Why the EU ETS might not be the answer after all

The boffins who may just be in charge of the shipping industry are back with a new observation: the European Union’s Emissions Trading System may not after all make significant enough contributions to cutting maritime emissions.

This is a shame to say the least, because together with the IMO’s CII and EEXI measures, the ETS is among the few concrete initiatives designed to encourage the industry to improve efficiency and switch away from fossil fuels.

London-based consultancy UMAS undertook a review of the ETS for green NGO Environmental Defense Fund Europe and concluded that it should be expanded in scope, include a hard cap on shipping emissions and should reinvest revenue into the decarbonisation of shipping.

“The shipping sector’s high abatement costs point to the need for an ETS which is tailored to support in-sector abatement,” principal UMAS consultant and lead author of the report Sophie Parker said in a statement.

“In the absence of a global carbon price, this could come from either a shipping ETS that places restrictions on the purchasing of out-of-sector allowances or coupling the EU ETS proposal with supply-side policies like subsidies which incentivise the uptake of scalable zero-carbon fuels,” she added.

The report also concludes that a higher carbon price is needed to incentivise crucial efficiency improvements while making nascent zero-carbon fuels more attractive.

The research found that the EU ETS carbon price, even at the recent record levels of €67.75/tonne observed recently, would not make an impact significant enough to close the gap between fossil shipping fuels and zero-carbon ones.

A separate recent analysis by UMAS for the Getting to Zero Coalition concluded that an average carbon price of just under US$200/tonne CO2 is required to fully decarbonise the shipping sector by 2050.

In a recent position paper, lobby group The Methanol Institute noted that the carbon price resulting from the extension of ETS to maritime transport “will by no means represent an investment signal strong enough to supply the sector with sufficient low carbon and net carbon neutral fuel to carry out the energy transition”.

However, in light of the provisions of other instruments aimed at addressing the energy transition under the EU’s Fit for 55 package of measures, the price of carbon under ETS for shipping and industry cannot be so high as to have unintended social costs and needs to be in line with the EU governance principle of proportionality, it added.

UMAS believes additional fuel and infrastructure policies may also be needed because the ETS will not do enough by itself to incentivise investments in fuels that have zero emissions throughout their well-to-wake life cycles and are scalable.

The implication is that shipping sees the ETS as a way to trade away its liabilities rather than actually reduce carbon emissions. This might be more likely if the industry had any idea of what its real emissions actually were, rather than relying on self-reported estimates.

UMAS see benefits in widening the area covered by the scheme from current plans to cover shipping emissions for voyages within the European Economic Area and half of the carbon emitted in trips between this area and the rest of the world.

Increasing that to full coverage of voyages that connect Europe to other parts of the world would mean 70% of shipping’s emissions would be covered.

UMAS and EDF Europe describe the ETS plan as a positive step, because it means at least some of shipping will be subject to a carbon price this decade. Shipping’s inclusion is a “can’t-miss opportunity to clean up the climate impacts of shipping,” according to Panos Spiliotis, manager of international climate at EDF Europe.

The European Commission plans to phase in shipping into the ETS scheme, with 20% of emissions on European voyages covered for 2023 rising gradually to 100% in 2026.

The European Community Shipowners’ Association (ECSA) has already called for changes of its own to the scheme. ECSA agrees that a sector-specific fund should be set up to reinvest ETS maritime revenue into the costs of decarbonising shipping. It has also called for the costs of ETS compliance to be passed through to commercial operators, rather than shipowners, according to a November policy paper.

Although the EU ETS has been extended to shipping, it is possible further changes could be made before it comes into effect. Industry sources suggest that even agreeing the current proposals in time for the proposed 2023 implementation date already seems difficult.

Photo by Adam Nowakowski on Unsplash