Why charterers will soon have to pay for ship emissions

September 21, 2022

Shipping emissions will soon have a price tag and the cost will eventually be passed onto 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.

Maritime decarbonisation measures with a carbon price tag

The European Union is leading the way in introducing a carbon price in shipping, as the industry might be included in the union’s emissions trading system (ETS) as soon as January 2023. The volatility of the European Union Allowances (EUA) price is considerable. A carbon price of EUR 90/tonne CO2 would 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 likely to inspire similar actions in several other emissions trading systems around the world.

The International Maritime Organization, the UN agency that regulates global shipping, has discussed 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 all countries now seem to agree on the need to put a price on carbon.

Carbon price included in freight rates from Q1 2023

The responsibility for complying with different market-based measures will likely fall on the shipping company. However, we already see ship owners warning that the cost of compliance with the EU ETS will be significant and that these costs will impact freight rates from Q1 2023.

Shipping emissions impact charterers’ 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 it. Charterers do not need to stay on top of all of them, but having access to appropriate emissions insights when planning voyages helps cut emissions and costs by a substantial amount.

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. The best moment to slash emissions and costs is during the planning of the voyage.

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