ESC: European Shippers — 2024-06-30
Maritime and Ports
The shipping industry faces the dual challenge of functioning as a major avenue for global trade while contributing increasingly to greenhouse gas emissions. To address the environmental concerns of maritime transport, the European Union (EU) expanded its Emissions Trading System (ETS) to encompass maritime transport emissions. The EU ETS is based on the polluter pay principle that aims at promoting energy efficiency and the energy transition, including emission factors related to alternative fuels and their tank-to-wake climate impacts (EU, 2023). The ETS requirements started on 1 January 2024, for ships of 5,000 gross tonnage, with a phased approach; 40% of CO2 emissions in scope in 2024 and 70% in 2025, and then 100% from 2026 onwards covering emissions from CO2 as well as methane and nitrous oxide.
The inclusion of shipping covers 100% of the emissions occurring while sailing between ports of the European Economic Area (EEA), and 50% of the emissions from international voyages between an EEA and a non-EEA port. At the end of each year, shipping companies are expected to balance between their emission allowances (EUAs) and verified emissions and in case of exceeding their purchased allowances, they will need to buy the excess amount from the carbon market. EUAs can be purchased through either the primary market i.e., auctions by the Member States through the European Energy Exchange (EEX), or the secondary market by trading of the EUAs through the EEX. The ETS maritime utilises the key principles of the Monitoring, Reporting and Verification system (EU MRV), which is the foundation of accounting for the EU emissions from ships. Whilst the introduction of ETS in shipping signals a proactive effort and strong commitment to address climate change concerns within the maritime transport industry, various institutional barriers could hinder the effective implementation of the ETS in reducing emissions from maritime transport.
Actor roles and responsibilities is a barrier because in the absence of clear rules for instance, on green transitions or on who pays for the cost of emissions, ship owners may have to bear extra cost for a charterer or shippers non-compliance to ETS measures. Whilst the ETS measures assumes the ship owner as primarily responsible for ETS regulations, it may also give undue power to shipowners to push emission cost to the shippers. Lack of clarity in rules on actors’ roles and responsibilities creates confusion about the nature of the task and the specific outcomes being pursued, which may decrease motivation. Actors’ roles and responsibilities also relate to barriers such as actor control and institutional incentives.
The lack of effect grievance/conflict redress mechanism and platform is an institutional barrier because it limits the trust that key actors, such as shippers, have in the ETS system. It may further exacerbate the unequal power relations among actors (e.g., between powerful shipping companies and smaller ones, shippers and shipowners, etc.), create further conflicts and limit actors’ acceptability of the ETS directive as an effective means to de-carbonize shipping. Conflict mechanisms also relate to other barriers such as actor control/power and actor eligibility. As indicated by the last respondent, ‘common shippers’ may not be able to follow through with the costly and time-consuming grievance redress system in the EU. ‘Common’ here connotes lack of power, resources, and capacity to meet the requirement of the conflict mechanism.
The major shipping lines have provided indications of the ETS surcharge per TEU for the various routes. These amounts can differ considerably from each other. This is partly explained by the fact that shipping companies want to pass on ETS costs for 2024 now, but do not know the EU emission price until September 2025. From historical data we can deduce that the price for a ton of CO2 fluctuates between €60 and €100.
North African ports could be able to benefit from this legislation. If vessels travelling from or towards the Far East or the US call in an African port and organise a transshipment over there the ETS costs will be substantially lower than if a Mediterrian port would be the first port of call. Since we see in many ports in the Mediterranean still sufficient capacity, ESC is of the opinion that this measure should not put Northern African ports in a better position. If African ports benefit from this EU measure, we fear that planet and profit are suffering from this development. The measure is not balanced enough.
The European Commission has promised to monitor the market carefully. The evaluation period in the legislation we consider as too long. It is in the interest of ports as well as shippers to monitor the situation carefully.
Looking at the carbon footprint, southern ports have a huge potential. They benefit from the increase of the modal shift. For instance, in the Italian ports like Ravenna, Trieste, and Monfalcone, the modal share of railway transport for hinterland transport is already over 50%. At the same time, we see that the overall EU percentage is already for a very long time around 19%. As Mediterranean ports are much closer to Central Europe than Hamburg, Le Havre, Antwerp or Rotterdam, the use of Mediterranean ports is a sustainable solution. Disturbing the level-playing field would also put such wonderful developments at risk.