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Policy & Compliance
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The cost of decarbonisation Shipping lines will become liable for their emissions in 2023 under the EU Emissions Trading System.
There is a real concern, however, that we will see additional surcharges as lines attempt to recover their costs
Two subjects have dominated the recent maritime market: the first is the current demand and supply imbalance leading to record price levels boosting carrier profitability. The second concerns the sector’s efforts to reduce greenhouse gases (GHG) and, in particular, carbon emissions. These initiatives are at both a global level, as proposed by the International Maritime Organization (IMO), and at regional levels such as within the European Union. Carriers are likely to face new expenses related to the wider shipping industry’s efforts to decarbonise operations. The European Commission has chalked out a strategy for decarbonising shipping. The commission announced on 14 July 2021 its proposal to gradually introduce shipping into its Emissions Trading System (ETS), a carbon market that operates in all EU countries, with the aim of achieving climate neutrality in the EU by 2050. The system operates under a ‘cap and trade’ principle that currently applies to GHG and CO 2 emissions. It works by capping overall GHG emissions of all participants in the system, which is then reduced over time. How it works Carbon emitters are obligated to pay for each tonne of CO 2 they generate using EU allowances (EUAs). Such allowances are described as rights to emit GHG emissions equivalent to the global warming potential of 1 tonne of CO 2 equivalent. The level of the cap determines the total number of allowances available in the whole system, which can be traded among shipowners. The EU ETS has been operating since 2005, and up until now the main types of industry impacted have been the high energy users such as iron and steel manufacturing, the refining and
chemical industries and power generation. However, from 2023, 100% of shipping emissions from intra-EU voyages and 50% of carbon emissions on a voyage to or from a port in the EU will be included in the ETS. It should be noted that shortsea will include the ferry sector. The first year in which shipping companies will be liable for their emissions will be 2023 when shipowners must surrender enough CO 2 permits to cover 20% of their emissions. Thereafter, shipping companies will be liable for 45% of emissions in 2024, 70% in 2025 and 100% in 2026 and every subsequent year. Such a system will enable shipowners to take steps to reduce their GHG emissions; if they have allowances left over these can be sold in the market. If their emissions exceed their allowances they will face hefty fines, currently set at €100 per kg of excess CO 2 emitted, unless they purchase additional allowances from the market. The EU ETS scheme is complex, and given the nature of the maritime sector with its sudden peaks and troughs, it is going to be difficult for shipping lines to work out precisely the number of permits required and what happens should a
shipping line exceed its emissions in any one year. The other issue is that, whilst the IMO has been slow arriving at a global programme to decarbonise the maritime environment, the unilateral action of the EU has added a level of complexity and raised the prospect of a piecemeal regional approach to the issue, which is not welcome in a global industry. There is a real concern that we will see additional surcharges, etc, as lines attempt to recover their costs. Added costs Everyone seems to accept that climate change is harming the environment and that something needs to be done. What many, including many politicians and environmentalists, fail to acknowledge is that these changes will cost money, and these costs will ultimately be borne by the consumer. It is time that governments started making this point clear to the public. Already we have seen some port operators introducing a surcharge to cover the increased cost of battery powered straddle carriers as opposed to conventional equipment – and that is only the tip of a possibly melting iceberg.
16
October 2021
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