Tuesday, October 03, 2023

McKee Administration Releases Plan Recommendations for Offshore Wind Jobs

[By: Rhode Island Commerce]

Building on more than a decade of leadership in the fast-growing offshore wind industry, the McKee Administration today released details on the development of Rhode Island’s strategic plan to further develop the state’s offshore wind supply chain.

Prepared by Providence-based consulting firm OSWind Partners in conjunction with the Rhode Island Commerce Corporation (Commerce), Rhode Island’s “Strategic Plan for Offshore Wind Jobs and Investment” was developed following an extensive review of global industry demands and current and upcoming U.S. offshore wind projects, as well as an audit of Rhode Island’s existing offshore wind supply chain, physical assets, workforce development programs and more. The goal of this strategic plan is to integrate stakeholders at every level of the industry to create opportunities for Rhode Island companies and workers to significantly contribute on offshore wind projects in development along the east coast.

“Rhode Island has proudly served at the forefront of this exciting, job-creating sector for more than a decade, and we have the tools, infrastructure, and workforce we need to build on this momentum in the future,” said Rhode Island Governor Dan McKee. “This strategic plan provides a path to amplify the deep Rhode Island offshore wind resources and coordinate groups across the state to provide industry solutions throughout the wind farm lifecycle.”

The release of the early, core recommendations of this strategic plan comes as Rhode Island Energy, the state’s leading energy utility, prepares to issue a Request for Proposals to solicit approximately 1,200 megawatts of new offshore wind power to strengthen New England’s regional grid and help Rhode Island advance its clean energy goals.

“Developing clean energy sources is of paramount importance, not only for environmental reasons, but for economic and social reasons as we work towards a more sustainable and prosperous future,” said Rhode Island Commerce Secretary Liz Tanner. “We look forward to continuing to work with our colleagues and partners across the offshore wind industry as we implement this strategic plan in a way that creates jobs and opportunities for Rhode Islanders.”

The strategic plan includes six core recommendations:

Cluster Development: Aim to amplify the state’s industry strengths and create connections between locally based businesses, specifically targeting companies specializing in Permitting and Ocean Science, Logistics, Operations & Maintenance, and Precision Manufacturing.
Education Awareness: Take proactive steps to engage local companies that have the capability and capacity to contribute to the offshore wind supply chain and connect them with opportunities up and down the east coast.
Coordination: Ensure that all developers, manufacturers and top-tier offshore wind companies are aware of and can easily access Rhode Island’s assets, resources and talent as they embark on new projects and look for best in class solutions and partnerships.
Opportunity Awareness System: Invest in a new, web-based portal through which contractors can easily find, evaluate and engage with Rhode Island companies to support project workflows at all phases of a wind farm life cycle.
Regional Leadership: Work with neighboring states to share resources and best practices to create efficiency and cost savings as new projects are approved and constructed.
Communications: Clearly communicate Rhode Island’s offshore wind strengths both internally and externally to build the state’s ecosystem and respond to the changing demands of the industry.

An executive summary of Rhode Island’s Strategic Plan for Offshore Wind Jobs and Investment is available online by clicking here. Commerce is planning regular meetings with industry stakeholders with the goal of finalizing an implementation timeline in the coming months.

The products and services herein described in this press release are not endorsed by The Maritime Executive.

Defects Delay Startup of Japan’s First Floating Offshore Wind Farm

The Japanese consortium Goto Wind Farm LLC has temporarily delayed commissioning of the Goto offshore wind farm in Southwest Japan. The project is Japan’s first floating wind farm and was initially scheduled for January 2024.

However, discovery of defects in a floating structure has necessitated rescheduling for January 2026, according Toda Corporation, which is leading the project’s construction operations.

“An application was filed to revise the project’s public occupancy plan, which was approved by the national government (Ministry of Economy, Trade and Industry and Ministry of Land& Infrastructure) on September 22, 2023,” said Toda in a press statement.

Toda first discovered the defects back in May in two floating structures while under construction at an onshore yard. Subsequent investigations confirmed the structural problems and corrective measures are ongoing.

