Trailblazing the Path to Cleaner Waters: The EU ETS
The clock is ticking on the European Union’s Emissions Trading System’s (EU ETS) decision to embrace maritime activities in 2024. Set to hold weighty vessels of over 5,000 gross tons to account, the ETS stipulates that these sea monsters monitor and divulge their carbon dioxide emissions related to loading and unloading in the European Economic Area (EEA). While it’s created a buzz in the maritime industry, critics question if the regional market-based measure will significantly reduce maritime emissions.
The EU ETS has successfully threaded the needle of the bloc’s Green Deal, maximizing the possibility of a greener future. However, some stakeholders are wary of a potential loophole that might backfire – carbon leakage.
The EU ETS Loophole: Figuring Out the Maze
A thought-provoking study on the maritime platform, Queseas, tries to traverse the intricacies of the EU ETS regulations, pointing out critical loopholes. It asserts that the enforcement of the ETS might incentivize stakeholders to skirt the demarcated area, opting to make interim stops in non-EU countries precisely to reduce costs.
Consider a modern Suezmax tanker – fitted with an anti-sulfur (SOx) scrubber – sailing from Nigeria’s Bonny port to Portugal’s Sines port. This 13-day voyage using 520 tons of heavy fuel creates 1,600 tons of CO2 emissions. The ETS would consider 800 tons of CO2 for a strict compliance cost of $81,000.
However, incorporating an alternate route via Morocco’s Tanger reduces the compliance cost significantly. Bypassing Tanger without any EU ETS obligations, then sailing to Sines adds up to only $6,200 in EU ETS costs. This alternative path reduces ETS expenses by a staggering 92%.
Potential Cascading Effects of the ETS
In the wake of this glaring loophole, non-EU maritime hubs could turn a handsome profit. Besides, this discrepancy may also benefit ship management and oil trading companies. The European oil import landscape could undergo a paradigm shift, leading to potential ETS revenue loss and carbon leakage. Both dry and liquid shipping are vulnerable to the loophole, with the existing regulations inadequately shielding their operations.
As for container shipping, EU ETS law has laid down stringent measures to prevent deviant practices. Container carriers stopping at non-EU/EEA ports, but within 300 nautical miles of an EU/EEA port, must include half of their total emissions in their reports.
Insights from Maritime Experts
Dr. Roar Adland, a global research head at UK shipbroker Simpson Spense Young, shared his insights on the implications of the EU ETS on European shipping operations and commercial patterns. He contended that the potential $100 per ton of CO2, or a $300/ton fuel equivalent, would hardly affect operations and emissions. Despite fluctuations in fuel prices, there have been no noticeable modifications in vessel speeds or otherwise, Dr Adland noted.
However, he forewarned that the pinch of higher transportation costs could deter trade, suppressing low-value cargoes and price arbitrage trades. Mainly, intra-EU voyages and exports could bear the brunt of these amplified costs. These extra costs and the uncertain workaround of the emissions policy might echo potential pitfalls in this high-stakes environmental endeavor.
