After shipping and aviation were expressly omitted for special mention in the COP21 Agreement, numerous bodies have lined up to attack that decision. Regardless of the fact that individual flag states and potentially port states will be free to choose to include both industries in their own emission reduction pledges, there are far too many who believe that shipping has somehow escaped further attention. Latest to take this misguided view is the International Monetary Fund (IMF) which has recently produced a Staff Discussion Note (SDN16/01) which includes several suggestions as to how the $100Bn promised to developing countries might be financed. It should come as no surprise that this involves levies and taxation on a variety of sources including shipping and aviation fuels. The document says ‘Substantial amounts could be raised from charges on international aviation and maritime fuels. These fuels are a growing source of emissions, are underpriced, and charges would exploit a tax base not naturally belonging to national governments’. It is hard to fathom why the IMF should consider bunker fuel as being underpriced. True the cost of HFO has reduced by 75% from its height but then so has the cost of crude on which the price of fuel oil is dependant. Bunker fuel is far from being subsidised by national governments or by producers in fact it can be argued that residual fuels are actually sold at higher premiums than any other oil based fuels considering that it is acknowledged that it is almost a waste product and without shipping would have almost no value. Perhaps the argument put forward by some NGOs that because bunker fuel is not subject to VAT, shipping is somehow given preferential treatment is behind the IMF’s viewpoint. However, even that is a false argument because the VAT charged to other forms of transport on fuel is offset against VAT charged by the buyer of the fuel for its trade goods and services. The IMF is proposing that $25Bn or a quarter of the $100Bn annual fund could be raised by taxing shipping and aviation at the rate of $30 per tonne of CO2. That is excessive considering the IMF accepts that between them the two industries are responsible for only around 4% of all CO2 emissions. More seriously for operators in developed countries is the fact that the full $25Bn will only come from them because developing economies will be able to claim exemptions. Taking a more careful look at the IMF’s proposed levy it should be recognised that $30 per tonne of CO2 equates to more than $100 per tonne of bunker fuel as burning one tonne of oil releases about 3.5 tonnes of CO2. When bunker costs were at $600 per tonne, that would have meant an increase of 17.5% but with IFO380 costing $116 per tonne in Rotterdam today, the levy would be an astonishing 90%. It is doubtful if struggling shipping companies would be able to survive an increase of that enormity.
IMF renews attack on shipping
5 hours ago