Why Brazil is against the carbon tax for ships – 07/07/2023 – Environment

If all ships in the world are subject to a global tax on every ton of carbon emitted, some will have to pay more: those that are further away from their markets. That was the core of the Brazilian argument to bar the proposal discussed this week at the headquarters of the International Maritime Organization (IMO), in London.

In addition to the prospect of forcing the sector to seek renewable energy, the proposal to tax ships for carbon emissions has gained strength in recent months on account of another promise: that of raising funds for climate finance in developing countries.

From the Brazilian point of view, developed nations would have found a loophole in the maritime forum to make all countries responsible for climate finance. According to the Paris Agreement, the criterion is based on the historical responsibility of the countries for the emissions that generated the climate crisis, which concentrates the account on top of the rich countries —which, in turn, try to share it with the emerging economies, especially the China.

The Brics (Brazil, Russia, India, China and South Africa) are against the carbon tax for ships. The argument that it disproportionately affects developing countries increased rejection in the negotiations, also manifested by countries in Latin America, Africa and Asia.

“A universal charge is a tax on distance. Until emission-neutral fuels are widely available, it will take time and, then, it may be too late for some economies”, defended the Itamaraty representative at the opening plenary session of the IMO.

“Latin America and Africa are far from commercial hubs, which is a consequence of history, a direct result of the colonial legacy,” he added.

The Brazilian tactic in the negotiations throughout this week sought to postpone the deadlines for choosing a carbon pricing model.

The expectation of the IMO was to conclude this week —after six months of discussions— the definition of the economic mechanism.

However, the decision to be published this Friday (7) leaves the adoption of some type of pricing for 2025. Until then, the IMO is expected to commission extensive impact assessments on different taxation models, which should inform the future decision.

Brazil disclosed in the negotiations a study by USP (University of São Paulo) published this year that used mathematical models to estimate the impacts of a carbon tax of US$ 50/ton. The research concluded that while the tax would reduce the sector’s carbon emissions by around 7%, it would also have a greater impact on the economies of developing countries.

While the impact on global GDP would be only -0.02%, it reaches -0.13% among countries outside the OECD (Organisation for Economic Co-operation and Development).

The study was criticized by proponents of taxation, such as the developed country bloc and the countries most vulnerable to climate and small islands.

In the evaluation of observers of the negotiations linked to the climate agenda, studies on the impacts of the carbon tax on exports need to consider the impacts of climate change, whose catastrophic effects already increase the costs of countries and impact their economies.

“We are already paying the costs, with the loss of territory and lives,” he told Sheet Albon Ishoda, special envoy for the decarbonization of ships in the Marshall Islands, which are among the nations most vulnerable to climate change.

The country is also one of the authors of the proposal to charge US$ 100 per ton of carbon emitted by ships as a way of financing the costs of the climate transition in the most vulnerable countries.

For the secretary general of the IMO, the South Korean Kitack Lim, the taxation on carbon will be inevitable in the markets, while, in the diplomatic negotiations, the countries have a chance to find a fairer solution.

“The European Union is adopting carbon taxes [através do mercado], so exports will be affected anyway, but the money, in this case, stays with the Europeans. Here we have a chance to potentially create a fund and define how it will be used, including preparing and compensating countries for this transition,” Lim told the Sheet.

According to members of the Brazilian representation, the best solution for the country would be for the IMO not to adopt any measure on the climate. With representation from the Navy, Petrobras and Vale, the Brazilian delegation bases its position on the pragmatic protection of its export market, which would absorb the cost of the carbon tax, in the form of an increase in freight.

A study carried out by the South China University of Technology confirms the Brazilian estimate that the carbon tax harms more distant markets.

“As shorter distances can have less emissions per tonne, the marine carbon tax could significantly alter trade patterns, resulting in China’s growing dependence on nearby countries, for example India and Australia, for the import of key commodities” , states the article published in the Journal of Marine Science and Engineering.

A WWF study in partnership with Coppe/UFRJ modeled the impacts of carbon taxation on ships on the export of different Brazilian commodities: coffee, iron ore, sugar, oil and soybeans.

Coffee growers would be the most affected by the loss of international competitiveness, according to the survey. The demand for sugar and soy would also decrease, but, according to the study, with modest impacts.

If it absorbs the costs of taxation, the Brazilian producer of commodities would lose an average of 0.05% of income —in the most costly scenario. The study is based on data from the Brazilian economy in 2011.

After evaluating different taxation scenarios, the study concludes that the sectors would only lose profitability with taxes above US$ 30 per ton of carbon emitted.

Still according to the survey, the iron ore extraction sector, dominated by Vale, would find it easy to absorb costs in any of the taxation scenarios, due to the high profit margins, maintained even when under seasonal effects of the price of the commodity.

questioned by Sheet, Vale did not respond about its position regarding carbon taxation. The mining company limited itself to saying that it is committed to reducing greenhouse gas emissions and that it will support the maritime industry to achieve the targets set by the IMO.

_{The journalist traveled at the invitation of the Global Strategic Communications Council (GSCC).}