Exhaust gases escape from the smokestack of a container ship in Hamburg, Germany. (Krisztian Bocsi/Bloomberg News)
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Ships sailing to European ports will face a combined carbon emissions bill of $3.6 billion next year, the start of a drain that will almost certainly rise as the continent steps up efforts to fight against climate change.
Under the regulation, which takes effect January 1ships entering and leaving EU ports must pay for their carbon pollution, affecting deliveries of everything from containers of finished goods to the liquefied natural gas needed to keep homes warm in winter.
The global shipping industry released more than a billion tonnes of CO2 into the atmosphere in 2018 and is almost exclusively powered by petroleum-derived fuels, which are significantly cheaper than low-carbon alternatives. Integrating it into the ETS is part of the EU plan to decarbonize the sector to fight climate change.
Although it runs into the billions, the bill represents only a fraction of the revenue generated by international shipping and is unlikely to have a major impact on the prices consumers ultimately pay for goods. Last year, the container giant AP Moller-Maersk A/S It alone made a profit of just under $30 billion.
In 2024, a container ship sailing between Europe and Asia could incur charges of around 810,000 euros ($887,000) under the ETS, according to a recent estimate from maritime classification society DNV which assumes a carbon price of 90 euros per tonne.
Based on the November 20 marine fuel price in northwest Europe, this is only about 10% of what the same vessel’s annual fuel bill would be – meaning price fluctuations of oil alone could easily exceed the total cost of the ETS.
Similarly, variations in the cost of transporting goods by containers between Europe and Asia in recent years have dwarfed the costs of the EU ETS. And the mechanism would represent only a tiny fraction of oil and gas transportation bills.
“Even if the cost of green fuels halves over the next three years, more taxes will be needed to level the playing field,” he said. “Green methanol will likely remain at a significant cost disadvantage until at least 2026. »
Although the ETS represents only a small portion of transportation costs, there has already been discussion of how traders and businesses could exploit loopholes to avoid paying the fees.
Six EU member states – mainly along the Mediterranean coast – raised concerns last month that shippers could dodge ETS fees by docking at ports close to but outside the EU. The bloc has already said that East Port Said in Egypt and Tanger Med in Morocco should be identified as “neighboring container transshipment ports” to prevent fraud.
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Another possible way to circumvent taxes would be through ship-to-ship transfers, where cargoes are transferred between ships at sea.
For example, if an oil tanker traveled from Singapore to just outside a European port area, was unloaded via an STS transfer, and then returned to Singapore, it would not be liable for anything under the ETS, according to DNV. This is because it has never called at an EU port.
“The Commission will closely monitor possible ship-to-ship transfers in the context of the upcoming application of the EU ETS to the maritime sector,” said a Commission spokesperson. European Commission said.
“Where appropriate, the Commission would be ready to propose measures to combat any evasive behavior, in order to preserve the integrity and effectiveness of the EU ETS.”
The costs linked to compliance with the ETS, which applies to the European Economic Area as well as EU ports, for now they might be relatively small for such an important industry as shipping. But it will almost certainly become more expensive: while shippers only have to cover 40% of their emissions in 2024, this will increase to 70% in 2025 and 100% in 2026 – the same year, methane and carbon dioxide emissions. nitrogen oxide fall under the rules.
Using the same assumptions used in Drewry’s estimate for 2024, based on actual 2022 emissions and a price of 100 euros per tonne of CO2, this would generate a total bill of $9 billion for 2026.
And assuming that compliance with the ETS does indeed become much more costly, the economic case for relying on loopholes could also grow.
With just 40% coverage next year, the ETS “may not be considered high enough to change business models,” said Alain Savaryfounder of Carbonex, a consultancy focused on EU ETS. But that could change in coming years when more shows are covered, he said.
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