News / Major shipping lines will pass on cost of compliance with EU's new emission rules

© Sheila Fitzgerald

The major shipping lines say they will pass on the extra costs of compliance with the forthcoming European Union Emissions Trading System (ETS).

Alliance partners Maersk Line and MSC have said they would pass on the full cost to customers, estimating this at €90 per tonne of CO₂.

“We would envisage adding the cost on our Far East to North Europe trade of €69 ($70.80) per teu for dry containers and €208 ($213.55) per feu for reefer containers. North Europe to Asia, the cost would be €37 per dry teu and €110 per reefer feu,” said MSC.

Meanwhile, the World Shipping Council (WSC) and European associations have urged the EC to ensure its ETS measures lifecycle emissions from alternative fuels, rather than just those from the exhaust, which, it says will distort the market.

Jim Corbett, WSC European environment director, told The Loadstar the liner shipping association was fully behind the EU ETS, but industry and regulators have concerns over how the measure, due to be introduced on 1 January 2024, will work.

“The first concern from the EU is that there is no double-counting of carbon emissions, whereas our major concern is that there is no ‘under-counting of emissions,” he explained.

The concern is that if the EU ETS charges shipping lines for emissions from the funnel, without taking into account the lifecycle emissions of a fuel, this will cause market distortion, he said. There are proposals to prevent that distortion and the introduction of the ETS for the maritime sector has been delayed until 2024 to give industry and the EU time to arrive at a solution.

In an open letter to the EC, the associations wrote: “When creating regulations, politicians should consider the full picture to accurately capture the impact of the new fuels on the climate. Assessing fuels on a life-cycle basis includes the impact on the climate from producing, transporting and combusting the fuels.”

The letter advises: “Long-term investments are needed to produce the renewable fuels of the future in greater quantities. The lack of a life cycle approach in ETS defers investment in the production of green fuels, because developers await certainty on the implications for their choice of fuel.”

According to Mr Corbett, if the EU ETS only considers greenhouse gas emissions from vessels, this would put sustainably produced fuels at a disadvantage, because the production of what ge calls ‘brown’ fuels – those not produced through the use of renewable energy – “will get the same treatment even though the full climate impact of brown fuels is significantly worse”.

That would create an “inverse incentive”, he said, making the use of brown fuels cheaper than their green alternatives, an effect amplified when the fuel producer is beyond EU jurisdiction.

There is a solution, according to Mr Corbett: “The life cycle perspective for maritime can be incorporated into the EU ETS either by changing the number of allowances that need to be surrendered, or by discounting the price of EU ETS allowances when fleets choose renewable fuels.”

Changes to monitoring reporting and verification would be required to meet the lifecycle adjustments to the EU ETS, added Mr Corbett.

Green NGO Transport & Environment backs the carrier associations. Sustainable shipping officer Jacob Armstrong told The Loadstar: “It will be very important to implement a well-to-wake (WtW) emissions accounting in the ETS when shipping companies begin to deploy e-fuels and biofuels on European voyages.”

Mr Armstrong believes the EC has already successfully demonstrated how to use WtW calculations and will require ships to switch to alternative marine fuels under its FuelEU Maritime rule.

“But unless ETS adopts a similar accounting mechanism, there is a risk of the EU rewarding the wrong fuels and possibly punishing good ones. For example, without WtW, ‘grey H₂‘ will be considered zero-emission, even though it is produced from fossil gas, while green e-methanol would be considered as polluting.”

According to shipbroker Clarksons, a third of vessels ordered this year will operate on alternative fuels, with LNG the most popular option. Methanol, ammonia and hydrogen-ready vessel orders are also increasing.

Signatories to the letter also included Danish Shipping, the Methanol Institute, Renewable Hydrogen Coalition, Royal Association of Netherlands Shipowners and Swedish Shipowners’ Association.