There is no reason to panic about the EU ETS – unless you are not fully prepared, writes Christian Rae Holm, Managing Director, Coach Solutions
Dire warnings of ballooning costs, threats of disruption and pleas for delay to the start of new regulation; the Christmas story for the shipping industry a familiar one. Once again, the European Union is the bad guy, ushering the industry into the Emissions Trading System (ETS) and with it drawing the kind of objections we have heard many times before.
Just like the introduction of ECAs, the global sulfur cap and even Y2K, the EU ETS is not the end of the world. It’s another situation where the philosophical objections are probably stronger than the practical ones.
Yes, the EU ETS impacts the relationship between owners and charterers, yes it creates administrative work, but the fear that the market won’t function efficiently is simply fear-mongering. It could be that the reports of impending disaster come from the unprepared; the smart players had a restful Christmas knowing they were ready for carbon accounting.
The truth is that compliance doesn’t have to be hard. But neither is it something that can be ignored. It’s a matter of collecting the right data and being willing to share it with the right stakeholders.
Operators who continue to rely on unstructured email data might well find themselves on the end of a bad performance claim; there will always be someone who is better organised. Owners who think they can keep contracts oblique and unspecific are quickly going to find themselves at a disadvantage.
The message from pool operators and charterers seems to be that owners who can’t or won’t share accurate data just won’t be playing. The big players understand this; both the operators and charterers have the luxury of picking the owners to work with and any attempt to game the system isn’t going to fly.
Charterers will need accurate and timely data long before the cargo is loaded. The key performance data points of speed and consumption are critical for creating accurate forecasts. Overly optimistic owner estimates that fudge the figures will be obvious – and could offset their earnings potential.
Before we get too carried away, it’s true that change management is the biggest issue to overcome. The data collection and reporting element is comparatively simple but the industry needs to understand the requirement to change; try to keep doing things the way they’ve always been done and you will quickly have a problem.
Waiting and hoping something will change is not a success strategy. There is a mistaken belief that with emissions payments not starting until September 2025, owners won’t need to submit data or start surrendering allowances, but this is not a sail now, pay later regulation.
Part of the resistance to change comes from adherence to the monolithic noon report, a system that is used more as retrospective evidence to claim back dues when a vessel is redelivered.
The switch to predictive, proactive, trust-based vessel performance data results in better estimates and also enables the owner to decide which voyages to perform and which to pass on. And contrary to what you may hear, there are no legal issues in sharing performance data; all that is needed is a good system for collection and sharing it.
The only similarity to ECAs and the sulfur cap is that EU ETS is in reality an administration process. The dire warnings of additional costs are just like the predicted impact on fuel costs in 2020; by and large, they will be absorbed and passed on.
The conversations we have had with clients are that those who wanted to enjoy Christmas got their EU ETS process all wrapped up early. And here’s the new year message: they are looking ahead to the next challenge. The Fuel EU Maritime regime which will require them to demonstrate the energy content of fuel is a more complex problem that lies not too far ahead.
Happy New Year!
The views presented hereabove are only those of the author and do not necessarily those of SAFETY4SEA and are for information sharing and discussion purposes only.
