Shippers are concerned that maritime discussions on decarbonisation are shaping up to result in “the mother of all BAFs” for shippers, as carriers will seek to pass on the costs of using sustainable fuels.
The International Maritime Organization (IMO) is set to meet in July and is widely expected to increase its ambition of a 50% reduction in carbon emissions by 2050 to 100%, and will also discuss market-based measures, such as a carbon levy.
To achieve the new target, the maritime sector will need to invest heavily in the technology needed, with some of these processes already under way, with methanol testing, ammonia and LNG all a possibility.
Costs related to decarbonisation are difficult to estimate, but Drewry Shipping Consultants director Philippe Damas, in a Linkedin discussion on the EU Emissions Trading System, said: “Drewry estimates that on the major Asia-North Europe route, these combined policy measures will increase bunker costs and emission-related taxes or allowances from $312 per 40ft container for very low-sulphur fuel oil today to $568, or about $458/40ft using methanol, a low-carbon fuel.”
Drewry believes methanol-powered ships could have a cost advantage over conventional power of $110/40ft as early as 2026, due to the carbon charges.
However, Mr Damas cautioned: “It is still very difficult to estimate the exact costs of the new environmental regulations: as noted by the ITF in its report on carbon pricing in shipping, as this would largely depend on market conditions and bunker fuel price over time.”
James Hookham, director of the Global Shippers’ Forum (GSF), told The Loadstar discussions for market-based measures presented a clear risk that shipping lines would pass on any tax directly to their customers by means of a bunker adjustment factor (BAF).
“What we will have is the mother of all BAFs. Carbon taxes won’t work unless there is a penalty on the carriers too, they cannot be allowed to simply pass on those charges,” said Mr Hookham, who added that the introduction of low-sulphur fuel regulation three years ago saw the costs all borne by shippers and none by carriers.
“We’ve been burned like that before,” he noted.
Mr Hookham pointed to the World Shipping Council’s view, which he described as a “package of sensible measures”. According to the WSC, new regulations should apply equally to all, there needs to be a standard agreement on what constitutes a ‘green fuel’, which includes life cycle emissions, and market-based measures must provide a cost incentive for the lines to use low-carbon fuels.
Forwarders have a similar position. It is for the lines to pay for the carbon they use not their customers, says Clecat director general Nicolette van der Jagt.
“Shippers will pay more and the cost of shipping will increase – that’s a no-brainer – but the type of fuel used by the carrier is their choice, so any carbon tax should be borne by the line,” she said.
By Nick Savvides