Study: Too expensive for ships to evade EU carbon market

The risk of shippers evading the EU carbon market is minimal, as it would not be cost-effective, a study by Brussels-based environmental NGO Transport and Environment shows.

In 2019, the European Union committed in its European Green Deal to extend the European emissions trading system (ETS) to the maritime sector. Since then, fears have been raised that the inclusion of maritime transport in the EU ETS would lead to policy evasion, i.e. ships making an evasive port call outside the EU/EEA before sailing to European ports.

A ship from Houston, for example, could stop at Morocco before it reaches Spain and then only buy pollution permits for the short, final leg of the voyage.

EU regulators are preparing a proposal to include shipping in the emissions trading system (ETS) and weigh up the benefits of covering all emissions (known as ‘full scope’) or simply trade within the EU.

After performing a cost-benefit analysis of several scenarios, the NGO found that evasive port calls come with a lot of new additional costs, including extra fuel, operational, port-call, and opportunity costs.

T&E’s study of tens of thousands of port combinations shows, the savings from evading a full-scope ETS would be just 7%, due to extra costs including fuel and port charges.

In order for it to be in a ship’s financial interest to avoid the ETS, the compliance cost (determined by the CO2 price) would need to be higher than the sum of all these extra costs.

The study said that shipowners would face minimal costs in a ‘full-scope’ ETS covering all emissions on voyages to and from the EU. Pollution permits for transporting a standard container from Spain to Singapore would be less than 2% of the overall transport cost, dropping to less than 1% if the ‘semi-full scope’ would be included, the study shows.

Under a semi-full scope ETS design, it would not be in the financial interest of any ship to make a stopover in a non-EEA port in order to avoid paying the €30/tonne of CO2 compliance cost.

Under a full scope ETS design, 6.7% of all voyages, representing 2.7Mt of emissions, would be tempted to evade at that CO2 price. Given that not all countries are subject to the same degree of exposure to nearby non-EU ports, the actual evasion risk will likely be even smaller if the whole of EEA emissions were considered, the NGO found.

A full scope ETS covering international voyages to/from Greece, Spain and the Netherlands would entail 23.9Mt of CO2 or 16.6% of total EU shipping emissions under the full scope. A semi-full scope ETS in those three countries would cover 11.9Mt, the study reads.

“The study demonstrates that horror stories of massive carbon leakage if ships were included in a carbon market are false. The EU has little to fear from shipowners evading its ports to make non-existent savings. It’s high time it made the sector start paying for its pollution,” Sofie Defour, shipping officer at T&E, said.

T&E said the EU should defy industry scaremongers and cover long-distance shipping emissions in its carbon market and not just pollution on voyages within Europe.

The analysis is based on the case studies of three countries with major seaports in close proximity to a non-EEA port: Greece, Spain and the Netherlands. Ships sailing to and from these countries are assumed to be the most susceptible to policy evasion. Only containerships, bulk carriers and oil tankers were analysed, given that these ship types are most active in extra-EU shipping.