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Emissions: trimming the fat

How exactly should shipping ‘cap and trade’?

The EU voted to include shipping in its emissions trading scheme in February; but is it settled? Indeed, there are strong cases both for and against – and some shipowners have other ideas altogether.

Last year, the EU set a target of an overall emissions reduction of 55% over 1990 levels – and complete carbon neutrality by 2050. Every sector of the European economy has cut CO2 emissions by 20% or more since 1990, except for transport, whose emissions have increased 30%.

Although shipping was excluded from the Paris Accord, IMO is nevertheless targeting a 40% reduction in CO2 emissions over 2008 levels by 2030, and by 2050, a reduction of at least 50%, even after fleet growth between now and then. But recently, the EU voted to include the shipping industry in its ETS (Emissions Trading Scheme), also referred to as ‘cap and trade’, from 2022.

Where a company cuts emissions, shipowners would buy carbon credits from them, effectively buying the right to emit CO2, up to an ever-decreasing ‘cap’, and giving both financial incentive to decrease emissions.

But the move is far from popular. There is a potentially serious administrative burden in complying with several emissions trading schemes at once, and China, which emits around 30% of greenhouse gases and is targeting carbon-neutrality by 2060, launched its own ETS at the beginning of February. Other countries are thought likely to introduce ETS schemes, or otherwise respond to the EU action.
Shipping, owners say, already has a decarbonization scheme in place – IMO targets. A European Community Shipowners Association (ECSA) paper indicates: “The application of EU-ETS to international aviation (for intra EU flights) has not resulted in any reduction to absolute emissions from this sector, in contrast to shipping, whose absolute GHG emissions have reduced significantly throughout the same period.”

ECSA’s main objection to EU ETS is that IMO should be in charge of administering any emissions trading schemes; revenue should go towards maritime research and development on new, clean fuels, rather than being funneled out of the industry. ECSA has submitted proposals, co-signed by owner organizations including ICS, Bimco, CLIA, Intercargo, Interferry, Intertanko, IPTA, and WSC, to establish an alternative International Maritime Research and Development Board (IMRB) and Fund (IMRF), which would do just that.


Such schemes would require shipping companies to pay into a fund “administered by the industry itself with legitimate, independent asset management where the funds are redeployed into funding technologies the industry needs,” Citibank Global industry head of shipping and logistics Michael Parker told JOC. “The shipowner should not absorb any of the carbon levy,” he added. “It should be passed on in some sort of transparent way, and the respective funds should then go into the essential research and development. I think that on that basis, the resistance from within the shipping industry would largely disappear.”

Last month, SEA Europe proposed something similar. “We think that an EU Maritime Fund will accelerate the CO2 emission reduction of waterborne transport and provide better opportunities than the EU ETS scheme to control the appropriate use of the funds available to green the waterborne sector,” said Christophe Tytgat, Secretary General. “The major advantage of our proposal is that the revenues generated by the sector itself can be specifically allocated to the greening of waterborne transport.”

But ECSA goes further, indicating that measures must be put in place to compel and incentivize bunker suppliers to provide zero-carbon fuels. Martin Dorsman, ECSA Secretary General, said: “…[making] low- and zero-carbon fuels for shipping available in the market is a prerequisite for the decarbonization of the sector. As with the uptake of all new fuels, the chicken-and-egg dilemma can only be addressed by the introduction of appropriate requirements for fuel suppliers.”
It will be difficult to please everybody. ECSA and co present a compelling case for an EU maritime fund; but many argue that R&D funding, however worthy, is not firmly correlated with global CO2 levels in the way that an ETS would be.

On the other hand, the European Commission has a habit of pre-empting the IMO, and there can be no doubt its measures will motivate shipping, particularly in the European shortsea arena, to decarbonize quicker than they would have done otherwise. But too much burden too quickly risks the worst-case scenario of punishing shipping, forcing up freight rates, penalizing European consumers, and pushing cargo onto roads.