New report calls for changes to EU cap-and-trade mechanism for maritime transport

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A new study undertaken by the UK consultancy firm UMAS to assess the effectiveness of the potential inclusion of maritime transport in the European Union’s Emissions Trading System (ETS) has concluded that it is is a step in the right direction but still needs to be improved to be effective in reducing emissions from the sector.

Optimizing the scope of the maritime transport emissions coverage program and the use of revenues could support the decarbonization of the maritime transport sector, suggests the report which was compiled for the Environmental Defense Fund Europe.

The EU ETS is the Union’s flagship cap-and-trade mechanism that has been operating since 2005 to promote greenhouse gas reduction in the EU. European politicians are now in the process of including shipping on the agenda, which has drawn criticism from regional and global shipowners, while other parts of the world – including China and the United States – are considering their own plans for a maritime ETS.

The EU’s proposal to include maritime transport in the ETS is seen by the four authors of the report as a positive step to ensure that part of the global shipping industry is subject to a carbon price this. decade – a key period for the decarbonization of maritime transport. However, the report finds that in its current proposed format, extending the EU ETS to global shipping may not contribute to significant emission reductions or incentivize investment in scalable, zero-emission fuels.

In addition to fuel and infrastructure policies, a higher carbon price is needed to incentivize critical efficiency improvements while making nascent zero-carbon fuels more attractive. The study found that EU ETS carbon prices, even at recent record highs of € 67.75 / tonne CO2, would not have a significant impact in bridging the gap between fossil fuels and carbon-free fuels. A recent UMAS analysis for the Getting to Zero coalition shows that an average carbon price of just under $ 200 / tonne of CO2 is needed to fully decarbonize the shipping industry by 2050.

The report also highlights the potential benefits of expanding the scope of the system’s emissions coverage. The current EU proposal aims to cover maritime emissions from travel within the European Economic Area (EEA) and half of emissions from travel to and from the EEA from the rest of the world. Since ships that do international trade, such as bulk carriers, containers and tankers, spend little time navigating the EEA, international or extra-EEA coverage is important for the success of the program. Extending the scope of the ETS from 50% to 100% of extra-EEA trips could increase the emissions covered by the system by 70%.

Even in its entirety, the EU ETS may not provide a sufficient price incentive to stimulate investment in energy efficiency measures or scalable zero-emission fuels. This is because most of the EEA-related emissions come from ships that spend a relatively short period in the EEA. – related trips during the year. Given this model of annual ship exchange, the average ‘effective carbon price’ (for 50% and 100% extra-EEA travel) is much lower than the historical variability of bunker fuel prices, when the average is taken for all types of vessels. For example, in a price scenario of $ 103 / ton-CO2 in 2030, the average effective world price decreases to $ 22 / ton-CO2 or about 20% of the ETS price level because the majority of emissions related to EEA come from ships that spend a relatively short period of EEA-related voyages during the year.

In its current form, the low price of carbon can lead to insufficient or unintentionally harmful results. The price could be an incentive to buy allowances in the ETS market and potentially lead to some reduction in the speed of travel with the EEA, which may help generate income and fuel savings, but is not enough to result in losses. significant reductions in emissions. In addition, the low price level and the exemption of methane emissions from the EU ETS could encourage the adoption of LNG-fueled ships, which can lead to environmental and political profitability risks.

One reform to consider is the use of sector-specific emission ceilings. As a cap and trade system, the EU ETS has an overall emissions cap that applies to all sectors of the system combined rather than to individual sectors. It is this “hard cap” that ensures that in all sectors of the ETS, emissions decrease at a linear rate in line with EU climate targets. The establishment of a sectoral cap on maritime transport emissions could more directly support decarbonization within the sector.

Dr Sophie Parker, Senior Consultant at UMAS, lead author of the report, said: “The high clearance costs in the shipping industry underscore the need for an emissions trading system designed to support clearance in the shipping industry. the area. In the absence of a global carbon price, this could come either from a maritime ETS which imposes restrictions on the purchase of allowances outside the sector, or from the coupling of the EU ETS proposal with EU policies. supply side such as subsidies that incentivize the adoption of scalable zero. carbon fuels.

A final important design opportunity concerns the use of ETS revenues. Revenues are increased when vessel owners buy allowances from other sectors that find economically achievable emission reductions at lower carbon prices, such as power generation. Currently, the EU is channeling revenues from ETS to an Innovation Fund for low carbon innovation projects. This creates an opportunity to reserve an adequate amount of funds generated by the inclusion of maritime transport in the EU ETS to stimulate R&D and early adoption of SZEF, leading to a more cost effective transition. Other possibilities to allocate funds should also include addressing disproportionate negative impacts on states and supporting a just, inclusive and equitable transition.

“The inclusion of maritime transport in the EU emissions trading system is an opportunity not to be missed to clean up the climate impacts of maritime transport. If we optimize this system to cost-effectively encourage carbon-free fuels and reduce greenhouse gas emissions, it could create a domino effect towards decarbonization, ”said Panos Spiliotis, International Climate Officer at Environmental Defense Fund Europe. “The EU shaped climate leadership when it decided to include maritime transport in its ETS. From now on, he has the possibility to model the climate ambition by designing this system to optimize the impact. “


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