The cost impacts of Fit for 55 on shipping and their implications for Swedish freight transport

The purpose of the paper is to analyze the cost impacts of policy instruments that are part of the European Commission’s climate policy package "Fit for 55". A disaggregated approach for the cargo ships calling at Swedish ports is applied to study the effects of different designs of the extension of the Emissions Trading System (EU ETS) to shipping and the changed Energy Tax Directive (ETD), which implies the introduction of taxes for marine fuel. Three scenarios are compared to the actual situation: the Main scenario is based on the European Commission’s proposal that ships with at least 5,000 gross tonnage (GT) must be included in the EU ETS and that taxes for marine fuels are introduced, the Low scenario assumes no fuel taxes and the High scenario that ships with at least 400 GT must be included in the EU ETS. A major conclusion is that cargo ships calling at Swedish ports with at least 5,000 GT account for 56 % of all cargo ships and for 78 % of all CO2 emissions from these ships, which implies that a significant part of the CO2 emissions is missed when the European Commission’s proposal regarding the inclusion of shipping in the EU ETS is applied. The share of missed CO2 emissions could further increase if ships smaller than 5,000 GT are chosen to avoid the EU ETS. Calculations with the Swedish national freight transport model Samgods confirm that firms have incentives to shift to ships smaller than 5,000 GT in the Main scenario while they have incentives to shift to ships larger than 5,000 GT in the High scenario. A recommendation is therefore that smaller ships than 5,000 GT should also be included in the EU ETS, and if this cannot be done immediately, the EU should clearly plan for ships with less than 5,000 GT to also be included in the long term and signal this to the market. This would reduce the incentives for the market to make socioeconomically undesirable adjustments to avoid paying for emissions. The fuel cost increases due to the implementation of the policy instruments are estimated per ship and aggregated to nine ship segments. In the Main scenario, the fuel cost increases due to the inclusion of shipping in the EU ETS are in the range of 11-42 % within the European Economic Area (EEA) and in the range of 5-21 % for transports to/from the EEA. In the High scenario, the costs in all segments are roughly 40 % within the EEA and 21% for the sea transports to/from the EEA. The introduction of fuel taxes is estimated to increase the fuel costs for all ships operating within the EEA by about 6 %. Calculations with the Samgods model indicate that the estimated higher fuel costs for shipping have limited impacts on the firms’ choices of mode and port and their total logistics costs.