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Mar 25, 2020
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Lockton Edge
Edge
Norway

Emerging Geopolitical Threats from Covid-19

The European Union’s Emissions Trading System (EU ETS) was extended to cover emissions from shipping as of 1st January 2024.

The EU ETS is limited by a 'cap' on the number of emission allowances. Within the cap, companies receive or buy emission allowances, which they can trade as needed. The cap decreases every year, ensuring that total emissions fall.

Each allowance gives the holder the right to emit:

  • One tonne of carbon dioxide (CO2), or;
  • The equivalent amount of other powerful greenhouse gases, nitrous oxide (N2O) and perfluorocarbons (PFCs).
  • The price of one ton of CO2 allowance under the EU ETS has fluctuated between EUR 60 and almost EUR 100 in the past two years. The total cost of emissions will vary based on the cost of the allowance at the time of purchase, the vessel’s emissions profile and the total volume of voyages performed within the EU ETS area. The below is for illustration purposes:
  • ~A 30.000 GT passenger ship has total emissions of 20.000 tonnes in a reporting year, of which 9.000 are within the EU, 7.000 at berth within the EU and 4.000 are between the EU and an outside port. The average price of the allowance is EUR 75 per tonne. The total cost would be as follows:
  • ~~9.000 * EUR 75 = EUR 675.000
  • ~~7.000 * EUR 75 = EUR 525.000
  • ~~4.000 * EUR 75 * 50% = EUR 150.000
  • ~~Total = EUR 1.350.000 (of which 40% is payable in 2024)
  • For 2024, a 60% rebate is admitted to the vessels involved. However, this is reduced to 30% in 2025, before payment is due for 100% with effect from 2026.
  • Emissions reporting is done for each individual ship, where the ship submits their data to a verifier (such as a class society) which in turns allows the shipowner to issue a verified company emissions report. This report is then submitted to the administering authority, and it is this data that informs what emission allowances need to be surrendered to the authority.
  • The sanctions for non- compliance are severe, and in the case of a ship that has failed to comply with the monitoring and reporting obligations for two or more consecutive reporting periods, and where other enforcement measures have failed to ensure compliance, the competent authority of an EEA port of entry may issue an expulsion order. Where such a ship flies the flag of an EEA country and enters or is found in one of its ports, the country concerned will, after giving the opportunity to the company concerned to submit its observations, detain the ship until the company fulfils its monitoring and reporting obligations.
  • Per the EU’s Implementing Regulation, it is the Shipowner who remains ultimately responsible for complying with the EU ETS system.

There are a number of great resources on the regulatory and practical aspects of the system – none better than the EU’s own:

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02003L0087-20230605

https://climate.ec.europa.eu/eu-action/transport/reducing-emissions-shipping-sector_en

https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/what-eu-ets_en

Dryad Global has said that Covid-19 will be “the defining threat trend of the year”, and that it will shape commercial and security trends within shipping, both this year and in the future. Dryad said it was key that vessels, vessel owners and the maritime community relied on “clear-headed, data-driven and reliable solutions”, which would facilitate economic activity within this new reality.

Emerging Threats: Piracy & Maritime Crime
West Africa remained particularly vulnerable to rises in piracy, partly driven by a lack of effective mitigation strategies, and co-ordinated security responses to piracy and maritime crime remain embryonic across the region. Should Covid-19 spread throughout sub-Saharan Africa, overwhelming healthcare systems and becoming most states main priority – a scenario which Dryad saw as likely – efforts to mitigate regional maritime crime in West Africa would probably be neglected. Therefore it was unlikely there would be a decrease in the number of piracy incidents. Indeed, a partial increase was “eminently possible”.

Dryad said that it currently assessed the likely impact of Covid-19 on piracy in the Indian Ocean as minimal. While there had been an increase in the number of reported incidents in the Gulf of Aden in 2020, none of these incidents had been confirmed as acts of piracy. The spread of Covid-19 throughout the key risk areas in the Indian Ocean was unlikely to alter events or the security picture to ay great degree in the short- to medium-term.

The economic impact of COVID-19 on areas such as the Gulf of Guinea, Gulf of Aden, Red Sea, Gulf of Oman and the Malacca Strait, where black market activity had been observed in the past were likely to see an increase in illicit maritime trading. “The scale of Covid-19 infection in global maritime crime hotspots will likely determine the degree to which current social economic problems are exacerbated by the crisis. Where there is evidence of longer-term economic impact then it is likely that there will be an increase in incidents”, said Dryad.

Emerging geopolitical threats
The spread of Covid-19 was likely to result in the recontextualization of the operational threat profile, said Dryad. With nation states focusing on their own internal affairs, it was likely that current geopolitical threats would fade for the time being. That did not mean that the overall threat to vessels and personnel would reduce or disappear.

Operational security could be negatively impacted by reductions in monitoring and enforcement capabilities, as organizations struggled to maintain deployment commitments. Dryad had a particular comment to make about Iran, concluding that “Were a stage reached where the viability of Iran as a state and the preservation of the regime was in question, the risks of localized but significant incidents could increase sharply”. However, as in the past, any action by Iran would likely be preceded by a plethora of indicators and warnings, underscoring the need for accurate reporting.

Libya is vulnerable to the spread of disease as the nation and its healthcare system has been weakened by the ongoing conflict, said Dryad, adding that “if Covid-19 significantly spreads in Libya, then it is likely a reduction in fighting would be seen as manpower on both sides is degraded”. However, any spread of the virus would likely result in little change in the fault lines of the conflict, as both sides would fall back to their centres of gravity.

Emerging threats: crime and internal stability
Fragile states with volatile domestic agendas were those most likely to suffer violence and disorder in the short-to-medium term as Covid-19 spreads. Theft, looting, and general disorder would likely be a feature of many states. The frequency of these was highly likely to be exacerbated by a scarcity of resources to maintain order, as governments become overwhelmed by issues such as pressures on health systems and surges in unemployment that have been seen to accompany the spread of the disease.

Emerging threats: migrants
As disorder and panic spreads, Dryad said that it was realistic to anticipate a rise in global migration from states which cannot sufficiently quarantine and lockdown infected regions. Libya, which has in recent years seen high levels of migration, was an area of concern. “With a breakdown in Libyan state administration a possible consequence of the pandemic, it is likely increasing numbers of potential migrants could feel they face improved odds in Europe. This in turn may increase the chances that vessels in the Mediterranean have to assist migrant vessels in distress, but would simultaneously raise the prospect of migrants who carry Covid-19 being a health concern to vessel crew”, said Dryad.

Conclusion
Dryad Global concluded that vessels which were security aware would still be able to trade, but to trade securely would require precise, real-time, data-driven solutions. The restrictions on travel that Covid-19 had placed on the deployment of PMSC’s would not in itself lead to an escalation of risk, but contextually this trend would inform the security profile faced.

SOURCE: INSURANCE MARINE NEWS / DRYAD / Link to article: https://dryadglobal.com/shifting-realities-how-the-covid-19-crisis-will-impact-the-maritime-threat-picture/

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