In line with its commitment to expand the UK Emissions Trading Scheme (ETS) to new sectors of the economy, and building on the Transport Decarbonisation Plan published in 2021, the UK Government is consulting on including domestic maritime in the UK ETS by the mid – 2020s.
Emissions from domestic shipping represent around 5% of UK's overall transport emissions, more than the UK rail and bus network combined. However, decarbonisation efforts face a number of barriers:
a) since the maritime fuel prices do not reflect the cost of their emissions, the uptake of energy efficiency technologies in shipping has been slow; and
b) investment in vessel efficiency has been held back by the nature of the ownership – chartering arrangements, where the party paying for the fuel is often not the vessel owner.
To address these challenges, the Government has presented a choice of three options:
a) applying the UK ETS to shipowners or operators on the basis of vessel activity – the lead option;
b) inclusion on a fuel supplied basis – a first alternative; and
c) a hybrid approach of including larger vessels on the basis of their activity and smaller vessels on the basis of fuel supplied – a second alternative.
Conclusion
By including domestic maritime in the compliance scheme the Government aims to incentivise the sector to adopt cleaner fuels, environmentally friendly technologies and greener operating practices. However, recognising that carbon pricing on its own will not be enough to overcome barriers to decarbonisation, it will propose a broader package of interventions in due course.
Particular areas of concern are the risks of gaming the system, carbon leakage, a shift away from maritime transport to alternative modes, the cost of domestic shipping services and the impact on consumers and small businesses operating in the sector.
The European Commission proposed to include international shipping within the scope of EU ETS from 2023 onwards, with a three-year phase-in until 2026. This has prompted concerns from non-EU shipping companies that will become subject to the EU compliance regime.
Globally, maritime transport is responsible for around 2.5% of emissions and without mitigation measures this will grow. The current dependence on traditional fuel oil, the international nature of shipping and the variety of stakeholders involved present significant challenges to decarbonising the sector. Including domestic shipping in the UK ETS is a welcome first step in this direction.
