The shipping industry needs a fixed carbon price to mitigate the uncertainties of its energy transition and to avoid manipulation of carbon markets, the secretary-general of the International Chamber of Shipping said June 9 in an interview.

The industry has come to widely accept that carbon must have a cost, under the polluter pays principle, but opinions remain divided over exactly who that polluter is and how they should pay.

There have been extensive discussions in the European Union on including shipping in its emissions trading scheme, although these struck a roadblock June 8 when the European parliament rejected a series of proposed reforms to the ETS.

The ICS is against regionalized regimes and believes in direct funding for shipping’s energy transition, something which the earlier EU ETS proposal would not have provided, instead directing proceeds to a general taxation fund. “We believe in a global system; market-based measures are the best way of achieving those aims,” Guy Platten, ICS secretary-general, told S&P Global Commodity Insights on the sidelines of Posidonia 2022, a shipping industry event in Athens.

This must come from the International Maritime Organization and ensure proceeds go directly to research and development for investment in sustainable fuels for shipping, he said.

Price volatility

In Europe, shipping companies are set to be included in the EU ETS under proposals currently being discussed by lawmakers, although the June 8 surprise rejection could set the legislative process back by months. The legally binding scheme, which currently includes power generators, factories and airlines, requires companies to have their CO2 emissions independently verified by third party auditors and to surrender carbon allowances to match their annual emissions.

EU carbon allowance prices increased by 139% in 2021 on higher demand due to an economic recovery and increased use of coal for power generation, as well as on expectations of tighter supply in future due to legislative reforms.

EU Allowances for December 2022 delivery were pegged at Eur80.14/mtCO2e ($85.90/mt) at the close June 8, according to Platts assessments published by S&P Global Commodity Insights, down from Eur80.80/mtCO2e on June 7.

Outside of the compliance markets, many companies are also setting voluntary targets to reach net-zero emissions by 2050 and buying and retiring carbon offset credits to neutralize any CO2 emissions that cannot be reduced.

CORSIA-eligible carbon credit prices gained 900% in 2021 and were assessed by Platts at $5.05/mtCO2e at the close June 8, unchanged from the previous day.

Some market sources believe market-based trading schemes such as this are the fairest way to price carbon and that such a mechanism, with fluctuations in price, is more palatable in the US, where there is more ideological opposition to a flat rate, which is construed by some as an externally imposed tax, a diplomatic source said.

However, a flat rate confers the important quality of predictability, Platten said. “A levy is the simplest, most transparent way of doing it. We would very much advocate a levy, which is something you can plan for,” he said.

Global needs

The EU is not the only region where there has been talk of an ETS.

There has been discussions about comparable schemes in other regions, for example in the US. “This fractionalization of all the different schemes will be an absolute nightmare,” Platten said. Shipping is by its nature an international business and it needs a global approach, he added.

However, with no clear proposal on global carbon pricing so far from the IMO, it may take bold actions from regional actors such as the EU to lead the way and hopefully galvanize the IMO, one shipping source said.
Source: Platts