Bunker voluntary carbon offsets face uncertainty

A number of marine fuel traders have begun offering voluntary carbon offsets, but the outlook for offsets is uncertain since they are not a formally accepted method to reduce shipping greenhouse gas emissions.

Neither the International Maritime Organization (IMO) nor the EU accepts the offsets as a means to reduce carbon emissions, so they must be used in addition to paying for more expensive low-carbon fuels and investing in more fuel-efficient vessels. But prices for the offsets are low, and some ship owners consider them a way to address their customers and the public's environmental concerns. If the costs remain low, some owners will continue to voluntarily participate.

KPI OceanConnect, Minerva Bunkering, Trefoil Trading, Vitol Bunkers and World Fuel Services are among the bunker traders and suppliers that have joined the voluntary carbon offset bandwagon.

In July, Switzerland-based MSC Cruises said it will not pursue carbon offsets and, instead, will invest in research and development of alternative marine fuels, such as ammonia and hydrogen. This marks a shift from 2019, when MSC Cruises said it was considering carbon offsets.

The Chicago Mercantile Exchange (CME) global emissions offset September futures contract settled at $6.03/t yesterday. Argus assessed physical Amsterdam-Rotterdam-Antwerp very low-sulphur fuel oil (VLSFO) at $499.25/t yesterday. When burned, 1t of VLSFO emits about 3.151t of CO2. Using CME's contract for voluntarily carbon offsets would have added $19/t, or 3.8pc to the price of the VLSFSO. By comparison, if ship owners were to buy CO2 allowances on the EU Emissions Trading Scheme (ETS), they would have paid $66.90/t yesterday, which would have added $210.80/t, or 42pc, to their VLSFO bills.

GHGs from shipping are not taxed or restricted. The IMO requires that shipowners reduce CO2 emissions by 40pc by 2030 and by 70pc by 2050 from 2008 base levels in international waters.

The EU is taking more immediate measures, with two proposals in the works that would apply to vessels traveling in EU territorial waters.

One would phase in maritime emissions trading in its ETS starting in 2023, with 100pc auctioning of CO2 emissions from 2026. The second measure would reduce GHG intensity levels for vessels starting from 2025, with a 75pc reduction by 2050 from 2020 base levels.

By Stefka Wechsler