ECSA & ICS study critical of EU approach on ETS

A preliminary study commissioned by the European Community Shipowners’ Associations (ECSA) and the International Chamber of Shipping (ICS) – conducted well before the European Parliament’s vote this week to include shipping in Europe’s emissions trading scheme – argues that regional legislation will undermine international efforts on environmental regulations.

Earlier this week, the European Parliament voted to include shipping in a regional ETS by as early as January 2022, but the decision has once again highlighted the long-held opposing views of key industry stakeholders on two main issues: firstly, whether efforts on decarbonisation should be undertaken on a unilateral (i.e. regional) basis or on a global footing, through decisions taken at a global level through the International Maritime Organization (IMO); and secondly, whether market-base measures should be used as instruments to encourage decarbonisation.

The ICS and ECSA commissioned study, Implications of application of the EU Emissions Trading System (ETS) to international shipping, and potential benefits of alternative Market-Based Measures (MBMs), was undertaken by Dr Edmund Hughes, former head of air pollution and energy efficiency at the IMO.

Commenting on the study, ECSA notes that the EU’s ETS proposal ‘aims to pre-empt the conclusions of the European Commission’s impact assessment study and undermines the ongoing negotiations at the UN International Maritime Organisation.

‘The move risks introducing sub-optimal environmental regulations at the EU level, contributing to a regulatory patchwork and an increased fragmentation at the international level.’

The findings of the study in terms of global versus regional regulation on decarbonisation and the efficacy of using an ETS chime with those of a World Shipping Council report published last week, which suggested that if the EU moves forward with its ETS proposal based on the methodology of the Monitoring, Reporting and Verification (MRV) regulation this could hold back or stymie any progress towards achieving global action on emissions.

‘Adopting an ETS with a large extraterritorial impact is likely to present a significant impediment to the development of a global solution because once in place, national or regional initiatives – particularly where revenue is concerned – are unlikely to be unwound or modified,’ said the WSC report.

The new ECSA and ICS report also highlights that, according to the EU’s amended MRV regulation: ‘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).’

As previously noted, the ECSA/ICS report was compiled some time before final vote by the European Parliament. In the event, the amended MRV regulation has proposed the establishment of a new Ocean Fund which would receive 50% of shipping’s ETS revenue which would be used to finance climate friendly initiatives in the maritime sector.

The other 50% of the ETS revenue would be used for the European Union’s own climate strategies.

While rejecting the inclusion of shipping in the European ETS, the ECSA/ICS report does give some support to the imposition of a fuel levy on shipping. The submission to the IMO by a number of industry organisations for the establishment of an R&D fund to be used for technical innovation in reducing shipping’s GHG footprint has already mooted the application of a $2 levy per tonne of bunker fuel consumed.

Commenting on the conclusions of the new study, ECSA Secretary General Martin Dorsman said: ‘The whole of European shipping is fully committed to decarbonisation and stands behind the EU’s bold ambition to become the world’s first carbon-neutral continent.

In our opinion, imposing any regulatory measures without measuring the impact on shipping is not prudent. Regional measures have been criticised for undermining global negotiations at UN IMO level and may slow down or even reverse the progress that has already been made.

He continued: ‘We trust that the Council will put on hold any proposals until a thorough and comprehensive impact assessment is carried out. Any decision that will be taken has to truly work and actually deliver results.’

Lesley Bankes-Hughes

Lesley Bankes-Hughes