Additionally, Toda has also promised it will conduct inspections of a floating structure already installed off the coast of Sakiyama to verify the existence of defects. One of the three floating structures installed off the coast of Sakiyama will be landed on the yard in Fukue Port where the integrity of the floating structure will be verified. Based on the results, Toda plans to decide whether to inspect the remaining two floating structures.

Goto floating offshore wind farm is expected to have a 16.8 MW generation capacity. It will feature eight Hitachi 2.1 MW wind turbines installed on spar-type, three-point mooring floating foundations. (Norwegian oil company Equinor has transitioned away from a proprietary spar-type foundations in favor of a triangular platform design, which has less complexity.)

The Goto Floating Wind Farm LLC Consortium was awarded the tender for the project in June 2021. It happened during Japan’s first offshore wind auction since the country’s Renewable Sea Area Utilization Law came into power in 2019.

According to the Japan Wind Power Association, Japan has potential to generate around 90 GW of offshore wind energy. Most of this offshore wind capacity would have to come from floating wind farms, as Japan’s vast coastline is characterized by deep coastal waters.

New Floating Wind Platform Leverages Offshore O&G Construction Methods

The California-based offshore wind tech firm Principle Power has come up with a new design for a floating offshore wind platform, and this one draws more than ever before on the methods of the offshore oil and gas industry.

Most floating offshore wind systems have roughly the same layout: a triangular steel base with cylindrical sections at the corners, reinforced with diagonal steel pipe sections in between. Principle Power's initial designs were emblematic of this layout and have been installed at four sites around the world. But drawing on lessons-learned from these projects, Principle Power has redesigned its platform base for easier mass production and deployment.

The new "Windfloat F" design has pontoons and hexagonal columns, like a modern semisubmersible drill rig. It is built out of flat panel sections, which are easier to make on automated fabrication lines, and designed with block subcomponent construction in mind. This is within the capability of second-tier shipyards, and much of the fabrication can be done indoors, year-round. These construction methods are also familiar to offshore shipbuilders, who have used the same techniques for decades for building offshore oil and gas infrastructure.

Operationally, the new design also has benefits during deployment. The pontoons add enough buoyancy that the columns can be designed with a smaller diameter, opening up different options for building, moving and assembling them.

The design also reduces the water depth required alongside the pier during wind turbine integration. With pontoons, the Windfloat F only draws 30 feet when loaded, allowing developers to consider a broader range of seaports to support the initial construction and installation phase of the windfarm.

"The new product portfolio, together with our industrialization strategy, is an entirely new way of thinking about efficiency and scale. It’s our vision for a planet powered by floating wind," said Aaron Smith, Chief Commercial Officer for Principle Power.

Green Fuels in Shipping Face Major Challenges for 2050 Net Zero Target

Ships carry around 90% of traded goods and emit about 3% of global CO?. The International Maritime Organization (IMO), the UN agency responsible for regulating shipping, recently set out plans for this industry to reach net zero emissions by 2050.

Like their ancient forebears, modern vessels can be partially propelled by wind. Indeed, a British cargo ship recently took its maiden voyage using sails made from the same material as wind turbines.

This can reduce a ship’s lifetime emissions, but wind’s ability to power the global shipping fleet is limited by propeller systems, which only provide up to 30% of the energy vessels need to navigate – and even less in poor weather. Wind propellers might assist cargo ships but are unlikely to fully replace fuel engines. What the shipping industry needs is to swap oil for alternative green fuels.

The shipping industry faces great challenges in making this shift to fuels such as ammonia, hydrogen and methanol. While a few companies like Maersk have begun to test them, converting the entire industry will require ramping up renewable energy, creating new globe-spanning fuel distribution networks, overhauling regulatory frameworks and building ship engines that can burn green fuels.

Some of these steps are underway, yet much more remains to be done.

What makes shipping fuel green?

Green hydrogen is produced by splitting water into hydrogen and oxygen using electricity generated by wind, solar or other renewable sources. Green ammonia is formed by combining nitrogen from the air and green hydrogen through a process called Haber-Bosch.

