Shipping Industry Faces $3.6 Billion Climate Bill

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Ships sailing to European ports face a combined carbon emissions bill of $3.6 billion next year, the start of a levy that’s almost certainly going to rise as the continent steps up efforts to combat climate change, says an article published on the Bloomberg website.

Overview

The global shipping industry is bracing for a substantial climate bill, with an estimated $3.6 billion in carbon emissions fees projected for vessels entering and leaving European Union (EU) ports. The EU’s Emissions Trading System (ETS), effective from January 1, will require ships to pay for their carbon pollution, impacting deliveries ranging from finished goods to liquefied natural gas.

While the shipping sector emitted over a billion tons of CO2 in 2018, the ETS integration aligns with the EU’s strategy to decarbonize the industry and combat climate change.

Challenges And Impact

The 2024 estimate indicates that a container ship plying the Europe-Asia route could face charges of approximately €810,000 ($887,000) under the ETS, assuming a carbon price of €90 per ton. Despite the seemingly significant amount, this represents only about 10% of the same ship’s annual fuel bill, leaving the ETS costs susceptible to fluctuations in oil prices.

While the expenses are substantial, they are a fraction of the revenues generated by major shipping companies, suggesting minimal impact on consumer prices.

Clean Alternatives And Potential Exploitation

Clean alternatives like green methanol may struggle to compete on price with fossil fuels in the near future. The ETS costs, though a small part of overall freight expenses, have raised discussions about potential loopholes. Concerns include ships docking just outside EU ports to avoid fees and the possibility of ship-to-ship transfers at sea.

The EU has expressed vigilance and readiness to propose measures to address any evasive behavior and maintain the integrity of the ETS.

Rising Costs And Future Outlook

While compliance costs are relatively modest in the early stages, they are expected to rise significantly. Shippers will need to cover 40% of their emissions in 2024, increasing to 70% in 2025 and reaching full coverage (100%) in 2026.

As methane and nitrous oxide emissions come under the ETS in 2026, the estimated bill for that year could surge to $9 billion. The economic rationale for exploring loopholes may grow in tandem with escalating compliance costs, potentially reshaping business patterns in the shipping industry.

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Source: bloomberg