Today the World Shipping Council published a paper highlighting serious concerns for
maritime trade and global efforts to reduce greenhouse gas emissions if the EU expands its Emissions Trading System (ETS) to include international shipping. The WSC paper focuses on a critical threshold issue for application of the EU ETS to shipping: geographic scope. The most-discussed geographic application of the EU ETS to shipping is to mirror the scope of existing EU legislation on Monitoring, Reporting and Verification (MRV) of carbon emissions.

The EU ETS has been described as a “regional” system, but bringing international
shipping into that system using the MRV scope would regulate the operation of ships on
several of the world’s seas and oceans, including on the high seas and in waters adjacent to non-EU nations.

“This question of the geographic scope of any ETS system for shipping must be
addressed before the European Commission can turn to the many technical details that would be involved in creating such a system. If the current MRV geographic scope is used, a majority of the emissions covered by the system would occur outside EU waters, in many cases from voyages extending thousands of miles across the globe,” said WSC President and CEO John Butler. Butler continued: “The cargo concerned is not just EU imports and exports; it is also the imports and exports of the EU’s trading partners. This will create trade tensions and raise legal and diplomatic concerns about the geographic reach of a unilaterally imposed emissions charge. The EU would be well advised to avoid extraterritorial application of the ETS.”

If the geographic scope is the same as the MRV GHG reporting regime, the system
would also cover significant cargo volumes that are not part of EU trade at all, but are transshipped through EU ports. This would include numerous less-developed countries (LDCs) that would face an extra charge on their trade simply because their goods are routed through the EU. A charge would be levied first on the cargo as it sails into an EU port and then again as the same cargo leaves the EU on another vessel to its ultimate destination.

Equally troubling, the international tensions and disruption caused by an EU ETS with
extraterritorial effect would harm the prospects for a comprehensive global solution through the International Maritime Organization. “Ironically, far from galvanising efforts in the IMO to implement global measures to curb CO2 emissions, an EU ETS is more likely to prevent a global solution. It is unlikely that a government that has set up its own revenue-generating emissions system will dismantle it in favour of a global one,” Butler observed. Butler concluded: “The EU wants to lead the effort to decarbonize shipping, and that leadership needs to be channelled through the IMO, which is the only place where a global solution can be reached.”