Trafigura proposes carbon levy on bunker emissions

Trading firm Trafigura has proposed that the International Maritime Organisation (IMO) introduce a carbon levy on bunker fuel emissions and pump the proceeds into research and development into alternative fuels and engine efficiency, as well as support for small islands and developing states.

The company suggests that a benchmark threshold is set for CO2 equivalent (CO2e) emissions based on the IMO's 2030 and 2050 emissions reduction targets. Fuels that emit higher than the threshold would be charged a levy of $250-300/t of CO2e under Trafigura's proposal, while fuels that emit below the threshold would receive a subsidy. As greener fuels become more widely adopted and their production costs go down, levies and subsidies will shrink over time, Trafigura said.

The firm welcomed a vote by the European Parliament this week to include shipping in the EU emissions trading system (ETS). By comparison, EU ETS CO2e spot allowances closed at $26.79/t yesterday.

Trafigura has proposed for the CO2e to be calculated on a well-to-propeller basis, as opposed to a tank-to-propeller basis, in order to account for a fuel's life-cycle emissions. CO2e above the threshold would be calculated from the last discharge port of the previous voyage to the discharge port of the current voyage. This is similar to the mechanism used in the European Emissions Control Area (ECA), where only 0.1pc sulphur bunker fuels are allowed.

"The purpose of the levies and the subsidies is to close the competitiveness gap between carbon-intensive fuels and low- and zero-emission fuels," Trafigura said.

The firm has suggested that the funds generated from the levies should be used to invest in and develop greener fuels and more efficient engines. Proceeds would also be allocated to "a number of small island developing states and developing countries" as they will be disproportionately affected by changing trading patterns, global warming and rising sea levels, Trafigura said. The firm said just 1pc of the levies could generate up to $2bn/yr.

The proposal could be costly for shipowners and charterers. Every tonne of bunker fuel consumed emits around 3.1t of CO2e, according to shipbroker Clarksons. If 1t of 0.5pc sulphur fuel oil bunkered in Rotterdam emits 1t of CO2e above the threshold, this could add $300/t on top of yesterday's closing price of $289.75/t, more than doubling the cost. Trafigura did not specify what the threshold should be and called on the IMO to set a benchmark target.

The proposal was the result of research done in collaboration with Texas A&M University and drew "inspiration" from California's Low Carbon Fuel Standard (LCFS). The study showed that, in well-to-propeller terms, LNG can achieve CO2e emissions reductions of 2pc compared with very low-sulphur fuel oil, LPG can deliver a 15pc cut, green methanol an 83pc reduction, and hydrogen and ammonia 93pc.

By Nicolas Kyriakoglou