Official Report: Minutes of Evidence

The Chairperson (Mr Butler): I welcome Mr Paul Grant, trade director of Irish Sea north, Stena Line; and Ms Katrina Ross, policy director, commercial and governance, UK Chamber of Shipping. If you have a briefing, Committee members will be more than happy to pin our ears back and listen, and, then, hopefully, you will take a few questions from us. Thank you.

Ms Katrina Ross (UK Chamber of Shipping): Chair and Committee members, thank you for the opportunity to give evidence. We welcome the rigour with which the Committee has approached its scrutiny.

The UK Chamber of Shipping and our members are proud to have led the way on decarbonisation, publicly calling for the global shipping industry to reach net zero emissions by 2050, prior to the UK Government and International Maritime Organization (IMO) commitments. Across our sectors, we have already invested in new technologies and pioneering innovations, such as new hybrid vessels that will increase freight capacity in Northern Ireland by 40% while reducing energy usage by 20% — a result of Stena Line's investments — and initial investments to enable shore power connections to meet the industry's commitments and lead the drive towards net zero. However, the current UK emissions trading scheme (ETS) proposals risk raising costs for passengers and communities, diverting capital from decarbonisation and harming Northern Ireland's competitiveness before essential infrastructure is in place. In addition, the proposals are being rushed through with both insufficient evidence and insufficient time for operators to comply, further increasing the compound cost burdens for operators and businesses in the Northern Irish supply chain.

I will deal first with the evidence gap. In your previous session, officials themselves were clear that there are evidence gaps in quantifying Northern Ireland-specific impacts and that the precise consumer modelling is challenging: that is an important admission. If analysis gaps exist, particularly in a structurally distinct region, it is reasonable to ask whether proceeding with the policy at the current pace and to the extent proposed is fair, workable and proportionate.

Northern Ireland is structurally dependent on ferries for travel and freight for food, medicines, materials and everyday goods. They are essential public-interest routes, not purely discretionary commercial operations. Stena Line's estimates, of which, I am sure, you will hear more details, show freight rate increases of around 6% as a result of the measures, with costs expected to exceed £9 million annually on the basis of the 50% ETS allowances that it will be liable for. Our experience of the EU emissions trading system (EU ETS) suggests that there will be fuel cost increases in the region of 25% to 30% and fare rises of up to 15%, with the potential for similar outcomes for Northern Irish routes. Higher transport costs are likely to increase the price of travel and everyday items such as food, fuel, essential goods, materials and retail products, all of which rely heavily on Northern Ireland to Great Britain ferry supply chains.

The exemption granted to Scottish island communities demonstrates that the UK Government already recognise that some domestic routes face disproportionate impacts. Similar consideration may be appropriate for Northern Ireland, given its constitutional and economic circumstances. Indeed, the domestic impact assessment does not duly assess or quantify the potential for unequal and disproportionate impacts on communities in all of the specific geographic regions that are more dependent on maritime links than others on the mainland of Great Britain.

The policy does not operate in isolation. Operators are already absorbing fuel volatility; high insurance and employment costs; and broader inflationary and recent geopolitical pressures. Introducing new monitoring requirements alongside liability for emissions from 2026 and financial surrender obligations from 2028 will add further administrative burden, compliance exposure and working capital costs. Those all compound.

At the same time, vessels cannot yet access alternative fuels, onshore power or adequate grid capacity to reduce emissions at berth, none of which exist at scale in UK ports. The industry has already invested in technology to support that. For example, by 2028, 80% of the global cruise ship fleet will be shore power-capable, and one third of those vessels will call in the UK, including over 150 calls in Belfast, contributing an estimated £25 million to the local and wider tourism economy. As outlined last week, however, Belfast port does not anticipate having shore power capacity of any kind until at least 2035. Without that infrastructure, the UK ETS, as proposed, risks deterring maritime business and investment without delivering decarbonisation.

The stated aim of the extension to maritime, as set out by the UK Government, is to drive and incentivise emissions reductions. However, unlike the EU, which has pledged to ring-fence revenues from the EU ETS for targeted maritime decarbonisation projects, the UK has yet to outline such a policy commitment, meaning that those revenues are not guaranteed to be invested in decarbonisation projects or even in Northern Ireland. Without an unequivocal commitment to recycle revenues from maritime under the UK ETS into much needed and vital infrastructure, such as shore power, alternative fuels, vessel retrofits and hybrid electric ferries, the UK ETS will divert capital from green investment, including hybrid and electric vessels, thereby acting as a carbon tax and not a decarbonisation lever.

