EU carbon tax puts a price on shipping emissions | News | eco business

Ships emit around a billion tons of greenhouse gases every year, or 3 percent of global emissions. If it were a country, shipping would be the sixth largest polluter in the world, according to the World Economic Forum. Without further action, shipping emissions are expected to achieve that 90-130 percent their level from 2008 to 2050.

The International Maritime Organization (IMO), the UN body responsible for shipping, has long faced criticism for failing to address the urgency of the climate crisis and for lagging behind in introducing regulations to curb emissions.

One of the most contentious questions that keeps popping up at IMO meetings is whether industry should introduce a carbon tax. The Pacific island nations, which are particularly vulnerable to sea-level rise, have called for a $100-per-ton carbon price for bunker fuel. But emerging economies, including China and South Africa, oppose the measure.

The EU is taking matters into its own hands. To meet its target of reducing emissions by at least 55 percent by 2030, the bloc is revising its climate, energy and transport legislation under the “Fits 55 inch package. The proposed reforms include several shipping measures ranging from a Sustainable Fuels Mandate within the EU to include maritime emissions in the bloc’s Emissions Trading Scheme (ETS).

The EU plan will include shipping emissions in the bloc’s ETS from 2023. When the measure comes into effect, shipowners, regardless of the flag they fly, will have to buy CO2 allowances to cover all emissions during voyages within the EU and half of those generated on international voyages starting in an EU port or end up.

In 2023, companies that charter large ships will have to buy allowances for 20 percent of their emissions from ships calling at EU ports to increase to 100 percent by 2026.

Switch to clean fuel

Shipping experts say the measure alone will not result in a drastic reduction in global maritime emissions. Nonetheless, it is sending out an important signal that could trigger decarbonization efforts around the world. Including maritime emissions in the ETS will also mobilize a large pool of funds that the EU can use to accelerate innovation and develop low-carbon fuels and renewable energy infrastructure.

According to Faig Abbasov, program director for shipping at Transport & Environment, a Brussels-based think tank, the EU ETS will cover 10 to 15 percent of emissions from international shipping. “This is not a measure to decarbonize global shipping,” Abbasov said. “The EU starts in its own backyard and moves forward [in the expectation] that other countries will follow and that the IMO is doing what it is supposed to.”

The measure only applies to ships over 5,000 gross register tons and there are various exemptions, for example for ships serving offshore oil and gas. According to analysis Transport & Environment exempts more than 25 million tonnes of CO2 – equivalent to Denmark’s total annual emissions.

Reducing maritime emissions requires new technologies, ships and fuels. There are fuel alternatives such as hydrogen that do not produce carbon dioxide when burned, but they are not currently cost competitive. The ETS measure aims to reduce the price difference between fossil fuels and zero-emission alternatives, but not completely bridge it.

EU ETS carbon prices, even at their recent high levels of around €85 ($95) per tonne of CO2, would not have a significant impact on closing the price gap between fossil fuels and zero-carbon fuels for shipping, it said a recent report by the University Maritime Advisory Services (UMAS) working in partnership with the Energy Institute at University College London (UCL).

An average carbon price of just under $200 per tonne of CO2 is needed to fully decarbonize the shipping industry by 2050. according to analysis.

“Initially, the ETS will not have much of an impact [carbon] price, but it will generate a significant amount of revenue,” said Dr. Alison Shaw, research associate at UMAS and co-author of the report.

funds for innovations

The EU will direct the revenues generated by the ETS within it innovation fund, which is designed to “support breakthrough innovations towards carbon neutrality”. Based on the scenarios outlined in the UMAS report, the ETS would yield US$5 billion in 2030 at a cost of around €50 (US$56) per tonne of carbon. If that price rose to €103 per tonne of carbon ($116) by 2030, Shaw says total revenue from shipping would be $9 billion.

This is significantly higher than the funds raised by a carbon tax proposal from the International Chamber of Shipping, which represents shipowners. The ICS has mention a proposed tax of $2 per tonne of bunker fuel, equivalent to just $0.7 per tonne of CO2 emitted, to fund $5 billion worth of research and development projects over the next decade.

However, according to Shaw, it is unclear whether any revenue generated by including shipping in the EU ETS would go directly to shipping innovation. “There is currently no guarantee that a fixed proportion will be dedicated to the maritime sector.” The head of the European Commission’s maritime affairs unit did not respond to China Dialogue’s request for comment on the issue.

It’s important that developing countries have access to the fund because that’s where the potential for renewable energy and fuels lies, Shaw said. Many developing countries including Mexico and South Africa, are rich in renewable resources and could help the industry navigate to zero-emission sailing if given opportunities to access finance, she said. “Shipping is a global industry that needs a global perspective.”

“The funds generated by the ETS [provide a] Mechanism to reward pioneers by subsidizing new fuels and building fuel infrastructure,” said Freda Fung, adviser for the Asia Green Shipping Program at the Natural Resources Defense Council. “It’s a really big step that helps make that easier [sustainable] reconciliation.”

When California mandated fuel efficiency standards, it didn’t have a major impact on global emissions, but it did push the vehicle industry to innovate and produce electric vehicles, Abbasov said. “It’s exactly the same logic [with this shipping measure],” he said. “The immediate priority is to generate new technologies and incentivize regional action.”

The impact on Chinese shippers

The inclusion of shipping in the EU ETS will drive up transport costs for shipping companies worldwide. Much of the additional cost borne by freight companies is passed on to consumers. “The price increase for a pair of sneakers will be tiny,” said Martin Creswell, technical director of the Hong Kong Shipowners Association. “It won’t be noticeable to most Europeans.”

The Asian Shipowners’ Association (ASA) strongly disagrees the EU action. “The extension of the EU ETS to shipping will only serve to hamper the process of decarbonising international shipping and put the EU at odds with achieving climate change targets of both the IMO and the UNFCCC,” the ASA said in one Explanation.

“At the IMO, countries work in consensus and [regulation] is much slower than what the EU can produce. There is quite a lot of anger in general about the EU moving forward unilaterally,” Creswell said.

Chinese operators could look to shipping centers outside the EU to reduce their costs, Creswell said. For example, they could dock their large cargo ships in Morocco and transfer the goods to smaller, lower-carbon ships, he said.

“Britain could benefit significantly from this [situation] and become a major bunker country if they put their minds to it,” he added, referring to Britain’s exit from the EU in 2020.

China has its own emissions trading system, which currently only covers the electricity sector. The government has indicated that it plans to record other sectors in the next five years. “Shipping could be included in this scheme. It could be accelerated by the EU plans,” Cresswell said.

“There was no announcement about the inclusion of shipping, [but] There was a lot of internal discussion,” Fung said. “The Chinese government has said it supports the introduction of a carbon price to stimulate innovation and accelerate the deployment of low-carbon technologies.”

This article was originally published on China dialogue under a Creative Commons license.

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