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Global Supply Chain News: Europe Acts to Put Controversial Carbon Tax on Global Shipping


A Tax on Other Countries to Pay for European Economic Recovery?



Oct. 14, 2020
SCDigest Editorial Staff

On September 15th, the European Parliament voted to include greenhouse gas (GHG) emissions from ships over 5,000 gross metric tons in its emissions trading system (ETS) for carbon permits by 2022.

The controversial move, which critics say infringes on national sovereignty, is meant to reduce CO2 emissions from an ocean shipping sector that to date has largely been left out of carbon reduction rules. However, proponents also say that the billions of euros raised from the sale of carbon allowances to international shipping companies will be used to support Europe's post COVID- 19 recovery.

Supply Chain Digest Says...


A major challenge for any type of carbon tax will be gaining support of countries whose economies depend heavily on imports and exports. They could view a global shipping carbon tax as a levy directly on their economies.


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Ocean carriers, both bulk and container, aren't included in the EU Emissions Trading system, under which factories, power plants, airlines and more must acquire or buy carbon credits equal to their emissions. The sector was also largely left off the UN 2015 Paris Climate Accords – in part because such ships fly under many national flags and move globally from country to country.

The vote was only a first step in the plan, which must eventually receive approval from the full European Commission – and there will be strong resistance from the industry and many governments before it gets there.

Here's why: Putting any shipping calling on any Euro Zone port would apply to non-EU flagships, and levy an extraterritorial "tax" on the movement of cargos on voyages originating thousands of miles away from Europe.

The web site recently offered this example: Say an Indian tanker ship started on a voyage carrying oil from that country goes to Livorno (Italy), discharges some cargo there, and then makes a voyage to Rotterdam to dispense the rest if its oil. It then sails to Houston in the US, with its tanks empty, and loads cargo there for discharge in Singapore.

The proposed EU legislation requires the Indian shipping company to pay to the European authorities for the proportionate carbon emissions for its voyage legs from Jamnagar to Livorno to Rotterdam and then even to Houston, since the ship went there from a Euro port.

Some readers may remember we have somewhat seen this same show already.

In 2012, the Euro government attempted to bring international airlines into the ETS, but the rules would eventually change to cover only flights within Europe, after fierce opposition from many foreign governments, especially the US. In fact, Congress passed the European Union Emissions Trading Scheme Prohibition Act that banned American air carriers from paying the fee, over concerns about national sovereignty.

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There is in fact some support in thesector for a global system that somehow taxes carbon. Most would like to see any programs come from the UN's International Maritime Organization (IMO), with no regional regimes such as Europe is proposing.

But not all IMO member countries are on board with a global scheme. Some ship owners favor carbon taxes and speed limits. Others don't. Container shipping is pursuing a different path than bulk shipping.

A major challenge for any type of carbon tax will be gaining support of countries whose economies depend heavily on imports and exports. They could view a global shipping carbon tax as a levy directly on their economies.

"It's a tariff on trade because you want American, Chinese, Indian and Brazilian companies to contribute to Europe's economic recovery by paying its carbon taxes." he says Lars Robert Pedersen, deputy secretary-general of Copenhagen-based industry trade body Bimco.

Altogether, the ocean shipping sector contributes about 3% of all current greenhouse emissions. The IMO has pledged a 50% reduction in CO2 by the industry by 2050.

Any comments on this move to tax ocean freight ships by the EU? Let us know your thoughts at the Feedback section below.


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