Global initiatives to reduce greenhouse gas emissions are becoming inevitable, and businesses will no longer be able to ignore them without financial losses. Logistics companies are under double pressure: stricter regulations on the one hand and rising costs due to carbon pricing on the other.
Carbon taxes and restrictions are no longer the future — they are the present, determining who will stay in the market and who will be left behind. Let’s discover a clear strategy for adapting to new environmental standards so you do not risk losing competitiveness.
What regulations affect LSP?
EU Emissions Trading System (ETS): Key Takeaways
A central element of the EU's climate change policy is setting limits on overall greenhouse gas emissions and allowing companies to trade allowances for emissions from shipping, aviation, power plants, and industrial facilities.
Keys for LSPs:
- 100% of CO₂ emissions for flights within the EU.
- 50% of emissions for flights between the EU and non-EU regions are subject to payment.
- Compliance costs are rising — carbon prices are set to reach €100 per ton of CO₂ in 2023.
Medium-Sized Bulk Carrier:
- Emissions: Approximately 16,000 tonnes of CO₂ annually.
- EU ETS Costs: At a carbon price of €100 per tonne, the annual cost would be €1.6 million.
Data is based on a 10-year-old bulk vessel operating primarily between EU ports.
Carbon Border Adjustment Mechanism (CBAM)
An import tax on emissions applied to steel, aluminum, cement, fertilizers, and electricity into the EU.
Keys for LSPs:
- CBAM certification linked to the EU ETS prices will have to be obtained by the importers.
- Costs are going up for non-EU suppliers, especially those depending on high-carbon production.
Cement Imports from Turkey:
- Carbon Intensity: Turkish cement production has an average carbon intensity of about 0.8 tonnes of CO₂ per tonne of cement.
- CBAM Surcharge: With an EU ETS price of €75 per tonne CO₂, the CBAM surcharge would be €60 per tonne of cement (0.8 tonnes CO₂ × €75).
- Impact: This additional cost could reduce the competitiveness of Turkish cement in the EU market, potentially leading to a decrease in imports.
Singapore's Carbon Tax: A Blueprint for Asia-Pacific
- Ramps up from S$5 to S$50-80 per tonne CO2 by 2030.
- Affects port operations and raises costs for maritime freight moving through Singapore.
Port Facilities Increase Operational Costs:
- Example: The airport terminal has immense electricity consumption in Singapore, which contributes hugely to CO₂ emission.
- Impact: As the carbon tax will increase from S$5 to S$50-S$80 per tonne of CO₂ by 2030, these facilities will have to bear markedly increased operational costs.
- Consequence: In light of this, ports may charge higher fees for docking and handling, thus increasing the overall shipping price.
Higher Bunker Fuel Prices:
- Example: In Singapore, bunker fuels are theoretically in the purview of the national carbon tax, which intends to uniformly cover all sectors.
- Impact: When the tax rises, the bunker suppliers will likely transfer their cost burden from rising taxation by raising the bunker fuel prices directed at shipping companies.
- Consequence: The shipping rates will be directly pegged to such increased cost of fuel for transportation.
Low-Carbon Shipping Incentives:
- Example: Fee cuts are offered for vessels using low- or zero-carbon fuels as part of the Maritime Singapore Green Initiative operated by Singapore's Maritime and Port Authority (MPA).
- Impact: The tax burden due to the adoption of cleaner energy sources will be offset partially by lower port taxes that the ships pay.
- Consequence: The incentive will encourage shipping companies to be proactive in investing in green technologies that align with the global decarbonizing agenda.
California’s Cap-and-Trade Program
Includes transportation fuels, making diesel and gas costs livelier for freight operators.
- Effect of fuel cost increases per gallon: The program increases retail gasoline prices in California by roughly $0.27 per gallon.
- Impact on Freight Operators: The freight companies incur enormous fuel costs because diesel prices are similarly affected, eventually leading to a significant impact on the overall operating cost.
- Forecasted Increases in Fuel Price over Long Term: Analysis also proves that, by 2030, the combined effects of all California environmental programs, including Cap-and-Trade and the Low Carbon Fuel Standard will lead to an increase in prices per gallon of gasoline and diesel from $0.89-$2.10.
- Implication for Freight Costs: These incalculable increases in fuel rates will also increase freight rates to a corresponding level as the operators transfer their cost burden to consumers.
Strategies for LSPs
Shipping routes optimization
- Use ETS-exempt transshipment hubs to reduce direct exposure to the EU ETS.
- Shift from road to multimodal rail + sea to reduce emissions and consumption of fuel.
- Reassess scheduling to integrate lower-emission traffic.
Green partnerships
- LSPs should engage shippers in agreed sustainable aspirations to achieve more equitable cost-sharing and broader transparency.
- Green freight looks expensive to most of the offers from mainstream shippers for those who could afford us.
- Make long-term contracts that have fuel & carbon efficiency goals built-in solid.
- Give clear emissions tracking so that the customer can match with his own carbon reduction goals.
Low-emission vessel networks
- The methanol-powered Maersk’s vessels can reduce emissions by as much as 95%
- CMA CGM's LNG-powered fleet reduces CO₂ emissions by 20-30%
- Battery-electric short-sea shipping is emerging as a zero-emission alternative
Pairing with low-emission carriers can significantly contribute to reducing long-term freight charges while ensuring compliance with the changing carbon regulatory framework.
Low-carbon technologies investing
- Integrating alternative fuels and digital optimization tools can bring down emissions and compliance spending with the tools.
- Adopt biofuels, hydrogen, and LNG
- Scale up electric & hybrid last-mile logistics and urban freight
- Tools for freight planning and loading efficiency
Do not lose your profit and cut carbon costs
Try the Carbon Emissions Calculator now to fully maintain sustainability practices in your supply chain. With such a high level of ecology maintenance, you can:
- Correctly calculate CO₂ emissions based on your shipment distances, transport modes, and the weights of cargo;
- Support multimodal transportation (sea, air, road, rail) for the utmost green and economical routes;
- Compare and apply for low-carbon alternatives in your supply chain;
- Stay tuned with current carbon taxation policies (EU ETS, CBAM, and worldwide carbon taxes) that are consistently adhered to reduce financial risks;
- Make detailed emission reports;
- Enhance transparency through sharing carbon footprint insights with customers and partners to support greener freight networking globally.
Find out more about CO2 Calculator web integration and API connection to keep pace with global sustainable freight practices
How to make your logistics greener easily, transparently, and digitally? Contact the SeaRates team at [email protected] for customized logistics solutions.
