Review of Europe’s energy tax directive and emission trading scheme could have profound impacts on shipping
The president elect of the European Commission, Ursula von der Leyen, wants to bring shipping into Europe’s emission trading scheme. She’s asked the commissioner-designate for Transport, Rovana Plumb (who still may not get the job) to look into it, stating she wants her to ”lead work on extending the Emissions Trading System to the maritime sector and reducing free allowances for airlines.”
The EU ETS is set for a review ahead of its next phase which starts in 2021.
The regional lobby group Transport and Environment agrees with her, saying such a move could help bring in €3.6bn a year of revenues to European countries as they battle to meet their climate obligations. By not being taxed, it is, according to the lobby group, a “perverse incentive for climate pollution”.
In other words by not having a tax or levy on marine fuels is sending the wrong kind of message about individual country’s sincerity to its climate pledge.
The T&E report also comes as the European Commission has indicated that another key piece of regulation, the Energy Taxation Directive, is in need of amendments. A report has been made looking at how this particular directive can be amended to support the energy transition in Europe.
The ETD does not currently cover marine fuels, but it does lay down the rules for electricity taxation. A renewed taxation level is seen as a benefit if it supports the use of clean energy sources for the generation of the electricity.
A recently published European Commission document, known as a Commission Staff Working Documents evaluates the current 2003 energy tax directive ahead of a possible rewrite. The majority of the ETD, and hence the working document, focuses on household electricity and the support of the EU internal market.
Despite the European Commission’s president elect’s desire to bring marine fuels into the scope of the ETS, the working document does state that the work of the IMO remains global in nature and that large tonnage can sail long distances on a single bunkering operation. The likelihood is, it notes, that operators of large vessels can easily circumvent a tax or levy by bunkering outside European waters.
The European ETS
The European ETS is the world’s first and so far largest cap-and-trade system aimed at cutting greenhouse gas emissions. Operating in all EU member states as well as other European countries (Norway, Lichtenstein and Iceland) it operates by giving out target caps or emission allowances on emissions and the ability for those who are under their annual cap to either save them, or to trade carbon credits or allowances with those that go over.
The main improvements in emissions output is gained by regularly lowering the annual allowances given to companies, making it necessary for companies to invest in cleantech solutions and creating a trading market that puts a price on carbon.
The maritime and aviation sectors have been exempt from the EU ETS since its inception despite growing pressure for this to change. The ETS has been working in phases, with the first three phases running from 2005 to 2020, the fourth will run from 2021 to 2030.
Towards the end of each phase the EU ETS directive has been reviewed with the goals steadily tightened. While seeking its goals to reflect Europe’s commitments under the Paris Agreement, the current review will look at the issue of carbon leakage, so called when companies find a loophole with compliance by operating outside the EU.
Relief on marine electricity
While the ETD review working paper does reference the work of the IMO it also states that there is confusion and even contradiction with other EU policies regarding taxes and exemptions for electricity generation for marine transportation.
One notable point is the cost shipowners find in drawing shore-side electricity when vessels are in port compared to generating it using on-board diesel-powered generators. The review document suggests that member states should incentivise the use of shore-based power (sometimes called cold-ironing) in their ports.
The paper states: “The exemption for on-board electricity generation allowed under Article 15(1)(f)163 deters actions to improve energy efficiency and reduce emissions in the maritime transport sector, for instance via the electrification of harbours, making generation on-board artificially cheaper than shore-side electricity generation despite its worse environmental impact”