EU ports fret they will lose business because of CO2 tax

Brussels: AS OFTEN happens when bureaucracies impose their ideas on industries without really understanding the implications, an interesting situation is developing in Europe, or to be more precise within the European Union (EU).

The EU’s Emissions Trading Scheme (ETS) will apply to shipping from Jan 1, 2024. It will be phased in quite gradually but ramp up as time goes by. The basic idea is that you have to buy allowances to emit CO2 (and in time other gases). These allowances are traded and their price will fluctuate depending on the strength of the market.

Operators of ships of over 5,000 gross tonnage sailing entirely within the EU will have to account for all of their emissions. Ships of that size sailing from ports outside the EU will have to account for 50 per cent of the CO2 emitted during the relevant voyages.

In general, shipowners are not hugely enthusiastic about the ETS. Quite apart from the issue of whether they should pay anything at all, and most no longer entirely resist that, shipowners like simple processes and certainty. That is the opposite of what the ETS will mean.

A thriving industry is emerging, with traders and consultants offering their services to take care of the trading responsibility now falling on ship operators. Of course, that adds a bit more to the costs of the ETS to shipowners.

Given the above, it would hardly be a great surprise if at least some shipping lines tried to avoid getting involved in the ETS. Theoretically, that could be done by transhipping cargoes in ports outside the EU, and using feeder ship services to complete the journey.

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For ports in northern Europe, the obvious transhipment hubs would be in the UK. The British government is not bringing in an ETS for shipping until 2026. Details are still sketchy, but it looks like it will not apply to ships on voyages from outside the UK. For southern Europe, there are a whole range of potential transhipment ports along the southern shores of the Mediterranean.

Will ETS avoidance really happen, and will it matter? Let’s come back to those questions later.

However, European port operators are rattled. Their association, Feport, made its concerns clear a couple of weeks ago in Antwerp at the body’s general assembly. A Feport statement said that its members reiterated concerns about the “real risks of cargo diversion”.

Feport president Gunther Bonz said: “We need a real study regarding the impact of ETS for shipping on EU ports to be conducted now and not in two years’ time, when cargo will have left some EU ports for good.”

He continued: “Ports have not been in the radar of the EU Commission when EU ETS for shipping was discussed, and the real risks of cargo diversion have not been really assessed. So, we are now in a situation where our terminals can become less competitive and attractive for shipping lines which do not intend to pass on the additional ETS costs to their customers and call-in non-EU ports.”

He concluded: “This was not EU policymakers’ aim, but it is the result. The clock is ticking for EU ports. This is why we are calling the EU Commission to start immediately a study and to also perform a continuous assessment in real-time of the impact of EU ETS for shipping now. The terms of reference of the study should consider all solutions that are currently proposed by different port stakeholders to avoid cargo diversion. It is important that we all do our utmost efforts to avoid a detrimental effect on employment in EU ports.”

The Feport statement said it was looking forward to having a constructive dialogue with the EU Commission regarding possible solutions to avoid cargo diversion.

Meanwhile, government ministers from seven EU countries that mainly have coastlines in the Mediterranean have written a letter to the European Commission asking for the implementation of the ETS to be put off, according to a UK Financial Times (FT) report. According to FT, the letter said the move risks driving business away from European ports, while offering limited environmental benefit.

“The ETS regime that will enter into force in 2024 may induce emissions to other parts of the world and even increase the volume of (greenhouse gas) emissions through longer routes to avoid calls at EU ports,” the letter reportedly said.

So what should we make of all of this? The discussion about including shipping in the ETS has been going on for a long time, and has been especially intense over the past year. One has got to ask why have those ministers left it to almost the very last minute to speak out on the subject. Were they “asleep at the wheel”?

It must also be said that the EU’s ETS regulation does cover, to some extent, the possibility of cargo diversion.

To quote the European Commission’s website: “A port will be considered a ‘neighbouring container transhipment port’ when its share of transhipment of containers exceeds 65 per cent of its total container traffic and when that port is located outside the (European) Union but less than 300 nautical miles from a port under the jurisdiction of an EU member state.”

Apparently those seven countries do not believe that is a sufficient safeguard.

Right, let’s return to my two questions. Firstly, will cargo diversion really happen? We won’t know for a few months but my guess, for what it’s worth, is that there will probably be some diversion. There will be a lot of number crunching going on. Would it really be cheaper for lines to tranship containers than comply with the ETS and deliver at EU ports?

So, would it matter if cargo gets diverted? This is where I have trouble following the argument being put forward by Feport and the seven ministers. The transhipped cargo would still end up in an EU port. Mr Schmidt in Hamburg will still want the Japanese motorbike he has ordered. It won’t go to Mr Smith in London instead. So overall there shouldn’t be any loss of throughput due to “cargo diversion”, by which is meant transhipment. The cargo still ends up with the same consignee.

However, it could mean that ship call tonnage declines if some large ocean-going container ships on global voyages avoid EU ports. That could hit port dues. Again, though, that would only happen if transhipment, with its associated costs, was economically viable.

Perhaps the ports and ministers are worried that bringing voyages to and from the EU into the ETS, whether via transhipment or not, will be a drag on trade. That is certainly arguable, but it is nothing to do cargo diversion as such.

Whatever the validity of the arguments may be, it is now very late in the day to try to stop the EU bureaucracy in its tracks. Global shipping lines should not hold their breath waiting for a last-minute pause in the implementation of the ETS.