But already there is disagreement about how it will work given the complexities of the shipping industry and how fast it can decarbonize.

Here is what is known so far about the process ahead.

Why should shipping be included in the ETS?
With about 90% of world trade transported by sea, shipping accounts for nearly 3% of the world’s CO2 emissions.

Environmental campaigners say efforts by the industry to cut emissions are too slow and that including shipping in the European Union Emissions Trading System (ETS) will speed up decarbonization.

What are the proposals at the moment?
Launched in 2005, the ETS compels manufacturers, power companies and airlines to buy permits to cover each tonne of carbon dioxide they emit.

Prices for permits in the scheme are nearing 100 euros ($114.44) a tonne, a level analysts say will spur further investment in low-carbon energy sources.

Last July the European Commission proposed adding shipping to the ETS gradually from 2023 until 2026 when shipowners would need to buy permits covering all their emissions inside the EU and 50% of their emissions from international voyages starting and ending in the EU.

The proposal must be negotiated by the European Parliament and EU countries before it becomes law.

However, the European Parliament wants shipping phased into the ETS earlier, by 2025.

It also wants the entity responsible for decisions affecting CO2 emissions such as buying the fuel to pay, meaning they would need to buy carbon permits. That could be the shipowner, or the commercial charterer or operator of a ship.

In contrast, the Commission has said shipowners should always bear CO2 costs.

Parliament wants the EU to consider extending the ETS to cover all shipping emissions to and from Europe, if regulatory efforts to curb emissions by the UN shipping agency, the International Maritime Organization (IMO), fall short.

If IMO measures cut emissions quickly enough to avert disastrous climate change, the EU could roll back its inclusion of shipping in the carbon market, Parliament’s draft proposal said.

The European Commission’s proposal faces months of discussions. The European Parliament and EU countries can ask for changes to the text and agree on a final version.

How does the shipping industry view the proposals?
There are divergent views within the commercial shipping industry, which is made up of different segments including container, oil tanker and dry bulk.

There is disagreement over who will pick up the bill and whether it falls to the shipowner or the party that hires a ship, known as the charterer.

With millions of dollars in fuel costs for every voyage, the stakes are high.

The Union of Greek Shipowners, representing dry bulk, and tanker association INTERTANKO welcomed the inclusion of charterers saying those responsible for and benefiting from transporting cargo are responsible for emissions.

In contrast, the World Shipping Council (WSC) – representing container lines – says shipowners should share responsibility for decarbonization and that the proposed definition of a responsible entity “would corrupt the ETS”.

“Ship greenhouse gas emissions result from the combination of design technology, fuel consumed, and operational practice,” said WSC Chief Executive John Butler.

“A regional EU ETS carbon price must apply to all parties who have a role in GHG reductions – shipowners and operators.”

Pressure is building on the regulatory side too.

The IMO’s goal is to reduce overall GHG emissions from ships by 50% from 2008 levels by 2050, below targets set by countries such as the United States which have pushed for the agency to adopt a zero emissions target by 2050.

The IMO has said concrete progress was made in 2021 to combat climate change including new regulations to improve the energy efficiency of the world fleet, adding that it would work this year on revising its GHG strategy and finalize it in 2023.

The IMO has said regulations should come through the agency and be global in contrast to the EU’s approach, adding that regional legislation would not favor the concerns of developing countries.

Source: www.marinelink.com

Image: www.pexels.com

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With about 90% of world trade transported by sea, global shipping accounts for nearly 3% of the world’s CO2 emissions. So far, the industry has avoided the EU’s system of pollution charges.

Under proposals announced in July 2021, shipping would be added to the European Union Emissions Trading System (ETS) from 2023 phased over a three-year period, a move designed to spur emissions cuts from the sector.

A study by environmental group Transport & Environment (T&E) said that the proposals, which will be negotiated in Brussels this year, exclude ships below 5,000 GT (gross tonnage), which include small offshore supply ships that service the oil and gas industries. Fishing and military vessels would also be exempt.

T&E said the loopholes would mean that some 25.8 million tonnes of CO2 would not fall under the ETS, meaning that roughly 20% of the 130 million tonnes emitted annually by shipping in the bloc would be excluded.

