Climate-Change Activists are Targeting the Wrong Industry

Anger, panic and despair define environmentalism in 2019. Fridays for Future, the school strike that drove more than one million minors to participate in upwards of 2,000 protests in more than 125 countries according to its organizers, pilloried politicians and heaped scorn on businesses. They were both accused of having bloody hands vis-à-vis the imminent climate-death of Planet Earth.

Greta Thunberg, a 16-year-old Swedish national, stoked and channeled the rage of Generation Z, the generation following the Millennials. “Our leadership has failed us,” posted Thunberg on Twitter late last year. “Young people must hold older generations accountable for the mess they have created. We need to get angry and transform that anger into action.” The day after that post, at a TED talk in Stockholm, she articulated her salient demand – that the world as we know it has to be replaced by something radically different: “Everything needs to change. And it has to start today.”

Other groups, inspired by the school strikes, went further. In a grim witnessing of the souring mood, a network calling itself Extinction Rebellion, referring to a rebellion against the supposedly impending extinction of humanity, staged various so-called “die-ins,” akin to sit-ins with sitting replaced with, yes, pretending to be dead, and the goal of drawing attention to supposedly lethal environmental issues.

“The process of production is riddled with issues, from cotton mono-cultures and chemical byproducts to cargo ship fumes and dangerous work conditions,” said Simon Cullen, speaking for a branch of Extinction Rebellion that hosted such a “die-in” in Manchester in May.

Shipping in the Crosshairs

These and other environmental activists have worldwide shipping in their crosshairs – an unpleasant but hardly new situation for the industry. Extinction Rebellion staged a protest in May at the IMO in London over the industry’s CO₂ footprint. Spokesperson Liam Geary Baulch summarized the group’s ultimatum to the industry that carries 90 percent of global cargo: “It’s only our future at stake, so either the shipping industry can just keep rearranging the deck chairs … or they can tell the truth today and declare a climate and ecological emergency.”

But the story is far from as clean-cut as the activists would have us believe. According to a 2017 working paper from the U.N. Environment Programme-DTU partnership, to move a ton of cargo one kilometer on a modern 18,000-TEU container ship generates roughly three grams of CO₂. A truck doing the same would generate roughly 45 grams of CO₂ while an airplane (based on a commercially typical Boeing 747 cargo variant) would generate roughly 430 grams of CO₂.

Even trains, the favored mode of transport of Greta Thunberg, would generate more CO₂ than a large cargo ship: 18 grams. In other words, compared with other modes of transport we rely on, shipping is the greenest option by a wide margin.

Tackling a problem as gigantic as climate change requires the most effective approach possible, which means spending each dollar where it can have the maximum impact. It also means “spending” the public’s attention span where it would have the greatest benefit. It’s perhaps a bit simplistic, but so goes the cliché: “Without shipping, half the world would freeze and the other half would starve.”

If you assume that we still intend to move cargo around the world and if shipping is already the greenest mode of transit, then vilifying it – if bigger gains can be found elsewhere – is counterproductive.

From the perspective of climate activists, however, the crisis is so big that it warrants not leaving any stone unturned. They are, as stated in a 2019 study by the Institute for Public Policy Research, afraid of an “extreme environmental breakdown” that “could trigger [a] catastrophic breakdown of human systems, driving a rapid process of ‘runaway collapse’ in which economic, social and political shocks cascade through the globally linked system.”

In a scenario like that, where so much is at stake, anything generating any CO₂, even “green” shipping, must be challenged. Greta Thunberg means this when she says that “everything needs to change.” The U.N. Intergovernmental Panel on Climate Change (IPCC) added to the urgency by stating that to cap temperature growth to under 1.5 degrees Celsius, a total economic transformation would be needed – in the next twelve years.

“Plain Nonsense”

Vaclav Smil, an energy expert favored by Bill Gates, thinks that “claims of a rapid transition to a zero-carbon society are plain nonsense” – despite the wishes of climate activists. “Even a greatly accelerated shift towards renewables,” he cautions, “would not be able to relegate fossil fuels to minority contributors to the global energy supply anytime soon, certainly not by 2050.”

The world, in other words, remains heavily reliant on fossil fuels for its economic prosperity – which translates, ultimately, to the ability to provide food, shelter, clothing, medicine and consumer goods to 7.5 billion people.

