Maersk carbon tax proposal may provide advantage

Danish shipping company Maersk's proposal for a $450/t tax on carbon could give it a competitive advantage over others in the industry given its size and financial stability.

The International Maritime Organization (IMO) requires that vessels cut their CO2 emissions by 40pc by 2030 and by 70pc by 2050 from 2008 base levels. In 2019, Maersk surpassed IMO's 2030 emissions requirements by dropping its CO2 by 46.3pc from 2008 levels. Other shipping giants that have also already achieved IMO's 2030 goals include: France's CMA CGM which reduced its CO2 emissions by 49pc, Taiwan's Yang Ming by 51pc and Germany's Hapag-Lloyd by 50pc.

But Maersk, which reported a net profit of $2.7bn in the first quarter, is better positioned that most small and medium-sized shippers to invest in low-carbon, alternative marine fuels and the latest technological advances in ship building. Most small and medium-sized companies have not yet adopted CO2 reduction strategies, choosing to wait on the sidelines for the bigger companies to pave the research and development road to determine which fuels and technologies will emerge as winners.

If a $450/t tax is implemented, ship owners will pass the cost on to their customers. But as one of the companies with the largest CO2 emissions cuts to date, Maersk will be able to offer its customers some of the most competitive prices.

Maersk's tax proposal also aims to level the international playing field for shipping. A tax this high could give the EU a pause from trying to add EU shipping into its emissions trading scheme (ETS). Under EU's proposal, shipping will be folded gradually into its ETS and shipping companies will be liable to surrender allowances for 20pc of emissions for 2023, 45pc for 2024, 70pc for 2025, and 100pc for 2026. This applies to emissions only in EU waters.

Maersk's vessels travel in EU and international waters, but there are shipping companies that mostly traverse Asia, the Middle East, Africa and the Americas and rarely visit EU waters. EU's directive could give those companies an advantage over Maersk.

Maersk's chief executive Soren Skou called the tax proposal a way "to bridge the gap between the fossil fuels consumed by vessels today and greener alternatives that are currently more expensive."

Argus assessed very low sulphur fuel oil (VLSFO) at $509/t average in June in Europe's biggest bunkering hub Amsterdam-Rotterdam-Antwerp. At 88pc of the price of VLSFO, the $450/t tax proposal would likely propel research into alternative fuels, which is still at its infancy. In the event a tax this high is implemented, residual fuel oil demand for bunkering will drop sharply. Resid's refining margins will fall, causing refiners with big residual fuel oil output to reduce their utilization rates.

By Stefka Wechsler