In July the Environment Committee included CO2 emissions from the maritime sector in the EU Emissions Trading System (ETS) and set a new target of 40% reduction in shipping CO2 by 2030. In efforts to protect the environment, the European Union has also launched the European Green Deal.

The current study identifies the possible risks of incorporating international shipping into a regional ETS, and demonstrates why policy instruments such as Market-Based Measures (MBMs) – including alternatives such as a global fuel levy – are already under active consideration at IMO.

In addition, the report suggests that including the shipping sector in the EU-ETS could impact the progress at IMO with respect to achieving further reductions of the total greenhouse gas (GHG) emissions by the international shipping sector as a whole, in line with the ambitious targets that have already been agreed by IMO Member States = as part of the Initial Strategy on Reduction of GHG Emissions from Ships (the IMO Strategy) adopted by IMO in 2018.

 

Consequently, ICS discusses the advantages and disadvantages of incorporating international shipping into EU-ETS, as follows:

Advantages:

  • EU-ETS sets a cap on emissions that the sector as a whole and individual emitters are required to achieve, a cap which can be amended to ensure policy goals are achieved;
  • EU-ETS already established for several industry sectors with proven mechanisms for allocation of carbon permits and trading platforms;
  • Permits both in-sector and out-of-sector emission reduction resulting in flexibility in compliance approaches that can be used, including permitting the use of offsetting;
  • As price of carbon is determined by the market, some economists argue that this ensures CO2 emissions are reduced in the most economical way and potentially allows trading with other carbon markets;
  • For emitters to achieve the required carbon emission limits, the EU-ETS can potentially stimulate uptake of alternative fuels and innovative technologies;
  • EU Monitoring, Reporting and Verification (EU-MRV) system for ships trading internationally to and from the EU already implemented and can be used as basis for application of EU-ETS to shipping.

Disadvantages:

  • Risk of undermining IMO negotiations to implement the Initial Strategy on Reduction of GHG Emissions from Ships, so setting back global efforts to adopt measures for absolute emissions reduction and provide support programmes to developing countries especially Least Developed
    Countries (LDCs) and Small Island Developing States (SIDS);
  • Greater uncertainty over the price of emitting a tonne of CO2, as it depends on supply and demand. If the price drops due to a lower demand there is decreased willingness and ability for companies to invest in CO2 reducing investments;
  • Subject to the final scope of application, there is potentially a high risk of carbon leakage, increasing CO2 emissions from shipping outside the scope of the EU-ETS and leading to market distortion;
  • The application of EU-ETS to international aviation (for intra EU flights) has not resulted in any reduction to absolute emissions from this sector, in contrast to shipping whose absolute GHG emissions have reduced significantly throughout the same period;
  • Funds raised from carbon allowances bought by the shipping sector are not retained in the shipping sector for R&D (unlike in the International Maritime Research and Development Board proposal to IMO from the shipping industry, which in turn could form the basis of a global MBM while accelerating the development of zero-carbon technologies and complete decarbonisation).
  • Risk of introducing perverse incentives, e.g. if efficiency improvements are not reflected in legacy allowances;
  • Risk of increased political tension with third countries that could potentially lead to trade disputes, especially if this is perceived to be more a revenue raising exercise rather than an attempt to reduce emissions from international shipping;.

The report discusses all risks and implications arising and concludes that emissions from ships trading internationally and transporting cargoes to and from the European Union are contributing to anthropogenic climate change.

As such those emissions are impacting on the EU and so the right to protect its citizens becomes politically more paramount, a view that has been supported by the European Court of Justice

... the report highlights.

Overall, to learn more about the study, click herebelow

Implications of application of the ETS to international shipping and potential benefits of alternative market based measures