As the EU’s Emissions Trading System (ETS) looms just a month away, the shipping industry is grappling with the practical implementation of the “polluter pays” principle.
The recent conference organized by OceanScore in London shed light on the challenges and uncertainties surrounding this critical aspect, says an article published on the loadstar website.
The EU Allowances (EUAs) Conundrum, The Heart Of The Matter
Carbon Allowances And Market Dynamics
The EUAs, allowing companies under the EU ETS to emit a specific amount of CO2e, form the cornerstone of the system. These allowances are tradable on the market, with their variable prices reflecting the costs associated with emissions reduction.
Reimbursement Challenges
The central question arises: how can ship operators ensure that they are reimbursed for the EUA costs by stakeholders across the value chain? Currently, there’s a lack of regulation on the recovery of these costs, adding complexity to the system.
The Ambiguity Of Cost Recovery Methods
Pre-Payments And ETS Surcharges
Some sectors, like container shipping, are opting for pre-payments through ETS surcharges. However, this approach raises concerns due to the unknown and volatile nature of EUA costs. Carriers plan to collect surcharges well in advance, facing potential challenges in accurately estimating future bills.
Uncertainties In Requesting Payment
The complexity of regulations, particularly for smaller players outside Europe, poses challenges in requesting payments from stakeholders. Questions arise about the form of payment—whether in EUAs or cash—and the frequency of payments (monthly or quarterly).
Industry Preparedness And Global Dynamics
Navigating Complexity
Acknowledging the complexity of the regulations, especially for non-European players, it’s emphasized that the challenges faced by the shipping industry are inherent to the evolving regulatory environment.
Varied Industry Readiness
While some carriers are releasing ETS surcharge estimates, the industry’s preparedness is varied. Challenges persist, and uncertainties remain, especially regarding the fair reflection of increased costs for carriers.
Carrier Estimates And Trade Route Dynamics
Carrier Surcharge Estimates
Recent estimates from carriers like Yang Ming, Cosco, and Zim provide a semblance of stability to ETS surcharges. However, the ever-changing nature of estimates and the need for potential restatements closer to implementation are acknowledged.
Trade Route Averages
The average ETS surcharge for key trade routes is revealed, offering shippers and freight forwarders insights into the anticipated costs. Attention is likely to shift towards evaluating the fairness of these surcharges in relation to the actual increased costs for carriers.
In conclusion, as the EU ETS becomes a reality, the shipping industry grapples with intricate questions of cost recovery and fair surcharge mechanisms. Navigating these uncertainties requires collaboration, adaptability, and a commitment to finding equitable solutions in the pursuit of sustainability.
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Source: loadstar
