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The Case For A Carbon Levy on Shipping and the Many Challenges This Entails

A carbon levy for shipping could be the answer, in order to fund the make the transition to greener shipping fuels. In its latest weekly report, shipbroker Gibson said that “heads of state haven’t even got on their respective planes to fly to Glasgow for the meeting of world leaders to discuss climate issues at COP26 and already there are various groups calling for additional changes to climate policies. COP26 is scheduled for the end of October, while only a few days later the IMO’s Marine Environment Protection Committee (MEPC) 77th session will commence. There seems to be significant impetus behind largescale and farsighted action to address climate change”.

Source: Gibson Shipbrokers

According to Gibson, “from a shipping perspective, there has been a coalition of 34 nations and the European Commission who are calling on the IMO to decide in their November meeting to start the process towards zero-carbon emissions. Currently, the IMO is aiming to reduce greenhouse gas emissions by half by 2050. However, this is seen as not being robust enough, with the Marshall Islands, Kiribati and Solomon Islands citing the findings from the recent Intergovernmental Panel on Climate Change (IPCC) Climate Science Report. They have signed a letter to the delegates of the IMO in which the Marshall Islands’ ambassador wrote: ‘The findings of the recent [IPPC] report could not be clearer and fill us, the most vulnerable to this climate emergency, with alarm.’ They call for an adoption of a resolution calling for emissions to be cut to zero by 2050”.

The shipbroker added that “the pending COP26 and MEPC meetings will commence at a time when energy is very much in the headlines. Much has already been written about the dramatic escalation in gas (and LNG) prices recently, and which will no doubt be high on the agenda for world leaders to grapple with. Also, the rising oil prices will no doubt get some airtime at the meeting. Without predicting the outcome of COP26, it is certain that there is enough political will by the countries involved to present a more unified stance on environmental issues. This will undoubtedly involve some form of increased interest in what the shipping sector should do”.

Gibson also noted “shipping is responsible for approximately 2% of global carbon emissions and as such the IMO has recognized the need for action. The International Chamber of Shipping (ICS) recently presented a submission to the IMO, calling for an acceptable market-based measure to accelerate the uptake and deployment of zero-carbon fuels. This could be enacted by implementing a levy on fuels for each tonne of CO2 emitted. The money would go into an ‘IMO Climate Fund’ which, as well as closing the price gap between zero carbon and conventional fuels, will also help build the bunkering infrastructure required to supply fuels such as hydrogen and ammonia. The fund would calculate the climate contributions to be made by each ship and collect contributions. In addition, the global airline industry has also committed to reaching net zero carbon emissions by 2050. So shipping is not the only sector that is facing some difficult decisions. A well-known classification society has suggested the need for a CO2 levy on conventional tonnage in order to create a level playing field for investment in alternative fuels/vessel designs”.

“Whilst this sounds plausible, the challenges are multiple. First, how to price the levy? Currently carbon prices in Europe are trading around $60/tonne, which has doubled since the beginning of the year. This rise in price has occurred without the impact of the shipping industry having to pay for their emissions. Secondly, there is the very real concern that an additional levy on vessel fuel will ultimately have a knock-on effect on the end consumer, which depending on how the levy is priced, could have an inflationary impact on the economy. Thirdly, there is the problem with bunkering infrastructure. Which fuel will be available in which port? Will the port specialize in one fuel, or will it offer all future fuels? Finally, there is the economic uncertainty that will come with adopting alternative fuels. Which will be best for your vessel and for your trading patterns? Despite all this, the overriding problem that shipping is facing is that this could take more than a decade to enact. We will have to wait for the final outcome of COP26 and MEPC 77, but to encourage the shipping sector towards zero mission fuels, the industry will need much more than just a declaration from a nongovernmental organization. Substantial incentives and farsighted leadership is what is needed, plus an extended period of time to design and build the infrastructure and vessel engines that will be required to replace the conventional global fleet”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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