Mitigating carbon leakage in maritime transport

Abstract The risk of ships circumventing domestic climate regulations can increase greenhouse gas emissions while negatively impacting port competitiveness and trade. This article identifies regulatory options to effectively mitigate that risk and highlights the main trade-offs that each option may involve. It does so by combining (i) a qualitative law and economics review of shipping companies’ evasion possibilities and incentives, and (ii) a comparative legal study of maritime decarbonization policies in the European Union and the United States. The findings suggest that maritime carbon leakage can materialize in four main forms, or in combinations thereof: reflagging, port evasion, ship substitution, and speed increase. Port states can mitigate it with regulatory countermeasures that limit evasion options, increase the costs of evasion, and/or decrease the costs of compliance for shipping companies. Carbon leakage countermeasures may take the form of amendments to the regulation that generates the risk of carbon leakage, complementary domestic policy measures, or synergies with foreign and international climate regulations. Almost all identified carbon leakage mitigation options imply potentially significant trade-offs for the regulating jurisdiction.