Container Shipping Quarterly
Special Report
ETS to the extreme
Red Sea diversions open Asia – Europe ships to rising ETS costs
By Greg Knowler
Carriers sailing from Asia to Europe are using significantly more bunker fuel by sailing around southern Africa , dramatically increasing their exposure to the European Union carbon tax that applies to 50 % of emissions for voyages to and from the EU .
“ The Emissions Trading System [ ETS ] costs are definitely going up ,” Hapag- Lloyd CEO Rolf Habben Jansen told reporters during a mid-March briefing . “ Exactly how much remains to be seen as it will be a factor of distance and also fuel that is being used .”
The increased costs of compliance with the ETS , which came into effect Jan . 1 , should be factored into carriers ’ longer-term planning , according to Hamburg-based maritime technology company OceanScore .
“ The threat level to Red Sea shipping remains high and it is uncertain how long this situation will persist for ocean freight given the Houthi attacks continue unabated ,” Albrecht Grell , OceanScore ’ s co-managing director , said in a statement .
“ Shipping companies must therefore prepare and take account of higher emissions liabilities for the foreseeable future ,” he added .
The route around the Cape of Good Hope is being used by most carriers on the Asia – North Europe and Mediterranean trades who are diverting away from the Red Sea and Suez Canal , adding up to two weeks to the voyages and increasing fuel consumption .
OceanScore looked at what that meant in terms of compliance with ETS regulations and arrived at some sobering estimates . It found the route via the Cape has tripled bunker consumption because of the longer distance and resulted in a 25 % increase in sailing speed from 16 to 20 knots , based on AIS tracking of container vessels .
“ We have observed increased speeds to compensate for at least some of the longer distance — to keep sailing times and the need for additional tonnage to be deployed at acceptable levels — and this has an inevitable impact on fuel consumption and emissions ,” OceanScore ’ s Grell said .
Increasing liability
Carriers are required to buy carbon credits , known as EU Allowances ( EUAs ), and surrender them to cover
“ Emissions Trading System costs are definitely going up .”
voyages to and from the EU that are liable for 50 % of emissions , while port calls and transits within the EU are liable for 100 % of their emissions .
Using a 14,000-TEU container ship , OceanScore ’ s study found the number
heila Fitzgerald / Shutterstock . com of EUAs necessary to cover emissions would rise from 1,800 per Asia – Europe voyage to 5,200 per voyage with the current 40 % liability requirement under the three-year phase-in of the ETS , rising to 70 % next year and 100 % in 2026 .
This would translate into a near-threefold increase in EUA costs from € 98,000 to € 285,000 per voyage this year , based on the current carbon price of approximately € 55 per metric ton of CO2 , or an increase of € 18 per TEU , according to OceanScore .
If the volatile carbon price returned to the level of about € 100 that it reached a year ago , these costs would nearly double , Grell warned .
“ With complete phase in of the EU ETS to 100 % of emissions , we would see another 250 % increase that would bring the cost markup per box to around € 80 ,” he said .
Carriers won ’ t be billed for this year ’ s emissions until later next year but are already active on the carbon trading markets and will use the EUA prices to assess their cost of compliance per TEU and pass that onto cargo owners through surcharges from the first quarter of 2024 .
Ocean Network Express ( ONE ) secured its inaugural purchase of EUA from BNP Paribas on Feb . 8 ; the acquired carbon credits will be transferred to respective vessel owners to allow them to meet their EUA surrender obligations by September 2025 .
“ This EUA deal with ONE is important for Asian carriers , demonstrating proactive readiness for EU ETS compliance ,” BNP Paribas Singapore said in a statement March 18 .
The EU ETS is designed to become steadily more expensive to encourage ship owners to switch away from fossil fuels and to create greener ocean transport options for their customers . It was expanded to include the shipping industry from Jan . 1 .
email : greg . knowler @ spglobal . com
18 Journal of Commerce | April 8 , 2024 www . joc . com