Jacob Armstrong, sustainable shipping officer at T&E, said the proposals were “based on arbitrary loopholes” and would let “too many heavily polluting vessels off the hook”.

“The EU must rethink its shipping laws,” he said.

A European Commission official said the 5,000 GT threshold aimed “to minimize administrative burden for companies”, especially for small and medium-sized enterprises, “without jeopardizing the objective to cover the vast majority of greenhouse gas emissions from the sector”.

Peter Liese, the European Parliament’s lead negotiator on the ETS reforms, told Reuters that he was looking at the issue raised by T&E ahead of negotiations on the policy.

The Commission official said its proposal was aligned with the emissions covered by an existing regulation on the monitoring, reporting and verification (MRV) of emissions from maritime transport.

Ships above 5,000 GT accounted for around 55% of the vessels calling into EU ports and around 90% of the related emissions, the 2015 MRV regulation showed.

Ship owners will have to buy permits under the ETS when their ships pollute or face possible bans from EU ports.

Source: www.marinelink.com

Image: www.pexels.com

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European shippers and freight forwarders have once more alerted the European Commission on the current practices of liner shipper carriers as European supply chains are becoming more distorted.

The associations will meet the Commission early in the new year to further demonstrate the damage carriers’ behaviour is causing to trade growth at a time of economic recession.

In a joint letter to the Competition Directorate of the European Commission, the European Freight Forwarders Association (CLECAT) and the European Shippers’ Council (ESC) have informed the Commission on issues arising from carriers’ ongoing practices. These relate to the violation of existing contracts, the establishment of unreasonable conditions concerning the acceptance of bookings and the unilateral setting of rates far in excess of those agreed in contracts.

This situation is particularly affecting small European businesses with limited financial reserves. A telling example is that a French company producing electric bikes may go out of business as the company is not receiving spare parts out of Asia. Due to the delays and the lack of space, combined with the surge in tariffs, this start-up business is making losses and may not sustain in the near future, as the company is not able to finish its products for sale. The adverse consequences of carriers’ practices are felt equally by many larger companies, including retail, fashion, automotive, cosmetics and IT businesses.

Carriers have been reserving for themselves the ability to change rates whenever they see fit notwithstanding the specific rates and charges agreed. Carriers are continuing to top their rates with surcharges, general rate increases, etc. Similarly, shippers and forwarders are being confronted with refused bookings and rolled cargo if carriers deem it more profitable to accept higher rated cargo for a particular sailing. Unacceptable practices also include imposing an extra fee as a price for accepting cargo at a new tariff charge, simply refusing to accept bookings at all for customers, forcing a customer with contract rates to move it to spot rates at much higher price. For instance, the Shanghai Shipping Index reached a new record high of 2641,87 USD per TEU on Christmas day.

The disruption in the supply chain because of the unprecedented number of blank sailings (up to 30% on some trades), combined with the lack of reliability (with only 50% of ships on time over the last year), has led to the current shortage of empty containers. Carriers are trying to ship containers back to China as fast as possible, simply because there is a need and profits are extremely attractive. But this has meanwhile led to a domino effect in as far as there is general shortage of equipment for European exports. As a consequence, forwarders and shippers are now also confronted with all sort of new surcharges such as ‘equipment imbalance surcharges’ which carriers are imposing. If carriers decide to ship empty containers back to China for commercial reasons, is it doubtful whether it is justifiable to implement an ‘equipment imbalance surcharge’.

Last year, shippers, forwarders, terminal operators and others in the maritime supply chain expressed their dissatisfaction with the decision of the European Commission to once more extend the block exemption regulation for liner shipping, which it considered a one-sided exercise to the benefit of the carriers. Consortia agreements authorise carriers to collectively agree on  blank sailings. The current shortage of capacity has enabled carriers to significantly raise rates on spot market cargo and for cargo under contract. The unreasonable practices of carriers regarding container equipment, rates and demurrage and detention charges present a serious risk to the ability of economic recovery in Europe.

ESC and CLECAT, whose members have been particularly affected by unilateral carrier rate and service changes, encourage the European Commission to take actions similar to those of competent authorities in other parts of the world.

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