Carbon pricing in shipping: is it feasible?

Carbon pricing in shipping: is it feasible?

Project Cargo Journal — 2023-01-12

Maritime and Ports

The shipping industry is currently largely excluded from domestic and international carbon pricing schemes. However, according to Olaf Merk, administrator for ports and shipping at the International Transport Forum, the time is right to discuss including it.

Merk proposes five recommendations to implement effective carbon pricing schemes that would be applicable to the shipping industry. First, Merk points out that carbon pricing in shipping should be part of a global decarbonisation policy. Moreover, the mechanism should be based on a “feebate” system. Such a system implies that the revenue from the scheme is used to help greener companies cover the price difference between traditional fuels and low-emission ones.

The third proposal brought forward by Merk is that new vessels should be required to “be capable of running on zero-emission fuels or other zero-emission energy sources. In addition, revenues from the carbon pricing should be directed towards Small Island Developing States and least developed countries to help them to decarbonise maritime transport. Merk’s final suggestion is that the policy should consider well-to-wake emissions, which cover “emissions from the entire process of fuel production, delivery, and onboard use”.

What are the difficulties of carbon pricing for the shipping industry?

As Merk claims, the shipping industry has been exempt from carbon pricing due to its global reach, which leads to difficulties in designing a system that would prevent evasion. Moreover, it is not easy to decide who should be in charge of paying the fee. This is because a ship can be owned, managed, operated, and crewed by four different companies, making it difficult to pick who has a more significant impact when it comes to emissions.

A similar problem would arise when deciding how to assign the revenues of the carbon pricing scheme. For example, Merk highlights that global regulations would be required so that states would not be allowed to impose the scheme only on ships registered under certain flags.

What has been done so far?

As Merk mentions, five proposals concerning carbon pricing have been submitted to the International Maritime Organization, the UN branch dedicated to regulating shipping, since 2021. Two of them entailed global carbon levies, one was a “feebate” system, another was a global emission trading system for shipping, and, lastly, a reward and penalty system.

Moreover, Merk underlines that the EU Fit for 55 policy had five proposals concerning CO2 emissions caused by the shipping industry. Among these, there is the inclusion of shipping in the EU emission trading system by pricing GHG emissions from ships and annual average targets for GHG intensity of energy used by ships.

The other three proposals are revised directives. One of the availability of LNG and shore-side electricity in EU ports and a second one that would end tax exemptions for conventional marine fuels. Finally, one that would set new targets for energy from renewable sources and GHG intensity reduction.