EU set to include shipping in Emissions Trading Scheme
From a regulatory perspective, emissions from international transportation are not included in countries’ nationally determined contributions (NDCs) under the Paris Agreement.
Regulatory pressure is still being brought to bear (the EU’s economy-wide Net Zero strategy, which covers all industries, is just one example) but to date, aviation and shipping have not faced the sort of global policy focus that has been applied to, say, cars.
Looking ahead, shipping is set to be included in the EU’s Emission Trading Scheme (meaning carbon permits will be required for voyages in EU waters), while the International Maritime Organisation – the UN body that regulates shipping – has pledged that by 2050 the industry’s emissions will be half their 2008 levels.
ICAO releases breakthrough Net Zero goal
In October 2022 there was a breakthrough in aviation, with the International Civil Aviation Organisation (ICAO, another UN body, although one established to encourage cooperation between countries rather than regulate the industry) announcing an “aspirational” Net Zero goal by 2050. The plan was accepted by all 193 ICAO member nations (although critics again point to carbon pricing as the missing piece of the puzzle).
Lenders are providing a further incentive to accelerate decarbonisation, with their increasingly stringent ESG criteria encouraging the industry to improve its environmental performance. The focus on Scope III emissions is also leading cargo operators to demand more from their transportation partners.
These drivers – along with financial backing from governments and regulatory reforms – will encourage more private investment in clean fuel production and next-generation technologies, in turn helping to create economies of scale that will lower costs. The question, though, is whether this will happen fast enough to keep pace with global Net Zero pathways.
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