Conditionalities in subsidies or tax subsidies in maritime transport
Subsidies can encourage environmentally friendly efforts in the maritime sector. They can take the form of direct payments, forgone tax revenue, loan guarantees and induced transfers. Current environment subsidies in the maritime sector include grants for green shipping, conversion to LNG, LNG bunkering and loans for environment-friendly innovations. Most countries grant tax exemptions to the shipping sector, e.g. for ship fuel. These largely run counter to GHG emission reduction objectives. In addition, environmental objectives are uncommon in maritime tax subsidies: although many OECD countries provide the shipping sector with generous corporate tax treatment (in the form of tonnage taxes instead of regular corporate income tax), they hardly ever link it to environmental conditions, with Norway and Portugal being notable exceptions. Environmental indicators, such as energy efficiency and carbon intensity, could also be incorporated as criteria in government investment plans for ships.
Environmental subsidies that aim at making the maritime sector more environmentally friendly result in CO2 emission reductions, albeit indirectly. Even though the effect has not been specifically measured, it can be concluded that some of these subsides have positive results when it comes to CO2 emission reduction.
The costs of such subsidies to the government revenue stream can vary, depending on the subsidy programme.
There are economic benefits for local maritime clusters.
Opportunity costs, moral hazard considerations, principal agent problems and risks of grant mismanagement have to be overcome when introducing conditionalities in subsidies or tax subsidies in the maritime transport sector.
ITF (2021) Transport Climate Action Directory – Conditionalities in subsidies or tax subsidies in maritime transport
https://www.itf-oecd.org/policy/conditionalities-in-subsidies-or-tax-sub...
ITF (2018), Decarbonising Maritime Transport: Pathways to zero-carbon shipping by 2035. https://www.itf-oecd.org/decarbonising-maritime-transport
ITF (2019), Maritime Subsidies: Do They Provide Value for Money? https://www.itfoecd.org/maritime-subsidies-do-they-provide-value-money
European Commission (2018), State Aid SA. 48929 (2018/N): Portugal Tonnage Tax and Seafarer Scheme – EC State Aid Cases https://ec.europa.eu/competition/state_aid/cases/273110/273110_1994553_134_2.pdf
European Defense Fund (n.d.), International Shipping: The Norwegian NOx Fund. https://www.edfeurope.org/file/375/download?token=2fsAHP74
Lagouvardou, S., H. N. Psaraftis and T. Zis (2020), A Literature Survey on Market-Based Measures for the Decarbonization of Shipping, Department of Technology, Management, and Economics, Technical University of Denmark, https://doi.org/10.3390/su12103953
OECD (2017), Peer Review of the Norwegian Shipbuilding Industry, Council Working Party on Shipbuilding https://www.oecd.org/sti/ind/PeerReviewNorway_FINAL.pdf
OECD (2018), Peer Review of the Finnish Shipbuilding Industry, Council Working Party on Shipbuilding https://www.oecd.org/finland/peer-review-finland-shipbuilding-industry.pdf
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