Europe Invites a Trade Battle in its Fight Against Shipping Pollution

Europe Invites a Trade Battle in its Fight Against Shipping Pollution

Source: Wall Street Journal | HellenicShippingNews

6 mins read

The European Union’s drive to use financial pressure to cut greenhouse-gas emissions risks inflaming tensions over international trade.

The European Parliament voted this month to require that oceangoing ships pay for the pollution they cause when they carry cargo to and from Europe by bringing shipping under the EU Emissions Trading System.

The plan still has a long way to go before it potentially takes hold, but it’s drawing sharp criticism from the shipping industry and raises the prospect of a broader conflict on trade. Any charges will add to the cost of moving goods through European seaports, making the carbon fee an effective tariff.

Shipping companies aren’t included in the EU Emissions Trading system, which obliges factories, power plants and airlines to pay for what they emit on flights within Europe by buying carbon permits. The vote this month was to align the maritime industry over the next couple of years with Europe’s overall strategy to cut greenhouse gases.

The European Commission, the bloc’s executive arm, is now supposed to start talks with member governments to decide whether to move the measure forward for full approval. People with knowledge of the matter say there are already disagreements within the Commission on how the measure can be applied.

The EU has been here before.

European governments tried to bring international airlines into the ETS in 2012, but the move was scaled back to cover only flights within Europe after fierce opposition from other countries. The U.S. Congress passed the European Union Emissions Trading Scheme Prohibition Act barring American air carriers from paying the fee.

The debate then turned on questions of national sovereignty, with governments attacking an EU plan that would regulate airlines based elsewhere, including the U.S. and China. This year, the EU is stepping into the hot-button issue of global trade.

The cargo carried on ships that would be subject to the trading scheme “is not just EU imports and exports, it is also the imports and exports of the EU’s trading partners,” said John Butler, president of the World Shipping Council, a Washington-based trade association that represents the world’s major container operators. “This will create trade tensions and raise legal and diplomatic concerns about the geographic reach of a unilaterally imposed emissions charge.”

Maritime shipping is the backbone of world trade. Ships move commodities like oil, iron ore and grains and the vast majority of manufactured goods, including cars, home appliances, clothing and food.

But they also collectively contribute up to 3% of all greenhouse emissions—an amount comparable to the emissions of a major country, according to industry executives and environmental groups.

Lars Robert Pedersen, deputy secretary-general of Copenhagen-based industry trade body Bimco, said that under the EU plan, ships leaving Europe could be required to pay carbon charges all the way to the territorial waters of the U.S. and China and then pay again when they return.

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“It’s a tariff on trade because you want American, Chinese, Indian and Brazilian companies to contribute to Europe’s economic recovery by paying its carbon taxes.” he said. “Lessons from the aviation industry show that it is highly controversial to tax emissions of foreign assets beyond the territory of Europe. We are expecting a backlash from outside Europe to exclude foreign-flagged ships from participation in the ETS.”

Clarksons Platou Securities, an Oslo-based investment bank focused on the shipping, oil and energy services sectors, has calculated that the measure would add at least $4,000 a day to the average tanker’s operating costs.

Ship operators pass on such costs to cargo owners and the charges eventually trickle down to consumers in the form of higher prices for goods.

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The EU is moving forward as the International Maritime Organization, an arm of the United Nations, takes its own steps to make shipping greener. An IMO rule requiring the shipping sector to cut its sulfur emissions by more than 80% took effect this year, and the IMO aims to cut shipping’s greenhouse emissions by half in 2050, compared with 2018 levels.

The plan involves moving ship propulsion away from highly polluting heavy fuel, but the industry so far has neither the engines nor the fuels needed to reach the ambitious target. Industry executives say meeting the stricter emissions targets would require tens of billions of investment in new technology.

The IMO declined to comment on the specifics of the EU plan, but a spokeswoman said the body believes policy and regulation regarding emissions should be undertaken on a global basis.

“Ships trade internationally and any unilateral or regional regulatory schemes that conflict with IMO regulations could frustrate those objectives,” the spokeswoman said.

Source: Wall Street Journal | HellenicShippingNews

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