By Sherine Chen     Photo：Chris LeBoutillier

In the global push to combat climate change, Emission Trading Systems (ETS) have emerged as a significant tool to reduce carbon emissions across various industries. While they are a pivotal step towards a greener future, ETS has also inadvertently sparked a phenomenon known as "cargo diversion."

The European Union Emissions Trading System (EU ETS) is coming into force in January 2024. It’s believed that the inclusion of shipping in the ETS might cause the undesired effects. The European Tugowners Association (ETA) did support this regulation, however, worried at the same time. ETA has warned that the diversion from EU ports and carbon leakage might possibly occur. 

ETS regulation covers 100% of emissions from ships sailing within the EU (plus Norway, Iceland and Liechtenstein), 100% of emissions at berths in EEA ports. It also covers 50% of emissions from ships arriving or departing from the EEA terminal. For shipping companies, this will cost them higher than before. Given this condition, shipping companies will absolutely take the route that can cost them less, which is by shifting their trade routes to ports outside Europe to avoid ETS related costs. 

Industry players and experts predicted Asian and American ships might choose to dock at other non-European ports such as East Port Said, Tanger Med, and Asyaport. The ETS clause was proposed mainly to reduce the emission, however, this rerouting issue would just lead back to carbon leakage.

Cargo diversion can disrupt traditional global trade routes, impacting supply chains, ports, and transportation networks. While it may reduce emissions in ETS-regulated areas, it can lead to increased emissions in non-regulated regions. Therefore, it is important to keep monitoring and preventing the loss of competitiveness of European terminals and carbon leakage. 

The European Commission might need to pay attention to the evolution of other ports that are located in the Mediterranean area. Policymakers must constantly monitor the implementation of the ETS and ensure that ETS doesn't encourage shipping companies to move their route. 

Appreciate if you could share TGL Blog among your friends who are interested in first-hand market information of supply chain and updated economic incidents.