Shippers balk at EU carbon market plan

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The shipping sector has been excluded from emissions trading so far. [Photo: Shutterstock]

The shipping industry has railed against plans to expand the EU carbon market to the maritime sector ahead of a crucial vote in the European Parliament on Tuesday (15 September) that risks putting lawmakers on a collision course with shippers.

Unlike power plants, industrial sites and flights within the EU, ships are currently exempt from paying to pollute under the bloc’s Emissions Trading System (ETS), but that looks set to come to an end soon.

MEPs will vote on whether to support an initiative that aims to expand the ETS into uncharted waters, while the European Commission has repeatedly indicated that it is a part of its climate agenda.

The sector has a pollution problem: in 2018, it accounted for 3.7% of the EU’s total CO2 emissions and this year the Mediterranean Shipping Company (MSC) ranked seventh on a list of the bloc’s top ten biggest emitters. The other nine are coal power plants and Ryanair.

But the World Shipping Council (WSC), which counts giants like Maersk, Hapag-Lloyd and MSC among its members, has warned that carbon market expansion could jeopardise global efforts to reduce shipping’s environmental footprint.

In a discussion paper, the WSC said “the international tensions and disruption caused by an EU ETS with extraterritorial effect would harm the prospects for a comprehensive global solution through the International Maritime Organisation (IMO).”

“The EU wants to lead the effort to decarbonise shipping, and that leadership needs to be channelled through the IMO, which is the only place where a global solution can be reached,” said CEO John Butler.

Butler told EURACTIV that including the sector under the ETS could have “diplomatic bleedover” into the IMO process and affect ongoing negotiations, such as plans to implement an Arctic heavy-fuel oil ban or set up a shipping innovation fund.

He also cited similar disputes in aviation, where IMO-equivalent ICAO has played host to spats over whether international flights should be included in the ETS.

WSC claims the carbon market would be “extraterritorial”, given that it would regulate and levy charges against ships coming into and going out of the EU’s jurisdiction.

But Faïg Abbasov, a shipping expert with clean mobility group Transport & Environment (T&E), pointed out that the EU’s regulation that will underpin the initiative is based on a tenet of international law called port-state control (PSC), which allows harbours to set the rules for any ships docking in their waters.

That is opposed to coastal-state control (CSC), which only allows authorities to regulate ships passing through their Exclusive Economic Zones (EEZ) and as such would not be a legally-sound basis for the ETS-expansion.

German Greens MEP Jutta Paulus, who has authored the Parliament’s report on the proposed changes, also refuted the suggestion that the EU’s policymaking would impede IMO’s work.

“The IMO has not succeeded in finding a binding global solution since the Kyoto Protocol, let alone one that is in line with the Paris Agreement. Market-based measures on GHG emissions have been under discussion since 2006 without concrete results,” Paulus told EURACTIV.

She added that ETS expansion would give the sector “real-world data that could be used to validate the impact assessments” and that the EU supports the IMO’s goals, which include improved efficiency benchmarks.

The WSC is also concerned that if the EU’s plans do come to fruition, it will be “an invitation to the rest of the world to enact unilateral measures, creating a patchwork of regulatory schemes that overlap and create uncertainty.”

The MEP’s report, which sources say is very likely to be approved in the plenary, is only a part of the legislative process, though: tough talks with the Commission and Council of member states will be the next port of call.

It will be hard to sell the idea to national governments, given that the likes of Denmark, Cyprus and Greece have deep-rooted vested interests in the sector’s profitability.

However, EU diplomats concede that there is a sense of inevitability to the idea, as the Commission has listed maritime ETS-rollout among its green priorities.

Jutta Paulus is keen to get the ball rolling as soon as possible and insists that the Commission’s in-depth analysis from 2013 still holds water, while the conservative wing of the Parliament and several member states want the numbers crunched again.

Shippers and legislators agree on one thing at least: improved efficiency gains will not be enough to power the sector to the 50% emission cuts the IMO has pledged by 2050.

To that end, the Paulus report includes a dedicated R&D fund that would be topped up with revenues from the ETS. At the IMO, talks are ongoing about setting up a similar fund, while industry giant Maersk earmarked millions of euros in June to help set up a dedicated research centre.

The sector is still divided over the future of green shipping and no large-scale working prototypes powered by hydrogen or ammonia have been built. Electric battery power for ferries has been trialled in Denmark, while Maersk has pledged to put a zero-emission vessel in the water by 2030.

Last week, a new report by the International Energy Agency predicted huge demand for ammonia and hydrogen as shipping fuels by 2050, while 80% of shipping’s needs will be satisfied by them by 2070.

[Edited by Zoran Radosavljevic]