Green methanol is either generated by heating plant or other organic waste to create a gas that can then be converted into bio-methanol, or by combining green hydrogen and captured CO? to make e-methanol.

When assessing how green a fuel really is, not only are the emissions created by burning it in the ship’s engine important, but also, the emissions from extracting, producing, transporting and storing it.

This lifecycle assessment of emissions is called “well-to-wake”. In the same way an electric car is not zero-carbon if its power is generated using fossil fuels, nor is a ship using ammonia or methanol produced by burning natural gas.

This assessment demands that the three fuels be generated using only renewable energy. That alone will require enormous investment. According to a study undertaken by the International Chamber of Shipping in 2022, the shipping industry will require up to 3,000 terawatt-hours (TWh) of renewable electricity a year, which almost equals the current global total of wind and solar electricity output (about 3,444 TWh).

This output must be ramped up as other industries, such as steel and cement, will also need zero-emission energy by 2050. In fact, up to US$1.9 trillion (£1.5 trillion) must be invested to fully decarbonise shipping, with over half of that needed to make green hydrogen, which is also essential for producing green methanol and ammonia.

Ships with compatible engines needed…

Vessels that run on oil and diesel cannot simply switch to burning green fuels. The world’s fleet of around 61,000 ships will need to be upgraded or replaced before 2050.

Retrofitting can allow existing vessels to run on methanol and ammonia, but it costs between US$5 million and US$15 million a ship depending on the fuel. Older vessels are likely to reach the end of their service before this investment is paid off and the onerous cost is the same even for smaller ships.

Ships capable of burning both methanol and methane are already being ordered by container shipping lines such as Maersk, Evergreen, CMA CGM and COSCO. Maersk has received its first dual-fuel vessel which burns green methanol and fuel oil, and sailed from South Korea to Denmark with cargo in August 2023.

The first ammonia-ready vessel, Kriti Future, is already sailing the ocean, though it isn’t burning ammonia yet. Vessels powered by hydrogen fuel cells lag behind the other two fuels, yet MSC cruises have ordered two hydrogen-ready vessels for 2028.

While these vessel orders inspire a sense of optimism about decarbonisation, they only account for a very small percentage of the global fleet.

…and so are safety regulations

A lack of safety regulations is partly responsible for the slow uptake of alternative fuels.

Although the International Energy Agency predicts green ammonia will be the most widely used fuel in 2050, shipping companies have placed more orders for vessels powered by methanol and methane. This is partly because the IMO has issued safety regulations for methanol as fuel, but not ammonia and hydrogen, which has cast doubt on their future among shipowners.

For green fuels to be widely adopted they must be at ports worldwide, but none are widely available. There are about 120 ports capable of storing and delivering methanol, but not enough green methanol. Where this fuel is available it’s often secured by private arrangements between a few large shipowners and methanol producers.

According to the Green Methanol Institute, about 0.7 million tonnes of green methanol could be produced globally by the end of 2023. Production capacity is projected to reach 8 million tonnes a year by 2027. But the global shipping industry requires 550 million tonnes by 2050 to replace oil.

There may not be enough farm and food waste to decarbonise all sectors of the global economy. And so the production of fuels from renewable electricity must increase.

Lots to build

Rolling out green fuels will also require building pipelines, storage tanks and port refuelling stations. Green hydrogen in particular, the key ingredient for other fuels, will need a large investment as it must be stored in special containers at around −253°C.

The shipping industry has not decided on its fuel of the future. But more than one is necessary considering the limited supply of renewable energy.

The good news is that decarbonising international shipping will benefit more than this vital industry by expediting renewable energy investments and helping sun-rich emerging economies flourish with the chance to make lots of cost-effective green hydrogen.

Gokcay Balci is Assistant Professor in Logistics and Supply Chain at University of Bradford.

Ebru Surucu-Balci is Assistant Professor in Circular Supply Chains at University of Bradford.

This article appears courtesy of The Conversation and may be found in its original form here.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.

