European ETS for shipping moves one step closer

The EU emissions trading scheme was initially focused on heavy industry and power generation but has recently been expanded to cover aviation with the EEA.The EU emissions trading scheme was initially focused on heavy industry and power generation but has recently been expanded to cover aviation with the EEA.

The European Parliament’s Environment Committee has given the go-ahead today for shipping to be included in the trading bloc’s emissions trading scheme, a move that many in shipping fear will lead to a series of regional regulations and potential disruption to the global supply chain.

Following the Environment Committee’s decision, Members of the European Parliament will vote on the issue at a plenary session in September.

Observers cite the development as another example of European regulators interfering in a global transport business which requires universal regulations, not local ones. The Environment Committee’s approval for the plan effectively undermines the 174-nation IMO, which has its own monitoring, reporting and verification (MRV) system in place requiring ships of more than 5,000 gross tons to operate a Fuel Oil Data Collection System reporting data to a central IMO database.

Shipping sources point out that unlike power plants or steel mills, ships are constantly moving in widely varying conditions. Tracking emissions is a dynamic process that poses a complex challenge. But the EU won’t worry about that, said one source. “In my experience, they don’t let practical issues get in the way. It’s a box-ticking exercise.”

Harald Solberg, Norwegian Shipowners’ Association CEO, summed up the industry’s position: “We are following the issue closely, but our position is that we are opposed. The EU is not the only global superpower and regional initiatives like this could pave the way for a patchwork of regulations and emission trading schemes,” he said. “We also have practical concerns about how such a scheme would work. The IMO has to be the regulating body for international shipping to ensure a consistent framework that works to reduce global emissions of greenhouse gases.”

Lars Robert Pedersen, Deputy Secretary General of BIMCO, commented: “The European Green Deal appears to suggest that the EU emissions trading scheme should be used as a funding mechanism towards the wider EU budget. That may be the reason for the accelerated pace of introducing shipping into the EU scheme and setting unrealistic targets for the IMO.”

The report adopted by the Environment Committee also recommended extending the scope of the ETS scheme for the shipping sector to encompass other emissions, including methane. The conversion factor for CH4 emissions into CO2 emissions is just one of the areas where further clarification will be required. This is no academic point: the latest auction of CO2 permits under the Phase 3 ETS scheme, concluded on 7 July, was concluded at EUR29.34 per tonne of CO2 according to EEX data.

It is worth noting that the shipping industry would be included in an upcoming Phase 4 of the ETS scheme, which will enter effect in 2021. The fourth phase will feature an accelerated tapering scheme (of over 2% per year), while ending the previous permit allocation system.

Wider practical concerns about the scheme concern carbon leakage and geographical applicability. The risk of carbon leakage is thought to be a particular issue in shipping where assets (and company headquarters) move. And if trading in the European Economic Area becomes onerous, it is possible that some shipowners and their customers will seek other options to minimise their exposure. Similar concerns surround the accuracy of emissions recording and reporting at sea.

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