The decarbonisation of shipping has become a high priority on the EU’s environmental and political agenda.
Implementing the Emissions Trading System (ETS) for shipping in January 2024 has some positive aspects but poses significant threats to small island states like Malta.
Our economy comprises various shipping activities that impact the cost of imported goods for local consumption and the export of transhipped manufactured products.
While political leaders often engage in navel-gazing debates on local issues that are usually of minor importance to most people, the consequences of political decisions taken in Brussels that impact the local community are rarely given sufficient priority.
One such decision is the introduction of a new EU environmental tax on shipping next year that is expected to lead to more expensive imports and higher export costs. Malta Freeport Terminals CEO, Alex Montebello warned that: “With all large ships forced to fork out for their emissions when docking at EU ports from January, it is likely that carriers will simply avoid Malta altogether.”
The director general of the Malta Employers’ Association, Joseph Farrugia states: “We are certainly worried”, adding that the new directive is a “heavy blow” to the Freeport. Farrugia fears that this directive could impact the already high inflation levels as the new regime would erode the country’s ability to compete internationally and make supply disruptions likely.
Astonishingly, the government has not said much about the cost of this directive for the local economy when it had an excellent opportunity to do so in the budget speech.
Unfortunately, budget speeches are becoming more like a political marketing exercise rather than an opportunity to truthfully inform the public about the challenges the country is facing.
Malta voted to introduce the ETS measure in April at a meeting of the EU Agriculture and Fisheries Council, where Agriculture Minister Anton Refalo represented it. A spokesperson for the Transport Ministry said the government had successfully negotiated a number of “positive points” when ETS was being decided, including funding for Malta’s maritime sector.
This vague response does not address the concerns of the Freeport operators, the business community and consumers who are already fretting about the high cost of living.
The costs of the EU ETS across the shipping sector will be significant. Given the potential cost of the ETS, it is probable that ports close to but outside the European Economic Area (EEA) will become attractive ports of transhipment.
Although this may be attractive to the companies responsible for compliance with the EU ETS, the cargo receivers, including local importers, are likely to be faced with additional costs and administrative burdens that will almost certainly be passed on to local consumers. This directive will also likely increase the costs for large cruise liners carrying tourists to Malta.
Nationalist MEP candidate Peter Agius correctly argues: “We need to anticipate and intervene on potentially damaging EU developments at the negotiation stage, not after the adoption (of directives).”
At the negotiation stage of the ETS, various concessions were approved to address specific countries’ shipping services challenges. Local government negotiators did not stress enough Malta’s high dependence on international trade and inelastic demand for shipping services.
Introducing an ETS for shipping would stimulate accelerating investments in green technologies.
However, the local economy’s short- and medium-term costs have been underestimated.