The concern for global warming and climate change has grown in recent years, especially within the European Union.
In order to achieve climate neutrality by 2050, the EU introduced the Emissions Trading System (ETS), based on a ‘cap-and-trade’ principle, which limits the total amount of greenhouse gas emissions permitted by factories, power plants and other entities. Over time, the cap is reduced, leading to a gradual decrease in total emissions. Since emission allowances can be traded, most polluting companies must acquire emission allowances from greener businesses. Otherwise, sanctions will be applied by the European authorities. In the last 10 years, the ETS has generated over EUR 152 billion in revenues within the European Union.
At EU level, maritime transport represents 3 to 4% of the EU’s total CO2 emissions, and this pushed European policy makers to extend the Emissions Trading System (ETS) to all large ships (of 5.000 gross tonnage and above) entering EU ports, regardless of the flag they fly, starting from January 2024.
To ensure a smooth transition, shipping companies only have to surrender allowances for a portion of their emissions during an initial phase-in period that will last from until 2026.
According to the Lloyd’s List, when 100% of emissions will be accounted, tax revenues from maritime transport could reach €11bn-€12bn per year.
Thanks to low profits in the 2015-2020 shipping companies were able to postpone the ETS extension on maritime transport, but the huge profits of 2021 and 2022 make it difficult to postpone again. Unfortunately, ocean carriers are not the only unhappy stakeholders. Port authorities and some thinktanks inside the EU, especially within the Mediterranean, have been trying to introduce some changes to the new policy pointing the finger against the transhipment ports regulations. As Chart 1 shows voyages between non-EU ports and EU ports are covered by ETS just by 50%, while voyages between European ports account for 100%.
To avoid carbon leakage by ocean carriers, transhipment ports, as long as they are less than 300 nautical miles from a port under the jurisdiction of a Member State, will not be considered as a port call. This means that 50% of emissions for voyages to a transhipment port outside the EU and to an EU port shall be accounted for in ETS. Thanks to this, Tanger Med and East Port Said are considered as major neighbouring transhipments ports.
However, it will not be enough to ensure that evasion cannot take place. While only a few neighboring ports are reaching the very high transhipment volume thresholds put forward in the legislation (65%), many ports and terminals around Europe have and/or are building up transhipment capacity. The Commission should therefore not only look at current volumes, but also consider the transhipment capacity in the different ports neighbouring the EU.
Moreover, under the current legislation, even if the call at a non-EU transhipment port is subject to the special regime, it is still more favourable for ships to call at a non-EU port than at an EU transhipment port. When ships call at an EU transhipment port, the last leg between the transshipment port and any other EU port is subject to ETS charges for 100% of the journey. On the other hand, if the ships call at a non-EU transshipment port, only 50% of the journey is accounted for.
At the same time, some Mediterranean ports, such as Algeciras, Marsaxlokk and Gioia Tauro, move thousands of containers between non-EU ports, especially between the Middle East, North Africa, and North America. ETS will damage European ports in favor of non EU transhipment hubs.
For Europe’s ports, rerouting and evasion movements are already in preparation or happening now. Moreover, the monitoring should happen continuously, not only with a report every two years. European policy makers have been starting a climate war in recent years, but will ETS be a good solution for shipping or will it just threat the EU ports?
