Running in parallel

Malcolm Latarche
Malcolm Latarche

13 July 2016


What with all the excitement over Brexit and the political machinations that have followed in the UK, keeping track of other news and its impact on shipping has been a little difficult. In catching up ShipInsight came across an interesting article on Bloomberg that has parallels with the current situation in shipping and the potential to converge if those within our industry pushing for targets on CO2 to be applied to shipping get their way. Ship operators know too well that almost every attempt to push up freight rates in recent times have been doomed to failure because of a overcapacity in the market. The same it seems is true for carbon emission trading markets which, according to Bloomberg, are in danger of collapse. The Bloomberg article opens by saying ‘Carbon markets, the free-enterprise solution to saving the world from global warming, are now in danger themselves. The idea was simple enough: Set a cap on carbon emissions, issue enough permits to allow power plants, refineries and the like to stay within those limits and then shrink the cap over time to achieve reductions. The companies whose emissions fall fastest can sell their permits for a profit to slower responders - call it a reward for good behaviour. The reality, though, is more complex. Undercut by a lack of political will on the size of caps and overtaken by costly new environmental mandates, carbon markets in the US, Europe and Asia are collapsing, with prices so low they’ve become virtually valueless. The credits auctioned in the U.S. Northeast in June, for instance, sold for just$4.53 a short ton, a 40 percent drop from December’. The article goes into greater depth as to reasons and it closes with comments on China where carbon trading is mooted to begin soon. China risks falling into the same trap as others. While regulators looking to establish a national market there appear to be trying to avoid an oversupply, prices are already plummeting in pilots they’re running, said Sophie Lu, an analyst in Beijing at Bloomberg New Energy Finance. Just as carbon market history has repeated itself around the world, Lu said, China “may not be willing to pay the political and economic costs. There are a good many people around the globe including some within our own industry that will shed no tears for losses suffered by traders in carbon emission trading; after all any profits they make are a loss for someone else trying to make a living in the real world of production and transport of goods. Those advocating a separate cap on emissions from shipping might like to think that if it does come to pass it will be our industry that suffers to the benefit of those that realistically contribute nothing to world trade but merely feed off it. For those interested in reading it the Bloomberg article you can see it here.