Polluter-pays or Polluter-gets-paid?

“Introducing a binding clause in contractual agreements between shipowners and commercial operators is at the core of ECSA’s position on the inclusion of shipping in the EU ETS,” said Philippos Philis, ECSA’s President. “It will ensure the proper application of the polluter pays principle and will incentivise the uptake of further efficiency measures and cleaner fuels.”

However, the World Shipping Council (WSC) believes the proposed changed definition of “responsible entity” would corrupt the ETS as they are intended to shield shipowners from ETS costs and then provide them with front-of-line access to ETS revenues such as the Ocean Fund. It says this would corrupt the whole idea of the ETS, changing it from a “polluter-pays” policy to a system where the “polluter-gets-paid”, and vastly reduce its effectiveness. A market incentive for technological change that cannot be applied to shipowners who control the pace of shipboard technology innovation will fail to achieve EU Green Deal goals, slowing down the pace of transition.

“Ship greenhouse gas emissions result from the combination of design technology, fuel consumed, and operational practices. It’s obvious, frankly, that one cannot decarbonise shipping without addressing the ship itself. A regional EU ETS carbon price must apply to all parties who have a role in GHG reductions– shipowners and operators,” says John Butler, President & CEO of WSC.

Meanwhile, the European Sea Ports Organisation (ESPO) has called on the EU to to increase the pressure on the IMO for development of a global market-based measure aligned with the EU ETS.

The Commission proposal for a European maritime ETS covers the emissions from intra-EU voyages and emissions at berth, alongside half of the emissions from extra-EU voyages (both incoming and outgoing voyages). Due to the limited scope of the current ETS proposal, ESPO says ships can find ways to avoid falling in the scope of the EU ETS by rerouting and calling, where possible, at non-EU neighbouring ports.

The organisation says that evasive port calls at neighbouring non-EU ports could seriously jeopardise the effectiveness of the maritime ETS, as it would not reduce total shipping emissions. It could even increase overall emissions, in particular when evasion leads to longer voyages. They would also divert traffic and business from European ports and seriously impact the business of certain important European ports which arealready in fierce competition with other ports in countries neighbouring the EU. This risk exists for ports in the EU located in the North Sea, the Baltic Sea, the Mediterranean Sea and the Black Sea. Many of the affected ports are important nodes in the EU logistic chains, and play a crucial role in their regional economies.

For Europe’s ports the monitoring clause in the Commission proposal is too little too late. Instead of measuring the damage once it is already done, ESPO asks first for a full impact assessment of the implications of the current geographical scope of the proposal on carbon and business leakage, along with the accumulated impact of all Fit for 55-proposals.

A possible solution – if legally possible – could be to expand the scope of the proposal by considering the evasive call to/from a non-EU neighbouring port as a call to an EU port in the counting of the ETS emissions.

“European ports are supportive of an emission trading scheme and see pricing as an excellent instrument to boost greener behaviour. However, the Commission proposal contains too many loopholes that risk to seriously harm Europe’s ports business without any gains in emission reduction from maritime, on the contrary. Ships can move, ports cannot. The polluter will not pay, but move out where possible, without any emission gains. We cannot just wait and monitor the damage that would result from the current proposal. Decisive action must be taken by the Commission, Parliament and Council to prevent the risk of evasive port calls and delocalisation of port activities outside the EU and the negative impact on Europe’s connectivity,” says Isabelle Ryckbost, ESPO Secretary General.

Liese published the proposal for changes to the ETS Directive on 14 January. Watson Farley & Williams notes the amendments relating to shipping include full reporting on emissions to commence in 2025, a year earlier than originally proposed. 100% of non-EU emissions from ships calling at EU ports are to be caught if IMO fails to introduce a similar global measure by 2028. Greenhouse gases other than CO2 and methane may need to be accounted for from 2026.