New shipping routes dodge carbon costs along with Red Sea risks, according to Concordia research

The political and military instability in the Red Sea and eastern Mediterranean has forced global shipping companies to reroute cargo freight being transported from Asia to Europe. As a result, merchant ships are increasingly making the longer, more expensive and more polluting route to their destinations around the Cape of Good Hope.

This is not only causing delays and driving up shipping rates. It is also contributing to more greenhouse gas emissions and a spike in a phenomenon called carbon leakage: companies move operations away from a jurisdiction with strict climate mitigation policies to avoid surging climate costs.

It’s the topic of focus of a new Concordia-led study published in the journal Environmental Research Letters. In it, the authors argue that maritime shipping companies are more likely to use transhipment points in ports like Durban, South Africa and Abidjan in the Ivory Coast to escape onerous carbon fees imposed by new European Union regulations.

In January 2024, the EU’s Emissions Trading System (ETS) — a cap-and-trade mechanism designed to encourage polluters to cut down their use of greenhouse gases — was extended to cover CO₂ emissions from all large ships entering EU ports, regardless of the flag they fly or their port of origin. A ton of CO₂ emissions is priced at roughly 100 euros.

The three-year phased-in system will eventually cover 50 per cent of all emissions from voyages that start or end outside of the EU and 100 per cent of emissions that occur between two EU ports and in EU harbours.

But as the researchers note, maritime shipping companies are rerouting away from the Red Sea toward South Africa and beyond. This not only avoids the volatile area, where maritime safety is affected by recent military actions in the Middle East, but also allows them to transfer their cargo from one ship to another one bound for Europe. Under EU regulations, only the emissions from the second leg will be subject to ETS compliance costs.

‘The crisis in the Red Sea is giving companies more options to relocate and rearrange’

Thus, the owner of a container ship leaving Singapore bound for Rotterdam via the Suez Canal would have to pay a fee on 50 per cent of its emissions resulting from its 12,000-nautical mile voyage. However, if the same ship from Singapore arrives in Durban, South Africa, and transfers its cargo to a Rotterdam-bound ship, it would only pay credits for a 7,000-nautical mile trip.

“The crisis in the Red Sea is giving maritime companies more options to relocate and rearrange their transhipment to avoid carbon costs,” says He Peng, a PhD candidate studying environmental engineering at the Gina Cody School of Engineering and Computer Science. “This study identifies the two poles that can make carbon leakage in the maritime shipping industry more possible.”

“As engineers, we can only address the technical part of the assessment for carbon emissions and try to provide a solution,” adds Chunjiang An, a professor in the Department of Building, Civil and Environmental Engineering. He co-authored the paper along with Meng Wang at Pennsylvania State University.

“We cannot stop the wars, but we can provide a summary and some suggestions which can help us adapt to a changing world and hopefully help reduce carbon emissions.”

Read the cited paper: “Implied threats of the Red Sea crisis to global maritime transport: amplified carbon emissions and possible carbon pricing dysfunction.”