On 15 September 2020, the European Parliament adopted a proposal to impose a binding objective on maritime transport to reduce greenhouse gas emissions. Under the European Parliament’s plan, shipping companies would have to lower their annual CO2 emissions by at least 40 per cent for all ships under their responsibility. In the same proposal, the European Parliament concludes that the EU Emissions Trading System must cover maritime transport. The European Parliament’s position is a clear call for an increased contribution from the shipping industry to the EU’s climate change plans. Other EU Green Deal initiatives impacting the shipping industry, in particular on the taxation of maritime fuels, are also advancing.
EU Green Deal and the maritime sector
Maritime transport accounted for 2.89 per cent of global anthropogenic emissions in 2018,1 and that share has been and continues to beincreasing, with a ‘business-as-usual’ scenario estimated to cause a 50% to 250% increase by 2050. For many years, the EU has engaged with third countries to reduce the impact of carbon emitted by maritime transport, but ultimately excluded the sector from most of its emission mitigation policies. The sector further benefits from an exemption on fuel taxation, and remains out of the scope of the EU Emissions Trading System (EU ETS).
The EU ETS covers around 45 per cent of the EU’s greenhouse gas (GHG) emissions and limits those emissions through a cap-and-trade system. With a progressive reduction of the cap, the EU aims to reduce total emissions over time. The trading system is designed to cut emissions where it costs the least to do so.
The European Green Deal proposed by the European Commission (Commission) in December 2019 questioned the exemptions for maritime transport. With this Green Deal, the Commission is proposing to make Europe the first climate-neutral continent by 2050. To reach this objective, the Commission announced that it would take a close look at the current tax exemption for maritime fuels, as well as an extension of the EU ETS to the maritime sector.2
EU ETS in the shipping industry
Under the EU’s 2015 MRV regulation,3 companies have to monitor, report and verify the fuel consumption, CO2 emissions and energy efficiency of their ships on voyages to and from a port of call in the EU. This happens on an annual basis, for ships of 5.000 gross tonnage and above. The EU MRV regulation was a first step towards the inclusion of maritime emissions in the EU’s GHG emissions reduction commitments, and effectively put a price on those commitments in accordance with the ‘polluter pays’ principle.
On 15 September 2020, the European Parliament (Parliament) adopted its amendments to the Commission’s proposal for an overhaul of the EU MRV regulation, and also proposed modifications to the EU ETS.4 The Parliament has found that rapid efforts to decarbonise the maritime sector are necessary to meet the EU’s Paris Agreement broader commitments5 and the EU climate neutrality objective. According to the Parliament, the International Maritime Organisation (IMO) is not doing enough to accelerate decarbonisation. The maritime industry echoes the Parliament’s views regarding decarbonisation efforts, evidenced by the Global Maritime Forum’s Sea Cargo Charter6 launched last month. The Charter aims to establish a common touchstone for the quantitative assessment of the industry’s activities, having as an axis the alignment with adopted climate goals.
If the Parliament’s amendments are passed into law, the EU ETS will cover maritime transport. Companies would have the obligation to linearly reduce the annual CO2 emissions per transport work by at least 40 per cent by 2030 as an average across all ships under their responsibility. Other measures include a prohibition on GHG emissions for ships when at berth (as of 2030), and the creation of an Ocean Fund to contribute to the decarbonisation of maritime transport. The Ocean Fund would foster investments to improve the energy efficiency of ships and to support investment in innovative technologies and infrastructure in the maritime sector, as well as the deployment of sustainable alternative fuels (such as hydrogen and ammonia) and zero-emission propulsion technologies (such as wind technology). Part of the Ocean Fund must also be used to contribute to the protection, restoration and better management of marine ecosystems impacted by global warming.
The Parliament’s amendments will now be negotiated with the Council of the EU (composed of representatives of the member states’ governments), under the Commission’s direction and mediation, in a process known in Brussels jargon as trilogue meetings.
The Parliament’s amendments raise concerns that the EU could be adopting rules that are not in line with the work of the IMO, a United Nations agency, and de facto create a patchwork of regulations and barriers to international trade – potentially adding tension to the already difficult relationship between the EU and some of its trading partners. These concerns are amplified by the absence of a thorough impact assessment and questions on the effectiveness of the proposed extension of EU ETS, as voiced by the shipping industry.7
Taxation of maritime fuels
The shipping industry will face other EU Green Deal initiatives as well. A revision of the EU Energy Taxation Directive, which currently exempts maritime fuels from taxation, is on its way. In its inception impact assessment, launched in the second quarter of this year,8 the Commission recognised that the exemption for maritime transport is not in line with the objectives of the EU Green Deal. Important questions remain as to the harmonisation of the different policy instruments at EU level: the Energy Taxation Directive, the EU ETS, and other EU instruments such as the Renewables Directive and the Energy Efficiency Directive. And what about Brexit? If the UK does not enter into a parallel engagement to revise the exemption from fuel taxation for maritime transport, ships may simply refuel on the other side of the English Channel. The Commission aims to publish a proposal of a revised Energy Taxation Directive by June 2021.