It’s rare for any industry running on fossil fuel to call for tax on it’s own carbon emission. Yet it’s doing by shipping sector, reports Bloomberg.
Several trade groups, representing more than 90% of the world’s merchant fleet, have submitted a proposal to shipping’s United Nations regulator calling for it to prioritize a carbon tax for the industry.
Tax Idea
The Marshall Island and Solomon Island have proposed that IMO imposed tax on green house emission by ships. The proposed tax would be imposed at rate of $100 per ton of green house emission, and would come into effect by 2025.
Why carbon Tax?
Marshall Island and Solomon Island are low lying island nation. Rising sea level due to global warming threaten the future of this island. So, Pacific nation of Marshal island and Solomon Island have strong interest to limit the green house gases.
While the solution to the industry’s decarbonisation challenges are widespread and varied, a common question emerge “Who is going to pay the bill?” A carbon tax is one option.
How To Take Carbon Tax?
Procedure to collect carbon tax remain uncertain, it is likely that each shipowner or other interested party would self-report the amount of carbon emissions by the relevant vessel over the relevant period, and the tax would be taken on such reported amount. Reports could be made and taxes paid after each voyage, or after the last voyage in a given year or other time period. For voyages that straddle the end of the year (or other tax period), it would likely be impracticable to report on carbon emissions while the ship is in transit, although it is possible that the tax could be divided to each period in such case. Issues such as monitoring, auditing, compliance and penalties for underpayment or failure to report remain to be addressed.
Key Questions: Who Will Liable To Pay The Tax
Under carbon tax proposal, it is not clear which party: Shipowners, charterers and other relevant party would legally obliged to pay. For example, if a shipowner bareboat charters the ship to a demise owner, who time charters the ship to a charterer, there are at least three potential parties against whom the tax could be assessed. It is also possible that the various parties could be jointly and severally liable, in which case the IMO could collect from any of them.
It is not at all clear whether the IMO is a governmental authority for this purpose. It is certainly possible that a standard tax provision in a charterparty could cover a future “carbon tax”, but if the parties wish to reduce ambiguity, it may be helpful to make clear in the agreement that any carbon tax is borne by the agreed party.
Conclusion
Marshall Island and Solomon Island come with a global solution called “Carbon Tax” to reduce green house emission. Although much uncertainty remains regarding the rollout of the tax, parties should consider carefully their current and future contracts to determine how a potential carbon tax may be dealt with.
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Source: Bloomberg