Sri Lanka's Compensation for X-Press Pearl Disaster Rises to $8M

X-Press Pearl burned out off Colombo — Sri Lankan Navy file image

Sri Lanka has confirmed receiving further compensation for pollution from the lost container ship X-Press Pearl, which burned and sunk off Colombo in 2021. Speaking to local media over the weekend, Sri Lankan Minister of Justice Wijeyadasa Rajapakshe said the interim payment made by the vessel’s insurers would help to cover beach cleanup activities and compensate fishermen affected by the disaster.

“Sri Lanka Treasury has received $890,000 and 16 million Sri Lankan rupees (around $49,200 dollars) as interim payment for costs incurred by the Maritime Environment Protection Authority (MEPA) and for the affected fisherfolks,” the Minister said.

Since the disaster happened, Sri Lanka has received payments totaling $7.85 million. Its government received the first payment of $3.6 million in July 2021. Another $1.75 million followed in January 2022, and a third payment of $2.5 million arrived in September.

Sri Lanka initially filed for a compensation claim of $40 million shortly after the vessel sank off Colombo in June 2021. However, a 40-member expert committee convened by MEPA put the price of the environmental disaster at $6.4 billion in an interim report early this year.

On April 25, Sri Lanka announced that it had formally filed legal action before Singapore’s International Commercial Courts (SICC) to claim compensation for the massive environmental damage. At the time of the disaster, X-Press Pearl was registered in Singapore and operated by the container line X-Press Feeders.

The choice of filing suit in Singapore was controversial, as a Singaporean court could limit the total liability of the shipowner to the value of the vessel, about $14 million. If the suit had been filed in Sri Lankan courts, national environmental-protection laws would have applied, and the potential damage claim could have been higher.

In July, a nine-member Sri Lankan delegation led by the Attorney General held meetings in Singapore with lawyers representing X-Press Pearl’s owners and insurers. The discussions centered on compensation claims and expedient removal of the fore section of the vessel’s wreck, which is still submerged offshore Sri Lanka.

X-Press Pearl was carrying 1,486 containers when it caught fire, with eighty-one of those containers labeled hazardous. Some of the cargo included nitric acid, which is blamed as a possible factor for the fire. Over 50 billion plastic pellets that were also onboard leaked, contributing to what has come to be known as the worst marine plastic pollution event in the world.

Salvage of Fire-Damaged Fremantle Highway Car Carrier Moves to Rotterdam

The next phase of the salvage operation for the fire-damaged car carrier Fremantle Highway is now underway. Regulators are continuing their investigation to determine the cause of the fire that destroyed or damaged as many as 2,800 vehicles and the top decks of the vessel while a plan for her salvage is also being prepared.

In a rather unusual move, KOOLE Contractors, an international industrial and maritime service company based in the Netherlands that specializes in industrial demolition, remediation, wreck removal, and maritime construction, has taken control of the Fremantle Highway. KOOLE also gained visibility recently as the company carried out the salvage and removal of the wreck of the OS 35 bulker that sunk off Gibraltar. They recently completed the transfer of the two sections of the wreck from Gibraltar to the Netherlands where it will undergo green recycling.

KOOLE reportedly made an agreement with the Japanese owners of the Fremantle Highway taking ownership and overseeing the second stage of the salvage efforts. They have formed a team that is carrying out structural inspections to determine which sections of the ship need to be removed and replaced due to the fire. Reports are that sections of the structure from decks 5 to 12 were weakened by the extreme heat of the fire but that the lower decks and machinery spaces were undamaged.

As part of developing the plan for the Fremantle Highway, the team from KOOLE also plans to further inspect the tanks to determine what remains aboard the ship. Media reports from the Netherlands indicate that the teams are also surveying the remaining damaged vehicles and they expect to make a plan to continue to remove debris from the vessel.

(MULLER Dordrecht photo)

After the hulk was towed into Eemshaven as a port of refuge as designated by the Ministry of Infrastructure and Water Management, SMIT and Multraship undertook the initial salvage operation. They removed as many as 1,000 undamaged cars from the lower decks as well as vehicles that had experienced fire damage but were structurally intact. Additional debris in the form of cars that melted into the upper decks remains aboard the ship. The companies reported at the beginning of September that they had handed the ship back to its owners.

