Explainer: Why should shipping fall under the EU carbon trading scheme?

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Containers are stacked on the deck of the freighter as it gets underway in New York Harbor in New York, U.S., November 7, 2021. REUTERS/Brendan McDermid

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LONDON, Feb 7 (Reuters) – The European Commission has proposed for the first time to add shipping to the Union’s carbon market, in a move that is expected to shake up the industry after years of avoid pollution charges imposed by the Union.

But there is already disagreement about how this will work given the complexity of the shipping industry and how quickly it can decarbonise.

Here’s what’s known so far about the upcoming process.

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WHY SHOULD DELIVERY BE INCLUDED IN THE ETS?

With approximately 90% of world trade transported by sea, maritime transport accounts for nearly 3% of global CO2 emissions.

Environmental campaigners say industry’s efforts to cut emissions are too slow and that including shipping in the European Union’s Emissions Trading Scheme (ETS) will speed up decarbonisation.

WHAT ARE THE PROPOSALS CURRENTLY?

Launched in 2005, the ETS requires manufacturers, power companies and airlines to buy permits to cover every tonne of carbon dioxide they emit.

Permit prices under the program are approaching 100 euros ($114.44) a tonne, a level that analysts say will spur new investment in low-carbon energy sources.

Last July, the European Commission proposed to gradually add maritime transport to the ETS from 2023 to 2026, when shipowners would have to buy permits covering all their emissions inside the EU and 50% of their emissions from international journeys beginning and ending in the EU.

The proposal must be negotiated by the European Parliament and EU countries before becoming law.

However, the European Parliament wants maritime transport to be integrated into the ETS earlier, by 2025.

He also wants the entity responsible for decisions affecting CO2 emissions, such as the purchase of fuel, to pay, which means they would have to buy carbon permits. This may be the shipowner, commercial charterer or operator of a vessel.

On the other hand, the Commission has stated that shipowners should always bear the costs of CO2.

Parliament wants the EU to consider extending the ETS to cover all shipping emissions to and from Europe, if regulatory efforts to cut emissions by the UN maritime agency, the International Maritime Organization (IMO), fail.

If IMO measures reduce emissions fast enough to avoid disastrous climate change, the EU could reverse its inclusion of shipping in the carbon market, according to Parliament’s draft proposal.

The European Commission’s proposal faces months of discussions. The European Parliament and EU countries can request changes to the text and agree on a final version.

HOW DOES THE MARITIME INDUSTRY SEE THE PROPOSALS?

There are differing views within the commercial shipping industry, which is made up of different segments including container, tanker and dry bulk.

There is disagreement over who will foot the bill and whether it falls on the shipowner or the party that leases a vessel, known as the charterer.

With millions of dollars in fuel for each trip, the stakes are high.

The Union of Greek Shipowners, representing dry bulk, and the tankers’ association INTERTANKO welcomed the inclusion of shippers saying those who are responsible for transporting goods and who benefit from it are responsible for emissions.

In contrast, the World Shipping Council (WSC) – representing container companies – argues that shipowners should share responsibility for decarbonisation and that the proposed definition of a responsible entity would “corrupt the ETS”.

“Greenhouse gas emissions from ships result from a combination of design technology, fuel consumed and operational practices,” said WSC chief executive John Butler.

“A regional EU ETS carbon price must apply to all parties that have a role to play in GHG reductions – shipowners and operators.”

Pressure is also mounting on the regulatory side.

The IMO’s goal is to reduce overall GHG emissions from ships by 50% below 2008 levels by 2050, below targets set by countries like the United States that have lobbied for the agency adopts a goal of zero emissions by 2050.

The IMO said concrete progress had been made in 2021 to tackle climate change, including new regulations to improve the energy efficiency of the global fleet, adding that it would work this year to revise its strategy. GES and would finalize it in 2023.

The IMO said regulations should go through the agency and be global unlike the EU’s approach, adding that regional legislation would not favor the concerns of developing countries.

($1 = 0.8738 euros)

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Reporting by Jonathan Saul, Kate Abnett and Nina Chestney; edited by Pratima Desai and Susan Fenton

Our standards: The Thomson Reuters Trust Principles.

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