LONDON — The European Union is due to propose an unprecedented overhaul to its carbon market this week, seeking to put a price on shipping emissions for the first time.
And the region’s shipowners are deeply concerned.
The European Commission, the EU’s executive arm, is set to present its green fuel law for EU shipping on Wednesday. It is part of a broader package of reforms designed to meet the bloc’s updated climate targets.
To be sure, the EU has committed to reducing net carbon emissions by 55% (when compared to 1990 levels) through to 2030, becoming climate neutral by 2050. The EU says this will require a 90% reduction in transport emissions over the next three decades.
To meet these targets, the EU plans to undergo the biggest revamp of its Emissions Trading System since the policy launched in 2005. Already the world’s largest carbon trading program, the ETS is now widely expected to expand to include shipping for the first time.
Lars Robert Pedersen, deputy secretary general of BIMCO, the world’s largest international shipping association, says it is no secret the industry has concerns about the EU’s plans.
“There is a strange misbelief in Europe that these kinds of actions put pressure” on other regions to do the same, Pedersen told CNBC via telephone. “I think, frankly, it has the opposite effect.”
He argued the proposal was “not conducive” to international policy, would fail to reduce regional carbon emissions and ultimately take money out of the shipping industry when it could otherwise be spent on reducing emissions in the fleet.
“It is taxation. Does that help anything when it comes to decarbonization? I don’t think so. It looks more like it is an effort to collect money — and so be it,” Pedersen continued. “Europe decides what Europe decides and there’s not so much you can do about that, I guess, other than highlight that it might not be the most appropriate way to reduce emissions.”
His comments come shortly after Transport & Environment, a European non-profit, purportedly obtained a leaked proposal for a draft of the first-ever law requiring ships to progressively pivot to sustainable marine fuels.
A spokesperson for the commission declined to comment on the draft proposal. The EU has said action to address EU international emissions from navigation and aviation is “urgently needed” and initiatives to address these areas will be designed to boost the production and uptake of sustainable aviation and maritime fuels.
Pedersen said it was important not to panic over the leaked draft, noting that it could still be revised in the coming days and there are many more hurdles to overcome before the measures become EU policy.
EU member states and the European Parliament would first need to negotiate the final reforms, a process that analysts estimate could take roughly two years.
“To be frank with you, I haven’t even bothered to read it because I think it is a waste of time at this point. We have a date when the final proposal will be presented, and we will read that very carefully,” Pedersen said.
‘An environmental disaster’
Shipping, which is responsible for around 2.5% of global greenhouse gas emissions, is seen as a relatively difficult industry to decarbonize because low-carbon fuels are not widely available at the required scale.
Soren Toft, chief executive of the Mediterranean Shipping Company, the world’s second-largest container carrier, has also criticized the EU’s proposal. Speaking to The Financial Times last month, Toft warned the proposals would have the opposite effect of their intentions in the absence of readily available low-carbon fuels.
What’s more, it is not just the shipping industry that has voiced opposition to the EU’s plans.
Transport & Environment described the leaked draft of the commission’s proposal as “an environmental disaster,” arguing the policy does not incentivize investment in low-carbon fuels such as renewable hydrogen and ammonia. Instead, it argues the proposal promotes liquefied natural gas and “dubious” biofuels as an alternative to marine fuel oil.
“It’s not too late to save the world’s first green shipping fuel mandate,” said Delphine Gozillon, shipping policy officer at Transport & Environment. “The current draft pits e-fuels against much cheaper polluting fuels, giving them no chance at all to compete on price. The EU should revise the draft to include an e-fuels mandate and make them more cost-attractive through super credits.”
Europe’s ETS is the bloc’s main tool for reducing greenhouse gas emissions that cause climate change. It forces heavy emitting businesses, from aviation to mining, to buy carbon permits in order to create a financial incentive for firms to pollute less.
One issue currently afflicting the scheme, however, is so-called “carbon leakage,” where businesses transfer production (and emissions) elsewhere due to the relative cost of polluting in Europe.
The EU is expected to address this problem, potentially implementing what’s known as the carbon border adjustment mechanism from 2023. The policy is an attempt to level the playing field on carbon emissions by applying domestic carbon pricing to imports.
“How shipping is brought into a pricing regime is critical,” Roman Kramarchuk, head of future energy analytics at S&P Global Platts, told CNBC via email.
“But the July proposal will be far from a done deal,” he continued. “It’s worth remembering that the EU had to temper its ambitions around aviation previously in response to push-back from trade partners — though the upshot of that was a more globally inclusive approach from the UN through the CORSIA program.”
The Carbon Offsetting and Reduction Scheme for International Aviation initiative refers to a United Nations deal designed to help the aviation industry reach its “aspirational goal” of making all growth in international flights “carbon neutral” from 2020 onwards.
Kramarchuk said it was important to note that the proposed policies were not expected to constitute an outright ban on specific fuels, adding S&P Global Platts sees increasing shares of the shipping fleet being powered by LNG, methanol or ammonia through to 2030.
