Research indicates that the maritime sector is accountable for approximately 3% of anthropogenic carbon dioxide (CO2) emissions, annually, and a trend of vastly growing amounts of CO2 emissions is projected for the future. Despite this significant share in the global warming problem, CO2 emissions from the maritime sector are not significantly limited by international regulation on either global or EU level. Consequently, the EU has set itself the target of reducing these emissions by 40% by 2050, compared to the 2005 level. In December 2012, the European Commission communicated that they would prefer any measure that is aimed to contribute to this goal to be implemented on a global level and via the International Maritime Organisation. Nonetheless, this report works from the assumption that, in a few years, the European Commission may still propose a regional scheme. Previous studies have shown that an emission trading system, compared to studied alternatives, is the most effective and efficient policy, when applied on a regional level. Accordingly an emission trading system has had the European Commission its preference over alternative policies and is therefore the policy analysed in this report. The few previously executed studies on the possible inclusion of CO2 emissions from the maritime sector in a regional emission trading system, predominantly concentrate on the possible environmental and economic impacts. The inclusion of CO2 emissions from aviation in the EU Emissions Trading System, however, has shown that an effective and efficient design is not necessarily enough for a successful implementation and operation of the scheme. The successfulness of a design is also determined by its (political) feasibility. The main objective of this report is to provide the Dutch Government with an advice on which design (characteristics) is most favourable for the Netherlands, considering both effectiveness and feasibility. In addition this report aims to provide some insight and guidance for the follow-up process, leading up to and during the negotiation process. This insight should assist the Dutch Government in achieving the design it favours most. In order to draw up a well-substantiated advice, two main knowledge gaps need to be filled. The first gap is the lack of knowledge about what the impacts of the designs will be, specifically, for the Netherlands. The other refers to the lack of knowledge on how the impacts of various designs influence their (political) feasibility. The information needed to fill these knowledge gaps is gathered via executing interviews with experts in various relevant fields and performing desk research on predominantly CO2 emission reductions in the maritime sector, (feasibility of) international climate policy-making and the inclusion of aviation in the EU Emission Trading System. The subject of aviation is used to conclude on lessons learned. This is of interest for this report because of the similarities between the cases. With these knowledge gaps filled, effectiveness is defined as a design’s capacity to reduce the amount of CO2 emissions. Differentiation between the different design options is made based on their cumulative reductions until 2030. Feasibility is defined as a combination of a design’s ease of implementation and operation (practical feasibility), legal feasibility and political feasibility which all have to be of a sufficient level. As practical and legal feasibility already have been addressed in a number of previous studies, this report mainly focuses on political feasibility. Political feasibility, in this report, is interpreted as the vii feasibility of gaining acceptance from the members of the International Maritime Organisation for the proposed design. Two frameworks are drawn up outlining the relevant factors and relationships that influence a design’s effectiveness and feasibility. Using these two frameworks, the lessons learned from the inclusion of aviation in the EU Emissions Trading System and an actor analysis, a solution space for feasible designs is drawn up. The solution space indicates boundaries and requirements, as well as some preferences to increase a design's feasibility and/or effectiveness. Based on this solution space, an already developed design, with known environmental and economic effects, was altered step by step into several new designs. The effectiveness and feasibility of these new designs were estimated and subsequently, compared. Figure 1 shows a schematic visualisation of the results from this comparison. As a result of this comparison, ‘design G’ is concluded to be the most favourable, for the Netherlands as well as the EU. The most relevant design characteristics are given on the next page in Table 1. A more comprehensive overview is given in Appendix P. In the second part of the policy advise – Section 7.2 – an outline is given of notions that may prove useful during the follow-up process, leading up to and during the negotiations. Most of these notions can be considered general guide lines on how different (groups of) stakeholders can be won over to support the design. In addition advice is given that reflects on suggested behaviour and focus during the negotiations. Most of the notions can, besides by the Dutch Government, be used by any other stakeholder supporting the design, like the EC. Generally, it is the task of the Dutch Government to communicate the importance of the (political) feasibility of a design to the EU Member States and the European Commission. Furthermore the Dutch Government is advised to concentrate solely on aspects of the design that are of (great) interest, specifically, to the Netherlands. This includes exempting/compensating small ships and special service ships. As a result of the corresponding objectives of and impacts on other EU Member States the remaining goals of the Dutch Government are assumed to be sufficiently represented by the other parties. It is recommended the possibility to expand the scope of the design is investigated to increase both effectiveness and feasibility. Further quantification of impacts for non-Annex I countries under a scenario with and one without common but differentiated responsibilities to assess whether compensational arrangements are needed is also advised. Table 1: Geographical scope of emissions: All CO2 emissions from ships sailing to EU ports from the last port of call, and from EU ports to the next port of call (including all intra-EU voyages) Cap: 40% reduction in emissions from bunker fuels in 2050 compared to 2005 levels (and an internal target of 10% reduction by 2030, from 2005 levels). Character of trading: Semi-open scheme: one-way link to the EU ETS, allowing ship owners to offset some of their emission reductions by buying emission rights from stationary sources Initial allocation of allowances: Partially via auctioning. The part that is auctioned starts at 5% and gradually increases with a yearly 2.5% to 50%, after which it will remain constant. Use of revenues: Mainly: Support for abatement options in the shipping sector and funding R&D in that sector Partly: refund authorities for regulatory transaction costs Ship size scope: >5000 GT Ship type scope: All ships, excluding those accountable for proportions of <1% of total emissions (e.g. offshore vessels, service vessels, yachts and fishing vessels).