June 26, 2023
A fee of 150 USD per tonne CO2e emitted from ships discharging international cargo at U.S. ports is suggested to be implemented from January 2024. The new carbon fee would be added to the EU ETS carbon cost.
Early this month U.S. lawmakers proposed new legislation aiming to decarbonise the shipping industry. The International Maritime Pollution Accountability Act (IMPA) describes a new national maritime carbon fee to be introduced at the same time as the EU carbon price comes into force from January 2024.
If introduced, the act would highly impact global shipping and trade. Therefore, we provide you with the key takeaways from a chartering perspective:
The act does recognise foreign pollution fees. If a vessel is subject to a pollution-based fee by the country of the port of origin of the vessel, the U.S. CO2e fee shall be a) reduced by 50 percent if the fee from the other country is equal to or more than 50 percent of the U.S. fee and b) reduced by an amount equal to the amount of the fee from the other country if that fee is less than 50 percent of the US fee.
In addition, a particular sunset provision states that if the IMO enforces a global fee on lifecycle CO2e emissions that is equal to or greater than the U.S. fee, the U.S. CO2e fee would cease to apply.
The bill states that life cycle CO2e factors will be published for each fuel type before 1 Jan 2024. Life cycle emissions include well to wake (WTW) emissions, i.e. emissions from the production and distribution as well as the combustion of the fuel. The life cycle CO2e factors would therefore be higher than the factors applied by IMO and in the EU ETS which only includes tank to wake (TTW) CO2 emissions.
The bill was introduced and cosponsored by democrat senators and has to be voted on by both houses of Congress and signed by the president to become law. We asked Antonio Santos, Federal Climate Policy Director at Pacific Environment who has got over 20 years of federal and state regulatory experience, about the likelihood of this bill being passed before 2024, and he said: “I’m hopeful, but it will be a challenge to move the bill this year. However, the bill will continue to raise awareness in Congress of the importance of maritime decarbonization and the need for a funding mechanism to help transition the shipping industry away from the use of fossil fuels.”
So, to better understand the suggestion that will be part of the U.S. political debate going forward, we compare the impact of the suggested carbon cost mechanism to the EU ETS carbon cost mechanism that the industryby now is more familiar with.
A U.S. pollution fee like the one that is suggested would impact the industry differently than the carbon cost of the EU Emissions Trading System. We’ve listed some of the main differences in the table below.
Let’s use a TC2 voyage (MR vessels loading 37 000 tons of CPP in Rotterdam and discharging in New York) to exemplify. According to the Siglar Carbon indexes, ships doing TC2 round trips emit on average approx. 1 800 tonnes of CO2. Using an EU allowance price of 90 USD this would add up to a carbon price of 32 400 USD per trip in 2024 when 40% of the emissions are phased-in.
Let’s use a TC2 voyage (MR vessels loading 37 000 tons of CPP in Rotterdam and discharging in New York) to exemplify. According to the Siglar Carbon indexes, ships doing TC2 round trips emit on average approx. 1 800 tonnes of CO2. Using an EU allowance price of 90 USD this would add up to an EU ETS price of 32 400 USD per trip in 2024 (EU ETS eligible emissions include 50% of laden and ballast, 100% of port stay in Rotterdam and 40% of these emissions will be phased-in in 2024).
For simplicity, and while waiting for the lifecycle CO2e emissions profiles, let’s use GLEC’s suggested WTW CO2e factor for heavy fuel oil when adding up the U.S. carbon fee. Using this approach approx. 1 100 tonnes of CO2 is emitted on the laden leg into New York, hence the fee would be 147 000 USD (165 000 USD minus the EU carbon cost for the laden leg, 18 000 USD).
When it comes to 2024 emissions, the U.S. carbon price would be significantly higher than the EU carbon price. This is due to the phase-in period for maritime emissions into the EU ETS and in spite of the fact that only emissions from the laden leg are included in the U.S. carbon pricing mechanism. However, in 2026 once maritime emissions are fully phased-in and methane and nitrous oxides are included in the EU ETS the difference will decrease but it would still reflect the fluctuating pricing of the EU allowances and the difference between TTW and WTW emissions.
The seas of maritime decarbonisation are getting stormy, but our advice to navigate safely is the same as ever: If you fully understand the carbon consequence of your decisions, you’re well situated for whatever comes.