John Whelan: Shipping lines to charge climate fees at Irish ports from January

Carriers are using very opaque formulas to calculate surcharges to offset the cost of the EU emissions trading system (ETS)

Sun, 15 Oct, 2023 - 15:30

John Whelan

Committed to fighting global warming and anxious to complete her Green Deal ahead of next year’s EU elections, European Commission president Ursula von der Leyen has adopted the final pillars of her legislative package for delivering the EU’s 2030 climate targets.

With the adoption of the revised Renewable Energy Directive and the RefuelEU regulation, the EU now has legally binding climate targets covering all key sectors of the economy. The overall package includes emission-reduction targets across a broad range of sectors.

Of immediate concern for Irish exporters and importers are the carbon tax on shipping emissions and the Carbon Border Adjustment Mechanism.

The carbon emissions tax will have the most immediate financial impact: Based on aggregated information, it is estimated it will add €435m to their costs.

Charge on cargo and passengers

Almost all shipping lines operating into Irish ports have now advised customers that they will introduce a surcharge on cargo containers, trucks, and passengers to offset the cost of the new EU emissions trading system, ETS, from January.

Announcing the surcharge regime, Stena Line — one of the largest cargo lines out of Dublin, Rosslare, and Belfast — said the ETS will have a significant impact on the cost base for its business. The increased costs will need to be absorbed by the market, it said.

The size of the ETS surcharge varies significantly between the different shipping lines, particularly the longer haul cargo lines, such as Maersk, Hapag-Lloyd and CMA-CGM.

The rules for movements from outside the EU ports varies, and the surcharges range from €60 to €300 per 40-foot container. It appears that all the carriers are using widely different formulas for their surcharge calculations, with their algorithms being very opaque.

'Polluter pays'

The EU’s intention is to encourage shipping lines to contribute to the global effort to reduce greenhouse gases, on the basis that the polluter pays, but it appears that the shipping line owners have opted to pass on the carbon cost charges to customers in the first instance.

However, many of the large shipping lines are investing heavily in new clean energy ships as they seek to get a competitive advantage with customers who want to see their brands moving on green supply chains.

From the start of next year, shipping lines will be required to report their emissions and purchase an equivalent number of allowances on the EU ETS market.

EPA to run the system in Ireland

In Ireland, the Environmental Protection Agency (EPA) will be responsible for collecting the fees and issuing the allowance certificates. EU states must use at least half of the revenues for the purposes of climate adaption.

One key question is which state will be responsible for administering the scheme for any particular vessel: It becomes complicated when the shipping company is incorporated in a jurisdiction outside the EU.

Shipowners and operators will be issuing a list of the EU states which will be responsible for individual shipping companies, but the register won’t be available until early next year.

Potential windfall for Greece

Relatively few merchant shipping companies are registered in Ireland, and it is unlikely that Irish Government agencies will be greatly burdened with administering the scheme or collecting the ETS certificate fees.

Greece, which has the largest register of ships in Europe, could tap a windfall from ETS income, with the opportunity to spend large sums on its own infrastructure.

There is also the question of managing non-compliance with the ETS. Currently, the directive sets out penalties. If a shipping company fails to surrender allowances for two or more consecutive reporting periods, an expulsion order can be issued against ships for which it is responsible. There is the risk that goods will be caught up in any such disputes.

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Many will see the introduction of the ETS as an opportunity, and see the introduction of the scheme as the impetus to accelerate their decarbonisation plans.

However, the costs of the scheme on Irish industry cannot be ignored.