Europe Invites a Trade Battle in its Fight Against Shipping Pollution
September 27 2020 - 6:29AM
Dow Jones News
By Costas Paris
The European Union's drive to use financial pressure to cut
greenhouse-gas emissions risks inflaming tensions over
international trade.
The European Parliament voted this month to require that
oceangoing ships pay for the pollution they cause when they carry
cargo to and from Europe by bringing shipping under the EU
Emissions Trading System.
The plan still has a long way to go before it potentially takes
hold, but it's drawing sharp criticism from the shipping industry
and raises the prospect of a broader conflict on trade. Any charges
will add to the cost of moving goods through European seaports,
making the carbon fee an effective tariff.
Shipping companies aren't included in the EU Emissions Trading
system, which obliges factories, power plants and airlines to pay
for what they emit on flights within Europe by buying carbon
permits. The vote this month was to align the maritime industry
over the next couple of years with Europe's overall strategy to cut
greenhouse gases.
The European Commission, the bloc's executive arm, is now
supposed to start talks with member governments to decide whether
to move the measure forward for full approval. People with
knowledge of the matter say there are already disagreements within
the Commission on how the measure can be applied.
The EU has been here before.
European governments tried to bring international airlines into
the ETS in 2012, but the move was scaled back to cover only flights
within Europe after fierce opposition from other countries. The
U.S. Congress passed the European Union Emissions Trading Scheme
Prohibition Act barring American air carriers from paying the
fee.
The debate then turned on questions of national sovereignty,
with governments attacking an EU plan that would regulate airlines
based elsewhere, including the U.S. and China. This year, the EU is
stepping into the hot-button issue of global trade.
The cargo carried on ships that would be subject to the trading
scheme "is not just EU imports and exports, it is also the imports
and exports of the EU's trading partners," said John Butler,
president of the World Shipping Council, a Washington-based trade
association that represents the world's major container operators.
"This will create trade tensions and raise legal and diplomatic
concerns about the geographic reach of a unilaterally imposed
emissions charge."
Maritime shipping is the backbone of world trade. Ships move
commodities like oil, iron ore and grains and the vast majority of
manufactured goods, including cars, home appliances, clothing and
food.
But they also collectively contribute up to 3% of all greenhouse
emissions -- an amount comparable to the emissions of a major
country, according to industry executives and environmental
groups.
Lars Robert Pedersen, deputy secretary-general of
Copenhagen-based industry trade body Bimco, said that under the EU
plan, ships leaving Europe could be required to pay carbon charges
all the way to the territorial waters of the U.S. and China and
then pay again when they return.
"It's a tariff on trade because you want American, Chinese,
Indian and Brazilian companies to contribute to Europe's economic
recovery by paying its carbon taxes." he said. "Lessons from the
aviation industry show that it is highly controversial to tax
emissions of foreign assets beyond the territory of Europe. We are
expecting a backlash from outside Europe to exclude foreign-flagged
ships from participation in the ETS."
Clarksons Platou Securities, an Oslo-based investment bank
focused on the shipping, oil and energy services sectors, has
calculated that the measure would add at least $4,000 a day to the
average tanker's operating costs.
Ship operators pass on such costs to cargo owners and the
charges eventually trickle down to consumers in the form of higher
prices for goods.
The EU is moving forward as the International Maritime
Organization, an arm of the United Nations, takes its own steps to
make shipping greener. An IMO rule requiring the shipping sector to
cut its sulfur emissions by more than 80% took effect this year,
and the IMO aims to cut shipping's greenhouse emissions by half in
2050, compared with 2018 levels.
The plan involves moving ship propulsion away from highly
polluting heavy fuel, but the industry so far has neither the
engines nor the fuels needed to reach the ambitious target.
Industry executives say meeting the stricter emissions targets
would require tens of billions of investment in new technology.
The IMO declined to comment on the specifics of the EU plan, but
a spokeswoman said the body believes policy and regulation
regarding emissions should be undertaken on a global basis.
"Ships trade internationally and any unilateral or regional
regulatory schemes that conflict with IMO regulations could
frustrate those objectives," the spokeswoman said.
Write to Costas Paris at costas.paris@wsj.com
(END) Dow Jones Newswires
September 27, 2020 07:14 ET (11:14 GMT)
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