Carbon emissions compliance and its impact on transport costs.
Gounder, Mary Mitchelle.
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The United Nations has increased its focus on environment issues that have been contributing to climate change. After the formation of the United Nations Framework Convention on Climate Change in 1994, the International Maritime Organisation (IMO) was tasked with emission reduction in ships. The Marine Environmental Protection Committee (MEPC), which is a committee within the IMO, commenced with its focus on Greenhouse Gas (GHG) Emissions at its 39th session. The MEPC commissioned studies on greenhouse gas emissions from ships. The MEPC also prepared the draft Annex VI which contained regulations for control of air pollution from ships. MARPOL Annex VI entered into force in 2005. The regulations provided specifications for the reduction of Sulphur emissions and Nitrogen emissions with deadlines for Emission Control Areas (ECAs) as well as globally. The ECA regulations for sulphur reduction have been in place since 1 January 2016.These regulations have put ship owners under immense pressure to comply. If there is non-compliance, the ship owners either receive a fine or their ships are detained. Considerable costs are involved in reducing sulphur emissions, as ship owners either build new ships or retrofit old ships with new exhaust cleaning systems or with modifications to their propulsion machinery. As this study will show the costs have not, so far, been passed on to the end user, as freight rates have not increased based on the compliance costs. The freight rates within the shipping industry are purely based on demand/supply factors. If costs are passed on to customers, then these additional costs are likely to impact on the spectrum of freight rates faced by transport users in both bulk and general cargo markets. This would be similar to the Carrier Security charge that shipping lines implemented after the International Ship and Port Facility Security (ISPS) Code came into force in 2004.