The European Commission proposes to extend its Emissions Trading Scheme (ETS) to shipping as one of a series of measures to pay for the recovery of the EU economy, and to promote a green recovery from the crisis.
The European Union plans to spend 30% of its € 750 billion ($ 889 billion) coronavirus recovery fund and the next seven-year EU budget on climate-related projects in a bid to become the first carbon-neutral continent.
The ETS has already emitted greenhouse gases from more than 11,000 energy and manufacturing plants, as well as all domestic EU flights, with about 500 airlines. Together, the activities it encompasses generate almost half of the block’s greenhouse gas emissions. Companies receive or purchase emission permits as “fees”, which can be traded later. The number decreases with time so that emissions fall.
The U.S. Department of Shipping told CNN Business that it urges all non-EU governments to oppose the expansion of shipping and “recognition of the pre-eminence” of the International Maritime Organization, a UN body, in tackling emissions of ships.
Ships carry 80% of world goods trade by volume, according to the United Nations Conference on Trade and Development. Any increase in the cost of pollution costs could be passed on by operators to businesses and consumers in the form of higher prices.
Critics of the proposal say countries outside the European Union are likely to see it as little more than a way to raise money. The European Commission has estimated that extending the ETS to the maritime sector and requiring airlines to pay more for their pollution could generate € 10 billion ($ 11.8 billion) per year.
“This is a recognition that this is not about climate at all, it is about raising funds,” said Lars Robert Pedersen, Deputy Secretary-General of the International Shipping Association BIMCO, headquartered in Copenhagen.
The proposal amounts to asking American and Chinese shipping companies to fund Europe’s aid plan, Pedersen told CNN Business. He said it was likely to have strong opposition, of the kind experienced when the European Union tried to include international aviation in the ETS in 2012.
EU officials finally withdrew after the United States threatened to ban its carriers from complying with the directive and China threatened to withhold delayed aircraft orders Airbus (EADSF). As a result, the ETS only covers flights between EU countries, such as Iceland, Liechtenstein and Norway.
Put a price on carbon
EU member states generate € 14 billion ($ 16.6 billion) from raising ETS fees in 2018, according to European Commission carbon market report – doubles revenue collected last year due to higher price of the permits. Nearly 70% of that money was spent on “climate and energy-related goals,” the report said. Emissions from factories and power stations have fallen by a third since the ETS was launched in 2005, largely because coal was replaced by renewable energy sources.
In a statement to CNN Business, the Commission explained why it wants to expand the ETS to the maritime sector and reduce the fees allocated free of charge to airlines. “Transport accounts for a quarter of EU greenhouse gas emissions, and to achieve our climate neutrality goals, a 90% reduction in transport emissions is needed by 2050,” a Commission spokesman said.
“This will be coordinated with action at world level, particularly by the International Civil Aviation Organization and the International Maritime Organization.”
Transport & Environment, a European climate lobby group, has supported the movement. “The carbon pollution of shipping has grown at an alarming rate and could continue [50%] by 2050 if real action is not taken, “said shipping program manager Faig Abbasov in a statement earlier this month, notes that MSC’s container transport line emitted more carbon last year than Europe’s largest airline, Ryanair (RYAAY).
“Expanding emissions trading to shipping and increasing carbon prices for international aviation is far too late,” added Klaus Röhrig of Climate Action Network Europe.
But the ETS expansion is by no means a done deal. While the European Parliament’s Environment Committee voted last month to include international carbon emissions from ships in the ETS, the final form of the legislation is will must be approved by Parliament and EU leaders, that is not expected to happen next year.
Trading blocks ahead?
Players of shipping feared that the proposal, if adopted, would undermine further progress in reducing shipping emissions through the International Maritime Organization and lead to a proliferation of regional and national pollution control measures.
The International Maritime Organization has begun introducing mandatory measures to reduce annual greenhouse gas emissions from international shipping in 2050, compared to its level in 2008. For example, earlier this year it introduced new limits on the sulfur content of fuel oil, known as “IMO 2020,” which should reduce the total sulfur oxide emissions from ships by 77%.
As countries begin to enact their own laws on shipping emissions it would “create a patchwork quilt of regulation worldwide, introduce obstacles to the smooth operation of ships on international voyages and so on for international trade,” wrote Edmund Hughes, the former head of energy efficiency at the International Maritime Organization, in a report of July seen by CNN Business.
It also opens the door for other countries and regions to tax ships entering their ports in the name of climate change, and to create a ‘nightmare’ scenario for global trade, Pedersen told BIMCO.
There is a further risk. It could increase political tensions with non-EU countries, potentially leading to trade disputes, added Hughes, who prepared the report in an independent capacity for the International Chamber of Shipping and the European Community Shipowners’ Association.
The United States and Europe are already embroiled in an expensive trade dispute over subsidies for aircraft Airbus (EADSF) en Boeing (BA), with Washington using billions of dollars in tariffs on EU goods. In another dispute, Brussels has reacted to US tariffs on steel and aluminum with compensatory taxes on US products.
Shipping companies have meanwhile also sounded the alarm. German shipping, Hapag-Lloyd (HPGLY), told CNN Business that the EU proposal focuses precisely on “a fraction” of global emissions and would separate funds that would otherwise go to improving the energy efficiency of ships. “We should only support global solutions,” he added.
French firm CMA CGM echoed this view, saying in a statement that a global approach driven by the International Maritime Organization “would ensure equal treatment for all shipping lines in the world.”
“A scheme that does not benefit climate action in the sector would be counterproductive [the stated] objective [of the EU ETS], “added Maersk (AMKBF)the head of regulatory affairs, Simon Bergulf.
A spokesman for the International Maritime Organization said it urged member states to bring proposals for reducing emissions to the body for “discussion, development and potential adoption on a global basis.”
.
