Who pays for carbon? It could be you
Shipping’s leaders agree that decisions taken at European Union level over the next few months will affect the industry for decades but who actually pays for the carbon emitted by shipping is turning into a political football. It’s a match that looks like it’s going to extra time, possibly a replay, then penalties.
There’s little doubt that the industry needs to engage more strongly with policymakers to influence the legislation coming its way, but as is so often the case, shipping’s split incentive will prove divisive rather than decisive.
Tradewinds reports that European lawmaker Pieter Liese has proposed new amendments to draft EU legislation that would shift liability for carbon allowances away from owners and onto charterers and commercial operators under the revised terms of the Emissions Trading System.
Plans to cut shipping’s carbon footprint under the EU’s umbrella ‘Fit for 55’ strategy have several elements of direct concern to shipping. Maritime carbon emissions will be included in the ETS – currently 50% of voyages to or from the EU but potentially 100% – while FuelEU Maritime rules will encourage the uptake of low-carbon fuel by making conventional fuel unaffordable and a taxonomy criteria will act as a lever for banks to use when making funding decisions on green technology.
Incoming president of the European Community Shipowners Association Philippos Philis advocated for an IMO led approach, telling TW the challenge of the EU environmental regulations marks “a make-or-break moment for the shipping sector”. But he is keen to see customers pay.
“We welcome the proposal [to] introduce a requirement for a binding clause in contractual agreements between shipowners and commercial operators,” he said.
“Our position is clear,” he added: “The commercial operators should pay for the ETS costs, and we believe that the Parliament’s draft is an essential step towards the right direction”.
It’s a position the Greek shipowning community agrees with wholeheartedly.
The Greek Shipping Cooperation Committee couldn’t resist a sideswipe at industry organisations and companies which were “touting their green credentials” with the choice of fuels that will power the next generation of newbuildings. GSCC chair Harry Fafalios told Tradewinds “none of them are really carbon-free and they just kick the can down the road”.
Addressing the draft amendments, he welcomed the proposal to increase charterers’ liability for emission costs under the ETS. “It is encouraging to note that the EU is making noises in that direction,” he said.
The Union of Greek Shipowners (UGS) then followed suit, coming out in favour of moves to increase charterers’ liability for emission costs. The draft legislation under discussion at the European Parliament “addresses the shipping industry’s concerns to a significant extent, primarily by recognising the commercial operators’ structural role in shipping and for its decarbonisation, in line with the ‘polluter-pays’ principle,” the UGS said in a statement.
In opposition are the liner operators – mostly represented on the World Shipping Council and including heavyweights such as AP Moller Maersk and Cosco.
They believe that widening the definition of what constitutes a liable shipping company would shield owners from ETS costs, rather than incentivise them to build ships that are more efficient and generate less carbon.
In his draft amendments, Liese widened the definition of what constitutes a shipping company even further to include a time charterer, meaning that more than the liner sector would be affected. He also said that a binding clause should be introduced in charter arrangements “for the purpose of passing on the costs [to] the entity that is ultimately responsible for the decisions affecting the CO2 emissions of a ship”.
While where a vessel trades, at what speed and how often laden are directly controlled by the commercial manager or time charterer, how a vessel is run and what specific emission-reducing steps the owner has taken, are also integral to an overall reduction in GHG emissions.
It is possible that Liese’s amendments won’t see the light of day since they require unanimity to move forward. Either way, shipping should in any case brace for a long battle, as debate to finalise and then implement the ETS will take time. Philis reckons shipping is “at the beginning of a process that might take up to two years to conclude and we’ve got a lot of work to do.”
Plenty of time then, to deploy a reliable means to understand at what level shipping actually emits carbon so that whoever ends up paying, the bill accurately reflects it.