Climate for Change

What interest does a beneficial cargo owner — the large shipper of goods through the supply chain — have in the question of limiting greenhouse gases from container ship engines? And apart from a generalized concern about the impact of climate change, setting aside those heated debates over the science, should they even care? The short answers are, a lot, and yes.

The issue is increasingly important, and certain possible outcomes are a lot less favorable to shippers’ interests than others. It’s time to tune in. Recent developments are instructive. The International Maritime Organization is discussing efforts to limit emissions of carbon dioxide from ships, meaning the issue is not hostage to the grueling geopolitical debate on global warming. That debate includes the arguments of developing nations such as China and India that since industrialized nations caused the problem, they should pay for the solutions.

But by limiting the discussion to a specific industry, as is happening within the IMO, there can be progress. Last month, the IMO approved the world’s first globally binding measure to improve energy efficiency of ships and so limit CO2 emissions. The measure applies only to new ships in the major categories — bulkers, container ships, tankers and general cargo. But with new deliveries accounting for anywhere from 5 to 15 percent of existing capacity, it’s a meaningful step.

The action, according to the IMO, represents the first-ever mandatory global greenhouse gas reduction regime for any international industry sector. But it begs the harder question: What to do with the existing fleet, much of it made up of woeful polluters even though shipping on a per-ton basis is by far the cleanest mode of transport?

That is where shippers’ interests begin to come into focus. As last month’s IMO action shows, there is broad, global consensus in the maritime industry to act on greenhouse gas emissions. Unfortunately, that is where the agreement ends and the concern for container shippers begins. The IMO new-ship requirement was passed over the objections of China, Chile, Kuwait, Brazil and Saudi Arabia, which object to the imposition of any CO2 rules, whether at an industry level such as shipping or on a global basis. A far larger contingent of nations agrees something should be done, but there is disagreement on what actions should be taken.

There are three basic approaches under debate to limiting emissions from ships. The first is an emissions trading scheme, akin to “cap-and-trade,” where shipowners buy the right to emit CO2 and have the right to trade those rights with other entities. The second would create a system that amasses a huge sum of money that could be diverted to greenhouse gas reduction efforts, not necessarily in shipping.

That second system is a fuel levy or carbon tax — a simple charge on every ton of bunker fuel purchased.

The third idea would focus on providing incentives for shipowners to make their ships as fuel efficient as possible. Called an efficiency incentive scheme, the idea would assess fees on ships that fail to meet efficiency standards but not on those that do. Ships that are improved to meet the standards would not be penalized.

Positions are being staked out around these various approaches. Greece, where many bulk carrier owners are based, as well as certain flag states such as the Marshall Islands, support the fuel levy because fuel costs are directly passed on to bulk shippers. Large European countries such as Germany, the United Kingdom and France support emissions trading, partly because the vast funds collected would be largely used in developing nations, and thus could gain their support in IMO votes.

Container shippers have been largely quiet but, following the IMO vote, have started to take notice, and for good reason.

Their view is that neither an emissions trading system nor a fuel levy would create incentives for shipowners to make vessels more efficient. Under a fuel levy, the shipper simply pays a price (or the carrier pays if, as in container shipping, they can’t always pass the costs along), and the funds are used outside the industry to reduce emissions, and only then if the funds are efficiently deployed. There is no direct benefit to the shipper.

Only by encouraging shipowners to invest in improved efficiency, shippers believe, will they see benefits in terms of lower costs and reduced carbon footprint across the supply chain. Container carriers represented by the World Shipping Council support this view, as does the European Shippers Council and, incidentally, the United States.

Shippers want fuel-efficient ships and clean supply chains, which their own customers are increasingly demanding. The outcome of this debate will help them get there or represent a significant setback.

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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