In terms of stopping the worst CO₂ emissions, it’s a hard truth that the “low hanging fruit” can be picked in the developing world. It’s there that each dollar of spending on climate change has the biggest benefit. In rich countries, environmental standards are already high, so gains are marginal.

For example, Africa, Asia and the Middle East have a “carbon intensity” (meaning how much CO₂ is released relative to each dollar of GDP generated) that is almost triple that of Europe or North America, according to datasets from the U.N. Statistics Division. This means, in other words, that Africa, Asia and the Middle East could make quick, big reductions in CO₂ emissions. Bringing their “carbon intensity” in line with Europe or North America would be a huge boon to the climate. It would also be a lot easier than squeezing diminishing returns out of economies that are already highly streamlined.

Carbon Tax Impact

And yet, even if rich economies are scrutinized, shipping stands to benefit from many of the policy proposals currently up for debate. Austrian economist Sigrid Stagl sees a heavy CO₂ tax as a solution. “In Europe,” she said recently in an interview with an Austrian newspaper, “the price for a ton of CO₂ is just $20.” Sweden, she noted, charges $139 per ton of CO₂: “There is room to grow.“

She suggested that environmentally damaging behavior should be subject to a cost, as it is an externality: “If the market prices for products or services which hurt the climate do not reflect this fact, then the prices must be corrected through regulations. And that’s the end of it.”

Of course, given shipping’s relative efficiency for the service it provides – i.e., for how far it can move a ton of cargo – any carbon tax would hurt shipping’s competitors more. Trains would pay a carbon tax six times bigger while trucks would pay fifteen times as much versus ships (three grams of CO₂ per ton-kilometer vs. 18 grams of CO₂ per ton-kilometer vs. 45 grams of CO₂ per ton-kilometer, respectively). It may even be in the interest of the shipping industry, therefore, to wholeheartedly embrace such a policy idea.

Hapag-Lloyd’s CEO, Rolf Habben Jansen, says that along with new environmental rules, e.g., the ban on heavy sulfur fuel oil, passing along price increases to customers is unavoidable. If a carbon tax were to hit other modes of transport proportionately harder, as it ought to do if the goal is to accurately assess the CO₂-related impact, then shipping may be able to not only pass along a higher cost basis but even charge more relative to other industries by way of a kind of environmental arbitrage.

What would a proposed carbon tax look like, then, in practice, if we apply the $139 per ton of CO₂ price point used in Sweden and suggested by Stagl? Assuming a hypothetical cargo voyage comprising 500 kilometers (approximately the distance between Hamburg and Rotterdam), a ship would generate 1.5 kg of CO₂, a train would generate 9 kg of CO₂, a truck would generate 22.5 kg of CO₂ and an airplane would generate 215 kg of CO₂. This translates to a $0.21 carbon tax for the ship, a $1.26 carbon tax for the train, a $3.15 carbon tax for the truck and a $30.10 carbon tax for the airplane.

Unintended Consequences

When dealing with large cargo movements, those small differences add up. If nothing else, shipping could raise its pricing into the gap as the cost of train and truck transit rises accordingly. Thus, what is bad policy – namely, trying to squeeze more carbon efficiency into already advanced economies – may end up paradoxically being very good business for shipowners, especially those with fleets comprising modern ships or those deeply invested in lower-CO₂ technologies like LNG.

This would also provide an avenue for shipowners to monetize their compliance with MARPOL Annex VI, Resolution MEPC.278(70), which requires ships 5,000 gross tons or greater to collect consumption data for each fuel type used in order to calculate their carbon footprints. If this data is already available, a carbon tax would not present a further compliance burden while, at the same time, establishing a competitive advantage for shipping against road, rail and air.

To move 90 percent of global freight and generate three percent or less of global CO₂ emissions is an accomplishment and shows how much value the shipping industry adds to global prosperity at a relatively small cost. Even though shipping is presently a target for climate activists, it would be fitting if their efforts ended up yielding a result that greatly benefits the sector – by financially rewarding shipowners.

And short of tearing down and rebuilding the global economy, a goal that is unrealistic, climate activists should ironically be delighted to save CO₂ by moving as much cargo “over the railing” as possible.