Shoei Kisen Kaisha, a subsidiary of the Japanese shipyard Imabari, which built the ship in 2013, was the commercial manager of the Fremantle Highway. The ship was operated under charter by K-Line, while Wallem Shipmanagement was the technical manager. Under the agreement. KOOLE is preparing the salvage plan which will likely remove the damaged portions of the superstructure and prepare the ship for the next phase. KOOLE will handle the resale of the vessel with the new owners undertaking any reconstruction.

KOOLE has rented a dock from Damen Shiprepair in Rotterdam where the next phase of the survey work is underway. The vessel was towed from Eemshaven on September 21 by three tugs and arrived two days later in Rotterdam. The vessel needed to be moved from the pier in Eemshaven which has been rented as of mid-October to a cruise ship.

Teams from the Port of Rotterdam and DCMR Environmental Service Rijnmond, the environmental service of the province of South Holland and thirteen municipalities in the Rijnmond region, boarded the vessel to undertake an initial inspection after it reached Rotterdam. They have given environmental clearance and a plan is now being developed for the next phase of the salvage operation. KOOLE will submit its plans to the Dutch regulators for approval and media reports are that the vessel could enter a dry dock at Damen Shipyards Botlek in early October.

More Bulkers Heading to Ukraine Helping to Lower Shipping Costs

Chinese bulker — Chinese-owned bulker is the largest to return to Ukraine under the new program (Oleksandr Kubrakov/X)

Additional vessels from a broader range of shipping companies are beginning to use Ukraine’s humanitarian shipping corridor. While volumes remain only a fraction of the amount of exports during the year-long Black Sea agreement, it still demonstrates the success of restoring grain exports and expanding the operations to include iron ore.

Ukraine’s Vice Prime Minister Oleksandr Kubrakov again went on to social media today to hail the movement of a total of eight bulkers, including five additional inbound vessels. He reported that the eight vessels would be transporting more than 247,000 tons of agricultural products as well as iron ore from the ports of Chornomorsk and Yuzhnyi.

The three vessels that departed Ukraine on Sunday, October 1, had however been in port for nearly 10 days showing the slower pace of the operations. The Azara (13,898 dwt registered in Palau), the Eneida (45,572 dwt registered in Liberia), and the Ying Hau 01 (74,759 dwt registered in Liberia) followed the now familiar route along the western coastline of the Black Sea moving quickly from Ukraine into Romanian waters. They arrived during the day on Monday, October 2, off Turkey apparently without intervention.

The inbound vessels are mostly smaller-sized bulkers but significantly include the first one managed from Greece as well as two managed by a German company through Singapore. The largest of the vessels is the 32,834 dwt bulker Forza Doria registered in Barbados coming from Libya to Chornomorsk. The Greek-managed Danny Boy (28,386 dwt registered in the Bahamas) is coming from Italy to the Odesa region. The other vessels include the Olga (18,319 dwt registered in Liberia) and the Ida (18,172 dwt registered in Liberia), both managed by Blumenthal Asia, part of Johann M K Blumenthal of Hamburg, Germany. The fifth vessel is the New Legacy (28,665 dwt registered in Belize) coming from Libya to Yuzhnyi. As a safety measure, the vessels appear to be turning off their AIS signal while sailing in the Black Sea but have now reached Ukraine.

With the support of insurance brokers who have been working to provide wartime coverage, the corridor seems to be gaining some momentum and having an impact on Ukraine’s exports. Reuters is quoting Ukraine’s farm minister reporting the success of the corridor. Mykola Solsky is quoted from an appearance on national television saying that freight costs are significantly lower now and likely to fall further.

Freight costs are reported to be down 30 to 40 percent in the last two weeks. While conceding it is still expensive Reuters quotes Solsky pointing out it is cheaper and expected to continue to decline.

Ukraine is expected to harvest 70 million tons of grain and oilseed in 2023 according to Reuters. These products make up a large portion of the country’s exports and are a significant contributor to the economy as well as supporting Ukraine’s farming communities.

