Emission trading could hurt EU more than shipowners

Malcolm Latarche

Malcolm Latarche · 13 February 2020

ShipInsight


For many years the EU has sought to dictate the pace of environmental regulation of shipping and despite initiatives such as the Motorways of the Seas in the early part of this century which seemed to recognise that sea transport is more sustainable and environmentally friendly than road or rail, most of the EU’s policies have actually penalised shipping.

Environmentalists might laud the EU initiatives such as early imposition of SECA controls, ship recycling rules, MRV and most recently attempts to include shipping in emissions trading schemes, but in practice such initiatives could genuinely be worsening the global situation. In some of its actions the EU could count on the support of Obama-led US but that is no longer the case and support from other areas is also dwindling.

The IMO may not be the fastest moving organisation in the world but in many respects its record holds up well in comparison to other global initiatives. No industry has moved faster on a global scale to reduce CO2 emissions. Global attempts to control CO2 emissions date back to the 1994 UN Convention on Climate Change, yet despite its annual beanfeast in the form of COP meetings it has so far spectacularly failed to achieve anything in the way of mandatory reductions.

Shipping on the other hand through the IMO has the mandatory EEDI in place which – even if not perfect – requires a gradual improvement in individual newbuilding performance. More importantly it has been achieved by consensus among IMO member states and has not required any form of tax or levy which would impact badly on the world economy.

Most other means of controlling emissions – including the EU’s ETS and its most recent idea of carbon border adjustment mechanisms for imported goods – are based on taxes and levies. This big stick approach wins no friends beyond financial speculators and governments that constantly seem to be finding new ways to impose taxes.

It may be forgotten by many, but long time observers of the subject will remember that after the Kyoto meeting in 1997 when the concept of emission trading was enthusiastically adopted, a memo was immediately penned by John Palmisano to his bosses at the now defunct and discredited Enron corporation about the fantastic opportunities this presented and how Enron could cash in. (Anyone not familiar with the facts can easily google using Enron and Kyoto as search terms.)

Not surprisingly, shipowner organisations are voicing their concerns about the EU’s inclusion of shipping in an ETS and are supporting the IMO as the body where decisions must be made, and they are right to do this. Ig there is to be global action on emissions it needs to be done at a global level. It is fine for individual countries or blocs to control internal emissions, but ships and shipping are able to opt out of those controls in a number of ways.

Flagging out will stop any EU rules applying to ships that trade outside of the EU and it has to be noted that the EU is not best placed geographically to apply rules to non-EU flagged vessels carrying cargoes intended for European destinations. All of North Africa from Egypt to Morocco in the South, the UK in the West and Russia and Turkey to the East all provide potential transhipment possibilities for ocean going vessels.

Coupled with flagging out that would leave the EU with little control beyond feeder vessels over its trade with the rest of the world. For sure it could set levies on the feeder vessels and impose carbon border taxes on goods, but that would only hurt EU citizens which would not bode well for the organisation’s future.

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