Trafigura says it is happy to see a high price on high carbon fuels to push shipping into decarbonising
Trafigura is one of the largest ship charterers in the world, by its own account responsible for 4,000 voyages a year of major commodities. It has a reputation for secrecy and has often in the past got a bad press. It has however released a paper that will stun some shipowner groups as it proposes that the International Maritime Organization creates a “feebate” system to push shipping down the pathway to decarbonisation it has committed itself to.And as a large shipping customer it says it will impact its own business, but needs to happen.
“As one of the world’s largest charterers of vessels, responsible for more than 4,000 voyages each year, we recognise that a carbon levy will have an immediate effect on shipping costs which companies – including ours – would bear. This increase in operational costs will spur charterers to change behaviour to reduce emissions, charter more efficient ships and switch to lower carbon fuels”.
The feebate idea is one where a carbon levy and subsidy system is established based on the carbon equivalent intensity of the fuel being used by a vessel. Vessels using high CO2 fuels pay a levy, those with a low CO2 get a subsidy, thus evening out the global fuel cost and raising significant revenues for research and development and mitigation.
The charterer also subtly knocks the proposal earlier this year that the shipping groups submitted to the IMO as a way to help meet the IMO commitments. The ICS and other shipowner groups had taken an IMO proposal to develop an International Maritime Research Board to help channel $500m annual funds collected from a shipping market-based measure into maritime related research and development.
“If agreed, the IMRB proposal is unlikely to have an impact on market behaviour,” the Trafigura report authors write. “ Indeed, in its impact analysis, it is concluded that the proposal would neither significantly affect fuel costs nor likely have a material impact on the development of alternative fuels. It should be noted that if the global tax were introduced and raised $500m annually for research and development purposes, this total would be only a fraction of the monies currently dedicated to low-carbon technologies research, which stood at $20bn in 2019”
The authors also note numerous difficulties that will arise form establishing such a feebate system where some vessels are rebated on their fuel purchase per voyage and some will pay a levy, not least on how the fuel benchmark can be calculated and the as yet unclear allocation of industry emission accountability with regards where the CO2 emissions and use in processing are accounted for (i.e.e some e-fuels in the future may use captured CO2 in the process of the fuel while others will emit CO2 during processing and refining).
Trafigura sees the IMO as setting up the relevant system to collect and allocate funds, which it believes should also be put into non shipping related uses, such as support for small island developing States through the Green Climate Fund