Carbon taxes in the shipping industry—assessing Japan’s proposal
There are growing calls for a carbon tax on shipping emissions. Jim Loftis, Ciara Ros and Tatiana Freeman of Vinson & Elkins look at the recent proposal from Japan for a global carbon tax, assess it in the context of the existing approaches in other jurisdictions and industries, and consider how those involved in the maritime industry need to prepare. The shipping industry currently accounts for 3 percent of global emissions, and according to certain estimates, if unchecked, shipping could account for as much as 20 percent of global emissions by 2050. It is against this backdrop that there have been growing calls for the introduction of a tax on shipping emissions. In May 2022, Japan proposed a financial incentive to decarbonise shipping. Japan called for a global carbon tax that would see the shipping industry pay $56 per tonne of CO2 starting in 2025. If imposed, the tax is forecast to raise over $50 billion a year.
Newbuilding appetite returns in the market
Ship owners have intensified their interest in more newbuilding orders over the past week. In its latest weekly report, shipbroker said that it was “a very satisfying week came to an end for the newbuilding market with buying interest appearing quite strong. It seems that the upward trajectories noted in freight rates have generated ample incentive for further ordering to take place. While we expected that new ordering activity for tanker units will be slower compared to that noted for dry bulkers (if we take into account the different performance noted in freight rates between these two sectors), the upward trend in rates noted in the tanker market of the last weeks has further awakened buying appetite.
Vesselsvalue: sowing the seeds of a food crisis
The economic environment for global trade has profoundly shifted in the past year. Recovering demand from the pandemic has collided with supply side constraints in many industries, inflation and interest rates are rising, and the Ukraine war, together with sanctions on Russia have disrupted global commodity flows. Amid the myriad uncertainties, perhaps the most troubling is this: what will be the impact on global food supplies and which countries will be most affected? Russia and Ukraine are two of the world’s “Big Eight” exporters of grain, along with the USA, Canada, Brazil, Argentina, the EU, and Australia. The world can scarcely afford to lose them from global food trade. War broke out at the end of February 2022. Ukrainian ports closed and leading grain traders such as ADM and Bunge suspended operations.
Where will ships be recycled in the future?
Agrowing question among the shipping industry, revolves around the location and safety guidelines, regarding the scrapping of a growing number of older EU-flagged vessels. In its latest weekly report, shipbroker pointed out that “there was no respite for the recycling industry players this week following Posidonia, as several from the industry headed for the EU Ship Recycling conference in Rotterdam, where surprisingly there was no presence from the EU! This severely questions their intent to ever approve India as an EU ship recycling destination and worryingly poses more questions for the future, when inevitably the market will be over supplied, including European flagged units.
New DNV anti-roll app helps avoid container loss
Resonant rolling is a hydrodynamic phenomenon that can leave even the most experienced captains at a loss. The ship suddenly begins to rock sideways excessively, and in the worst case containers go overboard. Container loss at sea is relatively rare, considering that more than 200 million containers are shipped across the world’s oceans every year, says Arne Schulz-Heimbeck, Senior Principal Engineer and Programme Development Manager for Containerships at DNV. Yet those few incidents make big waves in the media and can damage the reputation of the shipowner and operator, in addition to the financial loss. Furthermore, lost containers floating in the water are a hazard for ocean traffic, especially for smaller ships.
All eyes on energy transition strategies
Market volatility and uncertainty on the regulatory development front are dominating the current landscape for bulk carrier shipping. The market fundamentals in terms of tonnage supply and demand remain healthy for dry bulk shipping. According to Clarksons, commodities trade is estimated to grow at appoximately 1 percent per annum over the next three years. Rising energy prices are leading countries to re-optimise their energy mix, resulting in increased demand for coal which is expected to remain solid over the next five years. On the other hand, the Ukraine / Russia crisis has led to major disruptions in specific trades, resulting in increased tonne-miles for both grain and coal transportation, and the uncertainty this has created is expected to last for a few years ahead.
Net zero shipping by 2050 could be on the agenda pretty soon
Amid pressure from NGOs and governments, shipping could be moving towards net zero by 2050, instead of the initial goal set of a 50 percent emission reduction. In its latest weekly report, shipbroker said that “last Friday saw the close of the much-anticipated Marine Environmental Protection Committee (MEPC 78) meeting at the IMO. The main focus was to progress IMO policy to build an effective greenhouse gas emissions (GHG) reduction strategy to be approved at MEPC 80 in 2023. Whilst the meeting was never intended to be a decision-making event, it did signal that sufficient momentum and support exists among most member states for the IMO to begin setting more ambitious targets and policy that will be centre stage at upcoming IMO meetings.