agreed that climate action in this sector would require the pricing of maritime fuel emissions but that such a reform requires unanimous international agreement. However, in the past the latter has proven impossible to reach. To tackle this complex issue, the researchers developed a scheme in which emissions from international shipments are subject to an emissions levy which is calculated on a default value based on data available to the authorities. When shipping companies voluntarily reveal data to indicate that their emissions were lower than assumed, they receive a subsidy reflecting the difference between the assumed and the actual emissions. By contrast, emissions from domestic river- and short-sea shipping are charged through a fuel levy, because there are fewer avoidance opportunities than with regards to international shipping. By adopting this scheme proposed by Heine, Gäde, Dominioni, Martinez Romera and Pieters, already a small coalition of countries could price emissions from maritime fuel – even in the absence of an international agreement.
Overcoming extraterritoriality restrictions
One of the main innovations of the award-winning proposal relates to the limits of the acting state’s jurisdiction: It is generally believed that the internalization of maritime emissions is severely limited by existing legal frameworks. Countries do not have jurisdiction for charging ships outside their territorial boundaries. To make jurisdictional coverage possible, the charging state receives its jurisdiction through a different channel: The legal liability falls not on the ship, but on the domestic cargo consignee (for the emissions released in the incoming transport of their cargo) and the domestic cargo consignor (for the emissions released in the outgoing transport of their cargo). Consignees and consignors are domestic entities and therefore chargeable without extraterritoriality restrictions.