There is a long history of debate on which Market-based Mechanism (MBM) should international shipping adopt to reduce carbon dioxide (CO2) emissions. However, literature presents differing preferences for a suitable MBM for international shipping. There are those who support a carbon tax, those who support an ETS, and those who remain on the fence. Hence, this study aims to find out: which MBM is suitable to reduce CO2 emissions for international shipping?
The paper begins with an overview of the current state of the MBM around the world. Thereafter, we build a conceptual model based on a systems perspective to understand the relationship between CO2 reduction, Research & Development (R&D), adoption of existing technology and financial resources. For the purpose of comparative analysis, definitions of the two MBMs, bunker levy and ETS, and their possible sub-types are presented. To determine which MBM is more suitable, we follow a multi-criteria decision making approach where the criteria are derived from our systems perspective conceptual model and from literature. To reduce ambiguity, criteria with multiple meanings are further divided into unequivocal criteria and operationalised with a specific mechanism.