New Emissions Surcharges Highlight Need for Transparency

The need for improved visibility over emissions-related pricing mechanisms, particularly amid the Red Sea disruptions and the maritime sector’s inclusion into the EU Emissions Trading System, has been making headlines in recent weeks. Here’s a roundup of some news items related to this theme.

Pricing Clarity Sought for Emissions Surcharges for European Container Shipping

The Jan. 1 inclusion of maritime transport into the EU Emissions Trading System (ETS) is still raising a lot of questions over how much ocean carriers should be charging in emissions-related surcharges for European container shipping, according to a recent S&P Global article.

The article noted that there might be some variation among carriers in calculating the surcharges. For instance, carriers’ fall customer advisories on the surcharges appear to reveal differing methodologies in estimating surcharges, the article said. Several carriers also appear to be providing quarterly updates to those initial calculations from this fall, making comparisons more complex.

Another factor layering onto this situation is a “lack of accounting for a malleable carbon market,” which itself could evolve in the coming years, the article said. 

US DOE Awards Millions for Decarbonization Technologies for Industrial Subsectors

The U.S. Department of Energy (DOE) has awarded $171 million to 49 projects seeking to reduce greenhouse gas emissions and speed up the development of decarbonization technologies.

The awardees spread out among 21 states support high-impact, applied research, development, and pilot-scale technology validation and demonstration (RD&D) projects aiming to reduce energy usage and GHG emissions from industrial subsectors, according to a recent DOE release. Projects will also advance cross-sector industrial decarbonization approaches to tackle challenges common across various industries, the release said.

DOE also said it is accepting applications for an $83 million funding opportunity from projects seeking to decrease emissions from hard-to-decarbonize industrial sectors. These industrial sectors represent roughly 30 percent of total U.S. carbon emissions, according to DOE. 

Both initiatives support two of DOE’s “Energy Earthshots” initiative, which seeks to “accelerate breakthroughs of more abundant, affordable, and reliable clean energy solutions within the decade” and strive toward reaching 2050 net-zero carbon goals. 

Transparency Needed on EU ETS Surcharges

The Loadstar is also reporting on the pricing uncertainties related to the EU ETS surcharges on container shipping, saying that there are still a lot of questions about whether the surcharges are being accurately calculated.

This concern may only continue to mount as the emissions pricing scheme gets fully implemented by 2026, according to the article. 

Part of the reason for the uncertainty is how carriers calculate the surcharge. Vessel owners buy EU allowances (EUA) that correspond with the per-tonne carbon emissions of their ships that call at EU ports, the article said. But, the market price for EUAs can be highly volatile since they correspond with purchase bids. 

Other factors that go into the surcharge may include average ship design, average speed, and average capacity utilization. But, according to a source quoted in the article, working out the costs for a specific voyage may warrant collecting additional details, such as actual speeds and the exact route. 

Shippers Could Seek Visibility Into Shipping Rate Increases

Shippers could become wary of recent shipping rate increases, which appear to be increasing at a faster rate than when the COVID-19 pandemic first started. According to an article from The Loadstar citing Xeneta’s recent data, shipping costs from the Far East to Europe spiked more than 200% in the first 52 days of the Suez crisis, outpacing the increase in rates seen during the first 52 days of the pandemic.

“Rates have not hit anywhere near the levels we saw during COVID-19, but the sudden nature of the Red Sea crisis has seen a more rapid increase in rates, which is arguably creating even more disruption than during the early months of the pandemic,” a Xenata market analyst said.

Shippers could become concerned that carriers may be seeking to keep rates elevated as long as possible, according to Xenata. 

Shippers could seek more transparency over how rates are configured, industry observers noted. Peak season and EU ETS surcharges, Suez Canal transit fees, and re-routing costs are among the items that could explain the higher rates. 

Air Cargo Option Could Cause Emissions Spike

The Loadstar also reported that the shift toward air cargo by some shippers in response to Red Sea disruptions is resulting in a massive secondary increase in CO2 emissions. 

Ship emissions have already increased because of the additional distance and voyage duration from shipping around the Cape of Good Hope instead of through the Red Sea. 

But that increase could be trumped by the amount of air cargo emissions, depending on the route. A sea-air route consisting of loading in Shanghai and then a transfer to air in Dubai before reaching its destination in Schiphol, The Netherlands, could result in 36.2 tonnes of CO2 emission per TEU, or a 4,872.6% increase over a conventional Suez Canal sea transit, according to the article, quoting calculations from the Internationa Civil Aviation Organisation. 

Let Searoutes Help You Achieve Clarity

While the concerns about the seemingly opaque nature of emissions-related surcharges on European container shipping might be with us for some time, Searoutes can help you navigate through the uncertainty. 

We have three tools that can help keep track of supply chain emissions data: 

• Our CO2 API tool allows customers to conduct optimal route searches that incorporate carbon emissions data.
• Our Vessel API allows shippers to peek into the history of a given vessel, including its average speed and route characteristics, as well as current data about a vessel’s positioning.
• Searoutes’ Routing API utilizes real-time data analytics to continuously monitor vessel emissions while also providing intelligence on fuel consumption, deviation costs, and arrival times. 

We also provide insights on the supply chain through our participation in roundtable discussion with other industry thought leaders, such as through a recent webinar on the impact of Red Sea disruptions that included Searoutes CEO Pierre Garreau.

Speak with an expert today to learn more about how we can help your company reach its sustainability goals.