Why shipowners are worried about an overhaul of the European carbon market
The container ship Maersk Murcia is docked at a terminal in the port of Gothenburg, a busy shipping hub on the west coast of Sweden, as cargo is loaded there by crane before setting sail on August 24, 2020.
JONATHAN NACKSTRAND | AFP | Getty Images
LONDON – The European Union is due to propose an unprecedented overhaul of its carbon market this week, seeking for the first time to put a price on maritime transport emissions.
And the shipowners in the region are very worried.
The European Commission, the EU’s executive body, is due to present its law on green fuels for EU maritime transport on Wednesday. It is part of a larger set of reforms designed to meet the bloc’s updated climate goals.
True, the EU is committed to reducing net carbon emissions by 55% (from 1990 levels) through 2030, becoming climate neutral by 2050. The EU says this will require a reduction of 90% of transport emissions over the next three years. decades.
To achieve these goals, the EU plans to carry out the biggest overhaul of its emissions trading system since the policy was launched in 2005. Already the world’s largest carbon trading program, the ETS is now expected to expand to include maritime transport for the first time.
Lars Robert Pedersen, Deputy Secretary General of BIMCO, the world’s largest international shipping association, says it’s no secret that the industry is concerned about EU plans.
“There is a strange belief in Europe that these kinds of actions put pressure” on other regions to do the same, Pedersen told CNBC by telephone. “I think, frankly, it has the opposite effect.”
He argued that the proposal was “not conducive” to international politics, would not reduce regional carbon emissions and ultimately take money away from the shipping industry when it might otherwise be spent on reduce fleet emissions.
“It’s taxation. Does that help anything with decarbonization? I don’t think so. It feels more like an effort to raise money – and so be it,” Pedersen continued. . “Europe decides what Europe decides and there isn’t much you can do about it, I guess, other than to point out that this may not be the most appropriate way to cut emissions.”
His comments come shortly after Transport & Environment, a European non-profit organization, reportedly obtained a leaked proposal for a draft of the very first law requiring ships to gradually shift to sustainable marine fuels.
A liquid natural gas (LNG) storage silo at the LNG terminal, operated by LNG Croatia LLC, in Krk, Croatia on Monday, January 25, 2021.
Petar Santini | Bloomberg | Getty Images
A spokesperson for the committee declined to comment on the draft proposal. The EU said action to tackle the EU’s international emissions from shipping and aviation is “urgently needed” and that initiatives to address these areas will be designed to boost production and transport. use of sustainable fuels for aviation and the sea.
Pedersen said it was important not to panic about the leaked project, noting that it could still be revised in the coming days and that there are still many hurdles to overcome before measures become policy. of the EU.
EU member states and the European Parliament are expected to negotiate final reforms first, a process that analysts say could take around two years.
“To be frank with you, I didn’t even bother to read it because I think it’s a waste of time at this point. We have a date when the final proposal will be presented, and we will read it very carefully, “said Pedersen.
“An ecological catastrophe”
Shipping, which is responsible for around 2.5% of global greenhouse gas emissions, is considered a relatively difficult industry to decarbonize because low-carbon fuels are not widely available at scale. required.
Soren Toft, managing director of Mediterranean Shipping Company, the world’s second largest container carrier, also criticized the EU’s proposal. Speaking to the Financial Times last month, Toft warned that the proposals would have the opposite effect of their intentions in the absence of readily available low-carbon fuels.
Moreover, it is not only the shipping industry that has expressed its opposition to EU plans.
Transport & Environment described the disclosed draft of the commission’s proposal as “an environmental disaster”, arguing that the policy does not encourage investment in low-carbon fuels such as renewable hydrogen and ammonia. Instead, he argues that the proposal promotes liquefied natural gas and “questionable” biofuels as an alternative to marine fuel oil.
“It is not too late to save the world’s first green fuel mandate for maritime transport,” said Delphine Gozillon, responsible for maritime policy at Transport & Environment. “The current draft pits electric fuels against much cheaper polluting fuels, giving them no chance to compete on price. The EU should revise the draft to include a mandate on electric fuels and make them more profitable through great credits. “
The European ETS is the bloc’s main tool for reducing greenhouse gas emissions that cause climate change. It forces high-emitting companies, from aviation to mining, to buy carbon permits in order to create a financial incentive for companies to pollute less.
One problem that currently plagues the program, however, is what is known as ‘carbon leakage’, where companies shift their production (and emissions) elsewhere due to the relative cost of pollution in Europe.
The EU should tackle this problem, potentially implementing what is known as the Carbon Borders Adjustment Mechanism from 2023. The policy is an attempt to level the playing field on carbon emissions. ‘carbon emissions by applying a national carbon price to imports.
What will be the impact of the EU’s proposal on carbon prices?
“How shipping is integrated into a pricing regime is critical,” Roman Kramarchuk, head of future energy analysis at S&P Global Platts, told CNBC via email.
“But the July proposal will be far from being concluded,” he continued. “It should be remembered that the EU has had to temper its aviation ambitions previously in response to reluctance from its trading partners – although the result of this has been a more comprehensive UN approach through the CORSIA program. . “
The Carbon Offsets and Reduction Program for International Aviation refers to a United Nations agreement designed to help the aviation industry meet its “ambitious goal” of making all growth in international flights “carbon neutral” from 2020.
Kramarchuk said it was important to note that the proposed policies should not constitute an outright ban on certain fuels, adding that S&P Global Platts envisions an increasing share of the marine fleet fueled by LNG, methanol or gasoline. ammonia until 2030.
Electricity pylons are seen in front of the cooling towers of the coal-fired power station of German energy giant RWE in Weisweiler, western Germany, January 26, 2021.
INA FASSBENDER | AFP | Getty Images
The impact of the EU proposal on carbon prices will also be “crucial,” Kramarchuk said, predicting an end-of-year target for the EU’s benchmark carbon price at € 60 per metric tonne. .
The December 2021 carbon contract exceeded 50 euros for the first time in May, when it stood at around 20 euros before the coronavirus pandemic. It was last seen around 54 euros.
Higher carbon prices would likely raise questions about the competitive decisions shipping companies make regarding fuel choice and in turn depend on how carbon emissions in fuels are accounted for, Kramarchuk said.
“But you’re not going to change the fleet for a dime. In the short to medium term, any imposition of a carbon price would essentially be a tax.”