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Shipping’s carbon challenge is a case of economic Darwinism

Next year promises to be a showcase of Darwinian economics and the natural selection on show will ultimately see the industry evolve as a result

The EU Emissions Trading System is going to be difficult and expensive for shipping. It is without doubt flawed and there are many questions to be answered, but it will start to sift those who have been genuinely charting a new course from those who have been secretly hoping all this will just go away

NEXT year is showtime. 2024 is the point at which the divisive Carbon Intensity Indicator rules start to matter and the EU’s carbon trading system begins to factor in shipping.

It is the point at which you will start being paid for vessels that emit less or penalised for vessels that fall into the wrong efficiency rating.

While it may not mark an immediate end to the “blah blah blah” that Greta Thunberg so eloquently condemned, it does feel like the industry is about to be on the hook for their repeated pledges that sustainability starts with accountability.

So, with ships sailing to European ports facing a combined carbon emissions bill of $3.6bn in a matter of weeks, you may have expected those who have been secretly hoping that all this will just go away to have disappeared into the shadows, shame faced with a long urgent to-do list trailing behind.

You would be wrong.

Much like the 2020 low-sulphur switchover, there will be those carping from the sidelines right up until the deadline, and no doubt beyond.

But next year will also start to sift the market into those who have prepared and those who have been burying their heads in the sand.

On paper, shipping has been pushing ahead with efficiency gains. If the deluge of press releases landing on the Lloyd’s List newsdesk on a daily basis are to be believed, shipping companies are almost universally aligned with 1.5°C Paris Agreement goals.

In reality of course that is nonsense. The number of companies that had committed to science-based targets aligning with the basic Paris goals was in the low double-digits at the beginning of the year.

Spurred on by the landmark agreement to hit net zero by 2050 the industry has taken another look at the detail of how it will meet its promises and responded with conviction. There are now just four companies signed up to these targets. Yes, that’s right — the industry is going backwards.

But it is not these long-term fudges that are most pressing — retirement will inevitably resolve the thorny issue of accountability long before the difficult questions are posed. No, it is the immediate reality of the EU ETS that has finally caught up with executives who are now quite understandably fretting about how this all works.

They will continue to question the fairness of including emissions that occur outside EU waters. They will point out that regional moves go against efforts at the International Maritime Organization to develop a global market-based one. They will characterise the new regime as little more than a regional revenue collection system dressed up as a decarbonisation drive.

But all the while the clock is ticking.

The blunt truth is that the ETS is going to be difficult and expensive for shipping.

Is there sufficient clarity regarding how this is going to play out?


Are the regulations going to disrupt the market and cause many to lose the few remaining grey hairs they are so desperately clinging on to?


Even the larger companies who have been studiously building up entire departments in preparation of the bureaucratic burdens that emissions trading will inevitably require are concerned about the workloads.

Smaller companies are likely to be hit hardest and as a result some will be tempted to see this as another challenge to game the system. There has already been talk of how traders and companies could exploit loopholes to avoid paying the fees.

While that may be feasible, at least initially, the direction of travel for regulatory developments suggests this is a complexity that shipping is going to have to get used to quickly and it is unlikely to remain a solely EU issue for long.

As much as there will be those who dislike, disagree and despise the imposition of carbon accounting on shipping, it is now just one of many additional challenges that have to be subsumed into the growing list of requirements marked “business as usual” for companies.

No doubt the volume of complaints from disgruntled speakers on industry platforms will grow louder for the next few weeks as deadlines approach, but anyone who has genuinely only just started worrying about all this is clearly not long for this market.

We should not mourn their passing.

These are issues that the industry should have been preparing for years ago.

Next year promises to be a showcase of Darwinian economics and the natural selection on show will ultimately see the industry evolve as a result.


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