September 21, 2022
Shipping emissions will soon have a price tag and the cost will eventually be passed on to the charterers. Charterers who start factoring carbon into their commercial shipping decisions will find efficient ways to reduce shipping emissions whilst safeguarding profitability and gaining a competitive edge.
A new regime is coming as shipping emissions become regulated. Global, regional and local measures to reduce shipping emissions are being introduced, and market-based measures that include a price tag on shipping emissions will soon be a reality.
The European Union is leading the way in introducing a carbon price in shipping, as the industry will be included in the union’s emissions trading system (ETS) from January 2024. The inclusion will have a major financial impact on freight rates - a carbon price of EUR 90/tonne CO2 would for example mean an added cost of roughly USD 70 000 for an internal EU voyage in the MR segment. The inclusion of shipping in the EU ETS is expected to inspire similar actions in other emissions trading systems around the world.
The International Maritime Organization, the UN agency that regulates global shipping, is discussing different market-based measures ranging from levies on bunker fuel purchased and efficiency-credit trading programs to global emissions trading systems for international shipping. So far, no decision has been taken, but most countries now agree on the need to put a price on carbon.
The responsibility for complying with different market-based measures will likely fall on the shipping company. However, the cost of compliance with the EU ETS will be added to the freight costs, and we already see ship owners warning that the cost will be significant and that these costs will impact freight rates from Q1 2023.
Shipping might be a minor part of the charterer’s everyday work, but emissions from shipping can still highly impact the charterer’s carbon footprint and expenditures. It can be a challenge to stay updated on the major regulatory developments that are sweeping the shipping industry in order to decarbonise, and charterers do not need to stay on top of all of them. However, having access to appropriate emissions insights when planning voyages and negotiating freight arrangements can cut substantial amounts of emissions and costs.
UPDATED DECEMBER 2022