Australia Bans Containership for Serious Maintenance Issues

The Australian Maritime Safety Authority issued its seventh ban against a ship in 2023 as they continue strict enforcement of safety and crew welfare protocols with an increased focus on maintenance issues. They noted that it is the third ban issued this year specifically for maintenance issues and it comes despite a warning to ship operators a year ago and with the management in this instance failing to heed a prior warning.

The vessel is the Big Lilly, a Marshall Islands registered small containership. Built 24 years ago in 1999, the vessel has changed ownership many times, the last being in May 2022. She is 23,000 dwt with a capacity of 1,730 TEU.

“There is no excuse for not maintaining your vessel,” said Michael Drake, Executive Director of AMSA. “It is difficult for the crews of vessels like the Big Lilly to improve the condition of the vessel when operating on such a tight schedule. Operators of vessels must understand that maintaining their vessels is their responsibility and failing to do so can result in serious consequences, which may endanger lives and impact the Australian coastline.”

In this case, the vessel arrived in Melbourne where it was detained after an inspection by AMSA. The Port State Control (PSC) inspection identified serious defects with the watertight integrity of the ship’s cargo hatches including holes and metal wastage, as well as issues with the main engine, and safety equipment. AMSA documented an oil leak in the engine room as well as unapproved modifications.

This is the second time the Big Lilly has been detained this year AMSA highlights, noting in May the identification of 23 serious deficiencies, seven of which warranted detention. These included issues of fire safety maintenance, issues with the propulsion main engine, and the sewage system.

AMSA notes that the June detention ended with an agreed rectification action plan from the operator. However, they found this time that despite the crew’s efforts at maintenance “they appeared to have insufficient support from the ship’s management to ensure it met minimum international standards.” As a result, the vessel is now banned from Australian ports and waters for 90 days. It is currently sailing for Shanghai. The vessel has a long list of identified problems on prior port inspections between 2013 and 2018 under previous owners.

“V Ships Greece did not take the opportunity other operators in the same situation had, to bring the vessel up to the standards required," said Drake. In July 2023, AMSA put V Ships Greece on a watch list meaning its vessels could be inspected every three months. They are one of 16 ship operators that AMSA currently has warned that they will receive increased inspections due to a prior record of issues with their vessels.

“The ship's operator, V Ships Greece, has a poor record recently, with a detention rate of 16 percent compared to six percent for all foreign vessels,” reports AMSA. “They were identified as a poor performing operator after the first detention of the Big Lilly in June 2023. The identification as a poor performer puts the company on notice to take positive steps to bring their ships into compliance.”

In October 2022, AMSA issued a notice warning that during Port State Control inspections, it would place a greater focus on planned maintenance of propulsion and auxiliary equipment and associated systems and would take necessary compliance actions to address any identified areas of concern. They said that recent incidents had demonstrated the potentially serious consequences of a lack of effective maintenance of main engines and power generation systems.

Two Top Execs at South Africa's Port and Rail Operator Resign

Transnet train on the iron ore corridor (file image courtesy JBDodone / CC BY-NC 2.0 Deed)

The CEO and CFO of South African state logistics company Transnet resigned last Friday. The departure of Transnet’s CEO Portia Derby was a culmination of pressure from business and labor groups, which have expressed concern over a deepening operational crisis at the company.

One of the major pain points for Transnet has been with its rail management division. Shortages of freight trains and destruction of railway infrastructure have resulted in massive disruptions, especially for the iron ore industry, which relies on rail to deliver its product to seaports.

According to recent data by the lobby group Minerals Council of South Africa, the country’s mining output has fallen to below pre-pandemic levels with electricity outages and rail disruptions cited as the leading causes. Mining output and sales for the 12 months to May 2023 were down by an average of four percent year-on-year.

These problems saw Transnet declare an annual loss of $302 million in the 2022/23 financial year. Transnet said the financial year was challenging with cable theft and vandalism of railway infrastructure reaching “crisis levels.”. Operational inefficiencies have also become common especially at Durban, South Africa’s largest container port. Trucks congestion at the entrances of major ports is now a huge barrier to movement of goods.

