Changing Climate For Shipping

With this month’s United Nations climate change conference wrapping up in Durban, South Africa, the fissures around the world over the efforts to extend limits on greenhouse gas emissions after next year’s expiration of the 1997 Kyoto Protocol were starkly evident, and the split between developed nations and emerging economies has never been more clear.

As U.N. Secretary General Ban Ki-Moon said, the divisions are so deep a deal may be “beyond our reach” despite the importance of an agreement.

For container carriers and their customers interested in how they might be affected by climate change talks, the Durban meeting was instructive. The meeting laid bare the internal politics roiling the shipping industry as carriers and the world come to grips with the estimated 3 percent of global emissions shipping contributes to the problem. The dynamics were laid out in a Nov. 29 statement by the London-based International Chamber of Shipping, a group that represents 80 percent of the world’s merchant fleet, together with the World Wildlife Fund and the anti-poverty group Oxfam. Strange bedfellows, anyone?

The statement said the groups were together calling on the Durban gathering to offer “clear guidance” to the International Maritime Organization to adapt “market-based measures” for the maritime industry. Market-based measures, for those not familiar with the terminology of global warming, include “emissions trading, emission-related levies — charges and taxes — and emissions offsetting,” according to the International Civil Aviation Organization.

These ideas share one thing in common: They involve substantial financial assessments on the maritime industry to contribute to solutions elsewhere. A fuel tax, for example, would create a fund of as much as $20 billion a year. The three groups said they support “the possibility of the adoption by IMO of a compensation mechanism through which a significant share of any revenues collected from international shipping could be directed to developing countries and provide a new source of finance to support their efforts to tackle climate change.”

What’s noteworthy is who pays this money. Although representing 80 percent of the merchant fleet, the chamber is known to support Greek shipowners, who dominate the bulk trade. In bulk shipping, it’s the charterer, not the shipowner, who pays the fuel bill as specified in contracts. So it makes sense for those interests to support market-based measures, because this would ideally settle the bill, so to speak, for shipping’s contribution to global emissions while not costing the ship owners much if anything.

If guidance from the Durban conference, which as the U.N. body taking the lead on climate change carries great weight, is to pursue market-based measures, the IMO surely will be influenced along these lines. As Samantha Smith, leader of the World Wildlife Fund’s Global Climate and Energy Initiative put it, “A strong political signal by political leaders in Durban showing their determination to make progress on this will help accelerate that process” of implementing market-based measures for shipping. Having approved emissions standards for new ships this year — the first-ever mandatory global greenhouse gas reduction regime for any industry sector — the IMO is seen as being able to get things done.

That’s the worry from the perspective of the container shipping world, which includes a substantial share of the global economy. Carriers don’t want a system in which they’re removed from the industry rather than being reinvested in it. They would rather see funds assessed for climate change reinvested in more efficient engines. Container lines, unlike bulk owners, don’t always succeed in passing along fuel costs to their customers.

Customers, the likes of Wal-Mart and others that deal with the public, would prefer to reduce the carbon footprint of ships crossing the oceans carrying their merchandise — one reason carriers such as Maersk tout the environmental benefits of their newest vessels. It does little to improve shipping’s environmental footprint to essentially tax the industry then distribute the funds to retrofit electricity plants or build seawalls to protect against rising sea walls. Container lines want to stipulate efficiency standards for new as well as existing ships. If the ship meets or exceeds those standards, it’s not subject to a fee, but if it doesn’t, the ship pays with the level of the fee being a function of how far short the ship is off the standard. In other words, the fund generated by shipping is smaller, but ships become cleaner.

If politicians are concerned about how much money the shipping industry will generate, as some believe is the case, this idea will go nowhere. If they want to solve the problem of emissions from ships, this is an idea worth considering.

Peter Tirschwell is senior vice president for strategy at UBM Global Trade. Contact him at ptirschwell@joc.com, and follow him at twitter.com/PeterTirschwell.

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