If big shipping lines move to non-EU ports as a result of an environmental tax that will be introduced by the European Union next year “it will be close to impossible” to bring them back, maritime law expert Ann Fenech told The Malta Independent on Sunday.

Expressing her disappointment that the European Commission is biding its time with regard to the effect that such a tax will have on the industry, Fenech said that in international shipping there is no such thing as “wait and see”.

In shipping, time is money, and if shipping lines “are tempted to go to Tangier Med or Damietta”, which are non-EU ports, this will have “very serious detrimental effect on the maritime resources of south peripheral European states such as Malta”.

Fenech was contacted by The Malta Independent on Sunday after the Malta Maritime Forum said it was concerned about the “imminent risk” that major shipping companies pull out of Malta as a result of an environment tax that will be introduced in European Union countries as from next year. The EU ETS Directive on Shipping obliges ships to surrender so-called EUAs (Emission Unit Allowances) to compensate for the carbon they generate while under sail. The Maltese government endorsed the directive.

In an interview with The Malta Independent on Sunday, published on 12 November, MMF CEO Kevin J. Borg said that there is a “likely scenario” in which Malta will lose its role as a transhipment hub, as shipping companies choose ports of call outside the EU where no such tax is paid.

The MMF, Borg said, acknowledges the truly commendable Climate and Environment objectives behind the EU’s Emission Trading Scheme (ETS), but current flaws in the implementation mechanism may unintentionally render it incompatible with Europe’s core principles and goals in favour of carbon neutrality.

The EU ETS stands as a fundamental element in the European Union's strategy to address climate change, serving as a pivotal instrument for efficiently diminishing greenhouse gas emissions. It holds the distinction of being the planet's inaugural significant carbon market and continues to be the largest of its kind.

The EU ETS Directive on Shipping obliges ships to surrender so-called EUAs to compensate for the carbon they generate while under sail. “But in the absence of a globally enforceable measure, ships that sail into EU ports will pay higher monetary costs in terms of EUAs and those that manage to avoid EU ports may avoid the provisions (and costs) of the directive altogether,” Borg told this newsroom.

Fenech was on the same wavelength in her comments to The Malta Independent on Sunday. There can be no doubt that the entire directive is geared towards encouraging the reduction of carbon emissions, which of course, is both in theory and in practice a good thing, Fenech said. However, in an ideal world such regulations should be international so that they apply to all countries.

The danger with regional laws, attempting to regulate matters which of their very nature affect world trade, is that regrettably these are not followed by all but only by those countries which fall within the jurisdiction of the regional regulations. This inevitably leads to the very object of the exercise being defeated, to an uneven playing field and in some cases direct prejudice to affected states. Regrettably this is what will happen here, she said.

As far as the surrender of emission unit allowances under the EU ETS Directive are concerned, the idea is indeed noble. However, great care must be taken in its application and this is where the problem lies, Fenech added. In the context of ships traversing the Mediterranean from outside the EU and stopping off at EU transhipment ports, the cost associated with such stops in EU ports is going to be so great to container shipowners that they will unhesitatingly use alternative non-EU ports to tranship their containers in the same Mediterranean.

“In the event that they do not use the EU ports they have traditionally used but use instead non-EU ports, they will not have to pay the allowances and at the same time the EU will not reach its objective of decreasing the carbon footprint,” she said.

All of this indicates that the EU must reconsider now, not later, amendments to the application of the ETS when member states are very close to non-member states which may be used by shipowners.

Asked how the directive will affect the international shipping industry as a whole, Fenech said that the scheme, as envisaged, essentially requires vessel operators to “surrender” allowances calculated according to their carbon emissions, which will increase the costs for such vessel operators. 

It is estimated that the implementation of this directive for a number of shipping lines currently using EU ports in the Mediterranean will be in the region of an additional €34m.

Fenech said that MMF chairman, Godwin Xerri, vice-chairman Alex Montebello and CEO Kevin Borg have done an excellent job in putting forward the necessary appeals to the Commission with a view to persuading it that it needs to rethink the manner in which the ETS is going to affect EU member states in the Mediterranean, and whether the Commission will be reaching its objective if it is not persuaded to amend the directive.

What needs to be understood is that there are several very important transhipment ports all over the Mediterranean, she added. A transhipment port in the Mediterranean is one that offers mega container carriers coming from the Far East or the United States the possibility of bringing containers to a transhipment port in the Mediterranean, and unload them to be reloaded onto smaller container ships for the European market. As such, Malta Freeport is one of the most important and successful transhipment centres in the Mediterranean.

With the introduction of the EU ETS this means that every container ship coming from outside the EU and arriving at an EU port will have to pay this environmental tax. There are several other ports, particularly in the southern Mediterranean, which are in countries which are not EU member states and therefore all these mega container ships have to do is use these non-EU ports to discharge the cargo for transhipment and in so doing they will not have to pay anything whatsoever.

If shipping lines start to use non-EU ports to avoid paying this environmental tax, Fenech said it will certainly mean that the amount of traffic at Malta Freeport will be reduced significantly and have a direct impact on its profitability, a direct effect on the workers whose livelihoods depend on the Malta Freeport and a direct effect on the income of associate services, ship agents, tugs, pilots, providers of supplies, bunkers, water, necessaries.

It will also have an effect on Malta’s connectivity with the Far East, from where at the moment Maltese importers and exporters are very well serviced by regular lines. If these services are reduced then that will have an impact on Malta’s commercial connectivity, Fenech said.

“The way forward is for the Commission to reflect over the very serious repercussions and consequences of this and to take the appropriate measures now to remedy this very serious negative effect which I am convinced it did not intend,” she said

“The appropriate measure is to exempt all voyages coming from outside EU ports and discharging at EU ports in the Mediterranean and vice versa from the surrender of any allowances. It is only in this case that such vessels will not be encouraged to use non EU ports and increase the carbon footprint.”