EU’s plans for shipping in ETS draws mixed response

In its new ‘Fit for 55’ climate plan, the European Commission is paving the way for shipping to be a part of the EU’s Emissions Trading System (ETS), where shipping companies will have to buy CO2-quotas.

In its new ‘Fit for 55’ climate plan, the European Commission is paving the way for shipping to be a part of the EU’s Emissions Trading System (ETS), where shipping companies will have to buy CO2-quotas.

A draft of the plan was released by the European Commission yesterday. It contains 12 points, including transportation, which will make up the framework for how the EU will reach the target of 55% reduction in CO2-emissions by 2030. The climate plan is a proposal and will be negotiated in both the Council and the Parliament before final adoption.

The plan has drawn a mixed response from organisations and NGOs.

Danish Shipping’s Executive Director of Security, Environment and Maritime Research, Maria Skipper Schwenn, commented, “We have been waiting in anticipation for the climate plan, Fit for 55. It is a legislation package of more than 1,800 pages, that we will now dive into and see what it specifically means for shipping. As a starting point, it looks very reasonable, and we feel that the contributions we, as a sector, have delivered in the preparatory work, have been heard. “We support shipping being a part of the ETS, but we would have preferred that the Commission start with travels between two EU-ports. That would have made room for negotiations on global solutions at the IMO. “If the EU plays its cards right, the tariffs in the proposal could be used to put pressure on the global CO2-prices at the IMO, and consequently contribute to creating unified, international solutions.”

The Commission will use the definition from the EU MRV-directive (the existing system of reporting) to place the responsibility for payment of quotas under the EU ETS. This means that it is the shipowner or the technical manager, who is responsible. This ensures good avenues for enforcement, thinks Danish Shipping, who are pleased with the proposal. “It is important that there is an easy and transparent enforcement of placement of responsibility. We are therefore very happy with the Commission’s choice of the EU MRV-directive, which we already have good experiences with,” said Skipper Schwenn.

Additionally, the Fit for 55-package contains elements such as FuelsEU, which will push for an increased use of greener fuels. This regulation aims at increasing the use of new fuels, such as biofuels, methanol, and hydrogen.

There is a revision of the directive for levies on fuels from 2003, which takes into account sailing between two EU-ports and provides incentive for flexible alternatives for a 10-year transitional period, starting from 2023, through the use of flexible levies. However, the proposal requires unanimity among all Member States. “It is positive that the Commission is trying to push for the inclusion of the new fuels that are vital if the shipping industry is to reach its climate goals. We will now study the details of the proposal closer,” said Skipper Schwenn.

European shipowners’ body ECSA gave a cautious welcome for the plan but said European shipowners notice a lack of consistency among some of the proposals of the package which may undermine its environmental objectives and therefore urge for more consistency.

“Even though we would have preferred an international solution for shipping, we welcome the increased climate ambition of the EU and we recognise that shipping should contribute its fair share to address the climate crisis, at EU level as well” said Claes Berglund, ECSA’s President.

ECSA advocates for a dedicated fund to be set up under the EU ETS to stabilise the carbon price, which is especially important for the many small and medium sized shipowners. It said generated revenues should support the sector’s energy transition. ECSA also welcomes the recognition of the role of the commercial operator in the proposal for the inclusion of shipping into the EU ETS. It´s important for the European shipowners that the commercial operator should bear the costs of the ETS.

“It is of utmost importance that the revenues from ETS are used to support the decarbonisation of shipping and not added to Member States’ general budgets. A sector-specific fund has already received significant support from the European Parliament, NGOs and industry stakeholders and we sincerely hope that the Member States will take this strong signal into consideration going forward. The new Directive must also ensure that all supply chain stakeholders including the commercial operators have the proper incentives to make climate-conscious decisions” added Berglund.

ECSA supports a phase-in period under which an increasing percentage of the emissions of the sector is subject to the ETS, but said it is important that sufficient time is provided for the gradual inclusion of the sector’s emissions in order to create investment signals and to identify potential errors in the system design.

ECSA also welcomed the objective of the FuelEU Maritime initiative to foster the market uptake of cleaner fuels that are currently not commercially available. However, the proposal does not seem to be consistent either with other proposals of the ‘Fit for 55’ climate package or with the overall increased climate ambition. “Incentivising the uptake of biofuel blends purchased outside the EU could create an enforcement minefield putting at risk the achievement of emissions reductions. While it is of outmost importance that flexibility is safeguarded, the introduction of double counting or double requirements must be avoided. Τhe principal obligation for compliance with any new standards should rest with the EU fuel suppliers” said Martin Dorsman, ECSA’s Secretary General.

European shipowners also point out that a financial penalty on ships when the infrastructure for Onshore Power Supply (OPS) is not available in a port, penalises the wrong entity. “At the very least, ships must be exempt from the OPS requirement, when the port infrastructure is not available or not compatible with ships’ equipment” concluded Dorsman.

Environmental NGO T&E welcomed the proposals to extend the EU emissions trading system to shipping and, for the first time, to tax shipping companies for part of the fossil fuel they purchase saying the sector has escaped taxation for decades and was even exempted from the recent global minimum corporate tax requirements agreed by world leaders.

Faig Abbasov, shipping programme director at T&E, said: “The EU is finally making shipping polluters pay. Now lawmakers need to defend a carbon market that covers extra-European voyages, so that the biggest shipping companies are not let off the hook. The ETS revenues should be reinvested in deploying zero-emission vessels, port charging, and hydrogen refuelling infrastructure.”

T&E is concerned the FuelEU Maritime proposal could lead to more than half (55%) of the energy used by ships calling at EU ports being LNG and biofuels by 2035, according to T&E’s analysis. This is despite LNG offering minimal emissions reductions and releasing methane – a global warming gas up to 36 times more potent than CO2.

T&E was not impressed with the plan’s proposed a new infrastructure law (AFIR) saying it required major ports to spend billions installing gas refuelling infrastructure for ships, helping lock in decades of fossil-fuel burning. In contrast, neither legislation requires or incentivises the deployment of genuinely sustainable e-fuels based on green hydrogen.

Abbasov said, “The World Bank, IEA, shipyards and shipowners now recognise the pivotal role of green hydrogen in decarbonising shipping. The Commission remains the only major institution still recklessly pushing the industry to invest in LNG ships that will lock us into decades of further pollution and stranded assets. Governments and MEPs need to shift the focus onto promoting renewable hydrogen and ammonia instead.”

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