Displeased with Transnet services, the Durban Chamber of Commerce recently wrote to the Public Enterprises Minister Pravin Gordhan requesting the resignation of the company’s senior management team.

“We would like to bring to your attention our concern regarding the current CEO and her executive team. The business community of e eThekwini has reached a point where we can no longer tolerate poor service delivery at the Port of Durban,” wrote the Chamber.

In the wake of Portia Derby’s resignation, Transnet Group said Michelle Phillips - currently the head of Transnet Pipelines - would take over as the acting CEO. In addition, Transnet’s chief financial officer Nonkululeko Dlamini also departed, taking up the same position at South Africa’s telecommunications company Telkom.

President Cyril Ramaphosa appointed Portia Derby in 2020 to head Transnet, filling a position which had remained vacant for almost two years. In 2018, Transnet fired its former CEO, Siyabonga Gama, for what the board described as “serious violations of his financial, procurement and fiduciary responsibilities.” Gama has denied the allegations.

Top image: Transnet train on the iron ore corridor (file image courtesy JBDodone / CC BY-NC 2.0 Deed)

EU Carbon Tax Could Have a Significant Impact on Global Trade

On Sunday, the EU and the world’s first carbon import tax came into force. Until 2026, it will be in a transitional phase allowing stakeholders to collect useful information to refine the methodology for the levy’s definitive period, which follows thereafter.

The EU’s Carbon Border Adjustment Mechanism (CBAM) is a central pillar of the bloc’s Fit for 55 policy. It uses the amount of CO2 emitted during production of carbon-intensive products - steel, fertilizer and aluminum - to calculate the levy.

According to EU’s Commissioner for Economy, CBAM has two goals: to encourage industry worldwide to embrace greener technologies; and to prevent carbon leakage, or the relocation of production outside EU borders to countries with lower environmental standards. Essentially, it will equalize the price of carbon between goods produced in the EU and imports.

However, questions linger to the kind of disruptions the CBAM will cause in shipment of goods in and out of Europe.

“It’s the first such system in the world and its effectiveness is yet to be tested. Nevertheless, it’s likely to have profound implications for international trade and geopolitical dynamics pertaining to carbon emissions, especially if other major economies adopt similar systems,” argues Boston Consulting Group’s Associate Director Tim Figures, an expert in EU trade and regulations.

One likely result when CBAM is fully implemented is that high-carbon producers outside the EU will become less competitive in the EU market. Further, EU’s multinationals - which are highly reliant on offshoring - may have to rethink their operations.

But CBAM’s sting will be felt most by the EU consumers as the producers are likely to pass on the price. For example, Spain imported 14.5 billion tons of steel in 2022, half of which came from outside the EU. Assuming an average carbon intensity of steel and the current EU carbon price, Spanish steel importers could face annual tariffs of some $1 billion when CBAM is fully enforced in 2034, according to a computation by the BCG.

The perceived impact of CBAM to other countries is also critical. India is reportedly planning its own carbon tax modelled along the lines of the EU’s CBAM, which would apply to exports going to the EU only. The goal is for India to collect the tax proceeds itself instead of sharing it with the EU, reported the Hindu Businessline newspaper.

A countervailing tax on imports coming into India from the EU is also on the table, with Indian government officials examining legality of such a measure with WTO (World Trade Organization) rules. From the outlook, the countervailing tax framework appears retaliatory to the EU’s CBAM and could cause friction if not well managed.

Meanwhile, Africa is another region that will be on the receiving end of CBAM. The EU accounts for 27% of Africa’s agriculture exports, 25% of fertilizer exports, 15% of iron and steel exports and 35% of energy exports. Overall, the CBAM is forecast to reduce the GDP of the continent by around one percent, representing a fall of $25 billion at 2021 levels of GDP, according to a report by the African Climate Foundation and Firoz Lalji Institute of London school of Economics and Political Science.

For effective implementation of CBAM, the EU has to engage its major trading partners to resolve the levy’s sticking points.

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