The maritime industry is fully committed to decarbonisation and environmental protection because the industry itself is a victim of grave, climate change consequences. Rising sea and air temperatures, shifting sea levels and the frequency of extreme marine events are devastating to the operations of the industry.
The industry fully supports the principles and objectives behind the European Green Deal and the consequent Fit for 55 Package, including the ‘Fuel EU maritime’ regulation. Nevertheless, as the prime interlocutor for the local maritime industry, the Malta Maritime Forum (MMF) cannot but express grave concern on the risks emerging from the implementation methodology of the EU Emissions Trading System (ETS) directive.
These risks stem principally from the fact that, as well-meaning as it may be in its aims, the EU cannot unilaterally enforce market-based measures on a global scale.
Given that the International Maritime Organisation (IMO) is not proceeding towards decarbonisation at equal speed, the ETS Directive has given rise to serious unfair competition terms between EU ports and neighbouring non-EU ports because emission unit allowances (EUAs) apply differently or may not apply at all.
In the current scenario, shipping lines are disincentivised to call at European ports because this would entail higher costs in terms of EUAs compared to non-EU ports, where the same ship would incur less costs – or none at all – when it sails from non-EU (Asia) to non-EU (the US) via a Mediterranean non-EU transhipment port anywhere in North Africa.
Major shipping lines have formally communicated to the MMF that the annual cost differential could stand at €34 million depending on the route. This variance is prohibitive enough to force major shipping lines to seek alternative solutions.
Such is the tight competitive scenario that a decision by any single carrier to incur the extra EUA cost could have existential consequences on the company as against others which decide to bypass the directive.
Leakage of carbon emission
The main objective of the Fit For 55 Package and specifically the ETS Shipping is the reduction of carbon emissions. Unintentionally, however, the implementation of the directive will result in higher emissions because, notwithstanding the fact that mega-carriers will affect their transhipment operations in non-EU ports, they will continue to transit the Mediterranean (hence EU waters) but:
• The mega-carriers will need to deviate from the most efficient navigation course to call at North African ports instead of central Med terminals located in the EU (Malta and Gioia Tauro)
• Ships may need to increase power during the voyages to compensate for deviation delays
• Extra voyages required by feeder ships to transport EU-destined cargo from North African transhipment hubs to southern EU ports.
Connectivity and effect on seaborne trade
The growth of a nation’s trade depends exclusively on connectivity both for the import of raw materials, as well as the export of the finished products. This holds even more true for small island economies, like Malta and Cyprus, which depend on seaborne connectivity.
Transhipment activity in Malta heralded massive economic benefit, not least by linking the island to over 160 ports worldwide, providing exceptional logistical advantages in terms of transit times. Far East to Malta enjoys an exceptional 15- to 20-day transit time, giving a tremendous financial saving to the manufacturing industry through cost reduction in the pipeline logistics.
As well-meaning as it may be in its aims, the EU cannot unilaterally enforce market-based measures on a global scale
This benefit would disappear if transhipment activity were to shift to non-EU ports. For Malta, where domestic container trade is limited, the consequence would be tragic because the volume of domestic trade does not justify a direct service, so mega-carriers would tranship in North Africa instead. As a result of the current provisions of the directive, it is expected that local business will incur:
• Higher freight costs (20-25% due to additional feeder leg);
• Longer transit times (by as much as 8-10 days);
• Irregular and unpredictable service (dependent on efficiency of North African transhipment hubs).
The preoccupations of the MMF are identical to those of Malta Freeport Terminals – a distinguished member of the MMF. These have already been amply expressed in the media. Indeed, on behalf of all its members, the MMF submitted its position to the European Commission through the public consultation portal. The MMF coordinated the response of the other business representative bodies within the deadline date.
As a result of this reach-out initiative, the Malta Employers’ Association realised the potential impact not merely on the maritime industry but on the wider economy and requested the matter be urgently discussed at MCESD.
Consequently, the MMF addressed the social partners at MCESD in October, bringing them up to speed with the faults in the implementation plan for the EU ETS directive, the impact on Malta’s connectivity and appealed to all social partners to reach out to their European affiliations.
The forum provided technical support to kindred organisations for the purposes of reaching out to their Brussels counterparts. More importantly, the MMF has brought these preoccupations to the direct attention of the European institutions and industry associations in Brussels.
Besides, the MMF coordinated with ministers Miriam Dalli and Aaron Farrugia and their respective technical staff, and supported their pronouncements in European fora not least the European Shipping Summit, where the forum itself questioned how the risks arising from the implementation of this directive can be reconciled with Europe’s objectives in the areas concerning growth, security of supply chains, multi-modal transport and climate change aspirations.
Indeed, in synch with the thesis of the MMF, the minister responsible for transport co-signed a letter with his counterparts from six other Mediterranean EU member states addressed to the European Commission wherein a number of recommendations and alternatives were proposed with a view to resolving the issues arising from the proposed regulations.
Before it is too late, Europe must realise that the manner in which ETS is being introduced impinges on the very basic principle of the EU to guarantee the free movement of goods because its transhipment hubs located in southern member states will be completely bypassed, thus disadvantaged and discriminated by the competition from nearby non-EU ports.
It also impinges on the EU’s principles to control inflation, secure supply chains, promote multi-modal transport systems and, above all, creating jobs and growth, particularly in its least developed regions.
In light of the fact that the EU cannot afford to run the unintended business and carbon leakage risks highlighted above, it is encouraged to temporarily suspend the application of the directive pending proper ex ante risk assessment of business and carbon leakages.
Furthermore, the Commission is encouraged to consult with the main stakeholders to devise and apply alternative computation methods that ensure a successful implementation of the directive, to ascertain a successful achievement of its desired and commendable climate-change objectives, while seeking to avoid any distortions in fair competition, business leakage and the very carbon leakages which the directive sets out to avoid.
Godwin Xerri is the chairperson of the Malta Maritime Forum.