International Maritime Organization discussions for introducing a global shipping carbon tax are being held at its Marine Environment Protection Committee meeting this week.
A carbon tax is definitely what shipping needs. If structured carefully, it can push the industry to emit less by incentivising initiatives to improve efficiency and implementation of zero-carbon technology and fuels.
While most of the industry stands firmly behind a global carbon tax, there are widespread concerns about the process and its likely outcome.
The mandatory carbon intensity measure, coming into force in 2023, will set the IMO on a dangerous course.
It is based on Carbon Intensity Indicator (CII) metrics, which build on a grossly imperfect metric based on the theoretical cargo intake of a vessel, without factoring in the performed transportation work.
These metrics disregard operational and trading efficiency, and introduce misguided incentives.
Recent proposals on global carbon taxes — one tabled by China and backed by Brazil, Argentina, South Africa and the United Arab Emirates; and one of two proposals tabled by Japan — are particularly worrying.
Both proposals want to levy a carbon tax on ships based on their CII scores. If the carbon tax proposals penned by China and Japan are implemented, the regulation will further penalise the vessels and operations with the lowest emissions per transported tonne of cargo — ultimately favouring empty ships.
‘Senseless’ approach
This approach, well-meaning as it may be, is senseless. It is as if the International Air Transport Association were to introduce metrics that reward airlines for flying jumbo jets half-empty. It is wasteful, it is wrong and it is misguided. The devil is in the detail.
Operational and trading efficiency is paramount for cutting emissions before zero-emission technology and fuels are widely available for all shipping segments.
Efficiency will also remain a critical factor in the future when the industry switches to zero-emission fuels, as these will be two to three times more expensive than fossil fuels.
To put it bluntly, adopting a poorly developed regulatory framework that disregards the importance of operational and trading efficiency will hamper the industry’s transition towards the large-scale use of sustainable zero-emission fuels.
We call on governments in the European Union, the UK and Norway to ensure that shipping regulations are practical and sensible. As leading maritime nations, they have a loud voice and a big responsibility.
We must work to avoid senseless, unconstructive compromises.
How can we come up with a more constructive regime? Rather than creating more perverse incentives for the industry, the IMO should follow the EU’s lead.
In 2023, the EU is due to include shipping in its emissions trading system (ETS), a levy based on the actual carbon emissions of the vessels themselves. These regulations offer a suitable mechanism for curbing emissions.
They also demonstrate that it is practical to have both a straight carbon tax and a cap-and-trade scheme like the EU’s ETS linked to the actual emissions of ships.
An approach like this would push the industry to collaborate, improving efficiency in every part of the seaborne supply chain. It would also stimulate investment in tomorrow’s zero-emission fuels.
In a sector responsible for roughly 3% of greenhouse gas emissions, carefully crafted regulations and incentives are sorely needed. Poorly conceived compromises, blocking positive change, are not.
If the IMO rules are implemented as proposed by China and Japan, we risk ending up with another imperfect and counterproductive piece of regulation.
