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Concerns raised shipping is ill prepared for EU ETS

With just over 50 days until vessels calling EU ports begin paying tax on CO2 emissions, concerns are raised by industry stakeholders if shipping is prepared for the impending legislation

The EU’s Emission Trading System will be extended to include shipping from January 1, 2024

THE European Union’s Emission Trading System will be extended to include the shipping sector in less than two months. But with the roll-out of legislation fast approaching, concerns have been raised over industry readiness.

These views were shared by Friederike Hesse, co-founder and managing director of Berlin-based startup Zero44, which offers software to guide industry participants on carbon regulations compliance, including the ETS.

Speaking at Capital Link’s German Maritime Forum in Hamburg on Wednesday, she claimed that in respect of her clients the level of preparedness is “not very high”, and alarmingly so.

Most notable she stressed was the short time frame granted to European shipping companies in what is a far from straightforward process.

“Obviously shipping companies are always busy, and the onshore team have had limited time to get their heads around the regulation. They’ve had limited time to organise input and processes... So that’s a challenge in itself,” said Hesse.

“We hear from our partners that hardly any charter agreements have been negotiated or closed where ETS [requirements] are agreed upon.”

Hesse said that Zero44 is commonly asked by customers as to how this is organised. Who’s buying carbon certificates? And who’s receiving them?

Although there is a BIMCO clause for time charter parties, she said this is hardly ever applied. “In some cases, yes. But in the majority of cases, no.”

Sander Schakelaar, managing owner of Netherlands-based shipmanager JR Shipping, revealed his own concerns surrounding the legislation as a medium-sized shipping company. JR Shipping has a shipmanagement portfolio of around 50 containerships and seven offshore wind service units.

He admitted that he “doesn’t have a clue” on best practice surrounding the ETS.

“We are trying to educate ourselves, [and] staff members within our company. We are trying to prepare, but we have the very big difficulty in our market segment that there is no consensus yet, at least not a wide consensus, on how to approach things between tonnage providers and the charterers,” said Schakelaar.

“Only a few charterers have yet indicated how they imagine things to work. But the vast majority of our clients don’t have a clue.”

The EU ETS requires owners or the delegated companies to acquire emission allowances and distribute those costs to the cargo owners and to the charterer. DNV Maritime vice-president Rasmus Stute had earlier noted how for mid-sized shipping companies this could see them liable for several million dollars each year.

Schakelaar said it is also important to factor how regulation, not just the ETS but also CII (Carbon Intensity Indicator) will have a material impact on the economics of small to medium-sized shipping companies.

“We will need additional specialised staff members not only for the ESG and the new reporting standards, but also for the whole fuel efficiency management and emission management and all that comes with that,” he said.

This he said would require at least an additional four or five high-end specialists to the tune of somewhere in the region of €500,000 ($535,432) each year. With margins tight for smaller players, it is far from an ideal scenario, he explained.

While European companies are struggling to get to grips with the impending inclusion of shipping in the EU’s ETS from next year, there too are numerous companies operating from outside the continent who will also be impacted by the legislation.

Hesse said that Zero44 is currently being approached by particularly Asian companies that it is offering consultancy services to help add clarity to requirements.

“In many ways it [their challenges] are similar to European challenges, you need to understand the regulations. But obviously, if you’re not here, do not speak the language and so on, it gets more complicated,” she said.

“So, applying for a union registry account, for example, if you don’t have a legal entity on the ground in Europe — and if you don’t have a European bank account, it’s a challenge currently. The administrative hurdles are getting bigger”.

Her advice, in short, for those that have still to get their head around the legislation is at the very least to ensure that for those ships trading in EU waters from January onwards that something is written into charter agreements.

Not everyone is worried, though. 

Jens-Michael Arndt, managing partner at Hamburg-based shipowner H Vogemann, said in his experience it was possible to fix with charterers, who he said were accepting responsibility for the transition to the ETS. “We are doing this right now,” he said.

Yesterday, New York-listed product and chemical tanker company Ardmore Shipping told an earnings call it was prepared for the EU ETS, adding that the expected “logistical inefficiencies” the tax will create will help tankers’ TCE rates.

Ardmore added that while preparing for the carbon price took a lot of planning, “from a financial perspective this results in a pass-through voyage expense”.


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