One € CO² tax, and its impact on shipping

 

The popular idea of introducing a CO² tax to replace fossil fuels by alternative fuels, has some unexpected consequences.

Ships are traditionally large consumers of “dirty” oil residues, “residual” because it is a residue of the oil refining process. This residual contains large volumes of sulphur but also heavy metals, arsenic and mercury. Obviously burning results in emissions that impact human health by displacing oxygen in the atmosphere. Breathing becomes more difficult as carbon dioxide levels rise.

Today we see a first shift to “cleaner” fuels by using LNG (liquid natural gas). LNG contains no sulphur, does not emit particulate matters, creates – depending on the technology – up to 90% less NOx  and 20-30% less GHG.

Alternatively, ships can still use their residual oil in combination with a scrubber. However, more and more countries restrict the discharge of the scrubber effluent in their coastal waters.

The potential solution to solve the environmental problems without reducing the globally shipped volumes, lies in the use of non-fossil fuels such as hydrogen, ammonia, methanol, biofuels etc. The production and set up of a bunkering infrastructure to replace the bunkering of fossil fuels comes at a considerable cost. Maybe a CO² tax may generate the required funds to finance the needed infrastructure.

So, what is the impact of such a CO² tax on a supply chain ? This calls for a few examples.

Example 1: Export of coal from Australia to Rotterdam by cape size bulker.

A bulk carrier of + 200.000t consumes ca 50t Heavy Full Oil(HFO)/day, resulting in a 155t CO2 emission per 24h.  The voyage takes 34 days (Port Hedland-Rotterdam), resulting in a total emission of 5.115 t CO² (34 days x 155 tCO²/day).

Assuming then a 20€/t CO2-tax, the CO² levy is 102.300€.

But, since the bulk carrier has to return to Australia, the empty return trip will also calculated to the cargo. Meaning that the shipowner will calculate 204.600€ extra over the transport price. This means  in total the price increases with 1€/ton.

Example 2: A 20.000 TEU container vessel Hong Kong – Antwerp

A 20.000TEU container vessel consumes about120t/day HFO during  his trip. At an average 18 knits, the voyage takes 22 days. But such a large container vessel has several port calls to offload cargo for the Middle East, East Africa, Mediterranean countries and afterwards West Africa. Potential ports could be: Singapore, Dubai, probably 1-2 ports in the Mediterranean Sea, Portugal etc. As a result the total length of the voyage increase to 36 days instead of 22 days..

The total volume of CO² emitted during the trip is then 13.392t CO2 (120t x 3.1t CO2/ton HFO x 36days.

Adding a 20€/t CO2 tax, the bill becomes 267.840€. In case of 20.000TEU, the extra charge is ca 10€/20ft, which has a very limited impact on the distribution patterns.

The question in this case is, how to split the extra bill over the containers. Of the original number of containers, probably 25-30% will be offloaded during the trip and replaced by cargo coming from Africa or the Middle East. Of course, the shipowner includes the CO² tax in his tariffs, but, what in the case we have different taxation systems or different tariffs that apply ?

 

However, in dry bulk, or oil- and gas products the CO² tax may have a significant impact.

Let’s ship some oil from two origins, Senegal and Kuwait to Antwerp’s chemical cluster. From coast of Senegal to Antwerp, count 8 days, from Kuwait it takes 20 days.  Knowing that an oil tanker of 175.000t consumes ca 40t HFO/day, the CO² tax for the Senegal one-way trip is 149.840 € (40t HFO x 3.1t CO2 x 8 d x 20€ CO² tax. The Senegal round trip results in a 39.680€ bill

The Kuwait option though is 50.000 € more expensive, 40t HFO x 3.1t CO2 x 20d x 20€= 49.600€ x 2 (round trip). This difference will certainly reshuffle supply chains.

So, CO² tax is certain to have an impact on your supply chains.

 

 

Guido Van Meel

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