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Shipping Environment & Sustainability
Environment & sustainability

Decarbonization of shipping: taxes, levies, investment

Posted by on 14 December 2020
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The reduction of shipping’s GHG emissions and the average carbon intensity by 50% and 70% respectively by 2050 some might say is an ambitious, but likely achievable, target.

As one could expect achieving the development, maturing and scaling up of solutions will not only require significant investment but an unprecedented scale of collaboration and cooperation. At the beginning of 2020 a study was conducted by University Maritime Advisory Services (UMAS) and the Energy Transitions Commission (ETC) concluded that approximately $1.4 - $1.9 trillion in investment would be required to decarbonize the shipping sector within this timeframe. It’s estimated that approximately 87% of the investment would be required for land-based infrastructure and production facilities.

It’s hard to argue that the shipping industry is responsible alone for achieving these goals. Aside from investment, it is widely acknowledged this is a global issue, however at the recent Global Maritime Forum some owners have suggested that a regional approach to decarbonization in shipping is perhaps the best way to go.

Moderating a panel at the CMA Shipping Virtual Event, Michelle Wiese Bockmann quoted Maersk Tankers’ Christian Ingerslev in saying the ideal solution is a global carbon levy and level playing field, however, if we focus on achieving only a global carbon levy, which currently has limited political support, we haven’t seen any progress and the industry leaves the door open for sub-optimal political intervention.

Similarly, Ingerslev believes the industry should push for regional and local regulations, creating assessment incentive for investment and confidence among countries that a levy can work and therefore increase the likelihood of a global levy.

In response to this, Dr. Sadan Kaptanoglu (Owner at Kaptanoglu Shipping & President, BIMCO) noted that while there is some frustration the industry must understand that the member nations of the IMO have come together to support a comprehensive strategy to decarbonize the shipping industry. The goal has a wider scope and global scale, and the industry must work together for greater good, rather than the good of a company.

Dr. Kaptanoglu acknowledges there are potential issues with the IMO strategy, and that worldwide levies are very different to regional levies. Dr. Kaptanoglu sees some immediate obstacles, “Firstly, we don’t have the technology to radically reduce the emissions so there is always a possibility this will just end up as a tax, which ultimately ends up with the consumer.”

"We might not be the first generation to pollute the world, but we might be the last who can save it." - Dr. Sadan Kaptanoglu

“Secondly, in order to innovate you need to know the basic costs when you make your investment, in order to measure your return on investment. If we do not know the costs, it becomes monumentally difficult to invest. What ends up happening is that no one invests, we end up being scrutinized and we don’t end up any closer to actually fulfilling the target of reducing emissions,” says Dr. Kaptanoglu.

With regards to a regional approach to the decarbonization of shipping, Dr. Kaptanoglu is unsure that an environment can be created where other nations such as China, the United States and Brazil will impose taxation which will more than likely add only more costs.

“We must also keep in mind that introducing levies does not necessarily help us in reducing emissions. Our target is decarbonization of shipping. We might not be the first generation to pollute the world, but we might be the last who can save it. We need to devise and follow comprehensive, support research and development, and collaborate to ensure the right technologies are there for each aspect of the industry.”

Scott Bergeron (Director of Business Development and Strategy at Oldendorff Carriers), who was part of the same panel at CMA Shipping, offered that ship owners generally are a little bit tired of being accused of not reacting.

“I think our track record of complying with new regulations is quite profound,” says Bergeron.

“If you go back to the ISM code and the great fear that ship owners wouldn't comply by the 1998 deadline, or you look at IMO 2020 in the changes over fuels, these are very significant paradigm shifting regulations that ship owners almost unanimously met the deadlines with very little failure.”

“That said, regional versus global comes across to me as a bit elitist. When I think back to when we phased out single hull tankers, where did they go? They went to developing countries and they went to poorly regulated jurisdictions. Are we going to repeat history here? Are we going to learn from the past? Back then it was oil pollution in the water, and now we're talking about air pollution,” he says.

“Having a regional mechanism is destined to fail and it's going to create too much confusion in the market. I can agree that we need pressure. This issue of reducing our greenhouse gas emissions is not going to go away and ship owners need to educate themselves or we're going to risk the same situation.”

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“We had this with the ballast water regulations, and we ended up with something that just didn't make sense. Now is the time to get engaged and I think that members of Global Maritime Forum are for that, we’re for that, and it's time to come together,” states Bergeron.

Bergeron agrees with Dr. Kaptanoglu assessment that there must be some realism in this discussion. Decarbonation is not exclusively a shipowner problem and shippers not the ones who produced the fuels of the world or the ones that design propulsion equipment.

“We will invest in technology. We've done it over the years and will continue to do it, but we can't just set aspirations and expect some miracle that the technology will show up in time for the deadline,” asserts Bergeron.

“What the industry needs is a level playing field in order to accomplish this. All the participants in the logistics chain must contribute as this isn't a shipowner problem. This is a global transportation problem and all players that are participating in it must share the burden.”

Get insights direct from the experts leading the decarbonization of shipping a CMA Shipping.
Find out more about the 2021 CMA Shipping event here.

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