The industry firmly believes that a global regulatory framework is the best route to reducing global shipping emissions. In the absence of a global measure, however, the negotiations on a UK/EU linkage remain ongoing, leaving further uncertainty for the industry about the moving of the goalposts in aligning the schemes. Given that Northern Ireland sits at the intersection of two regulatory environments and that maritime transport is central to Northern Ireland's economic and social connectivity, those ongoing discussions are essential.

The UK Chamber of Shipping, in the absence of a global regulatory framework, strongly supports UK and EU ETS linkage but believes that the UK statutory instrument (SI) risks undermining that goal in key areas such as enforcement and data quality, as well as through the proposed entry into force and surrender of allowances timelines. Those concerns risk creating an uneven playing field for operators, with impacts on consumers and customers in Northern Ireland as well as higher administrative burdens and market distortion. Further, the EU has the FuelEU maritime scheme. Establishing a workable and interoperable fuel standard for shipping will be crucial for the UK and Northern Ireland to decarbonise. We understand that the UK Government are likely to consult on a maritime fuel standard as stated in the UK's maritime decarbonisation strategy, which, again, only adds uncertainty and reinforces industry's desire to wait for the fuel standards outcome before pushing ahead with the ETS on the current timetable.

We have consistently called for a pragmatic approach that supports Northern Ireland's economy, while helping to ensure a successful UK/EU ETS linkage. We call for the design of the UK monitoring, reporting and verification (MRV) scheme and the UK/EU ETS mechanisms, such as timelines, enforcement mechanisms and data systems, to be aligned with the EU MRV and EU ETS design in order to avoid divergence that could hinder linkage. We recommend a phased implementation of MRV data reporting, like the EU did and the UK has already done for its waste incineration industry, as well as a mirroring of the EU's phasing in of allowances to surrender, which start at a 40% obligation in the first year, are 70% in the second year and ramp up to 100% in year 3. We also call for a reassessment of impacts on Northern Irish and Great British lifeline routes and for the UK Government to carefully consider targeting mitigations for the Northern Irish community, given that one type of mitigation has been granted to the Scottish island communities. The UK Government need to provide technical guidance and final regulatory text urgently to give industry sufficient time to prepare systems and contracts. Northern Ireland has more at stake than most parts of the UK in the design of the UK ETS maritime rules due to its reliance on maritime transport; the operation of the Windsor framework; and closer economic integration with Great Britain and Ireland as a member of the EU.

We are not asking for any retreat from ambition, and, as I said at the outset, we fully support decarbonisation. What our members, including those that operate in Northern Ireland, are asking for is the right sequencing — sequencing that ensures that the policy is workable in practice; proportionate to the evidence currently available; and fair to the communities that live and businesses that operate in Northern Ireland. The chamber stands ready to work constructively with the UK and Northern Irish authorities to ensure that the scheme is environmentally effective and economically fair, supporting decarbonisation while protecting Northern Ireland's vital connectivity and competitiveness.

Mr Paul Grant (Stena Line): Good morning. Thank you for the invitation to brief the Committee.

Stena Line has operated from Northern Ireland for four decades, and, recently, we celebrated 30 years in Belfast. Stena Line is the largest ferry operator on the Irish Sea, and Belfast is the largest base across the entire Stena Line network. We have seven ships operating from Belfast, including four brand new ships that have been introduced since 2020. Stena Line operates three key routes from Belfast, sailing to Cairnryan, Heysham and Birkenhead, with up to 22 sailings daily, operating up to 364 days a year. We carry 600,000 freight units, 500,000 tourist cars and 1·7 million people between Britain and Belfast. For Northern Ireland, ferry services are not optional transport links but essential economic infrastructure. The routes provided by Stena Line underpin agri-food exports; time-sensitive chilled supply lines; advanced manufacturing; just-in-time components; retail distribution networks, supplying supermarkets and high streets; construction materials; heavy freight; tourism and visitor flows; and movements essential to healthcare and other public services. In effect, those routes function as economic arteries for Northern Ireland.

Importantly, Stena Line is not simply a service provider using Northern Ireland as a transit point; we are a long-term investor, supporting hundreds of direct jobs in Belfast across port operations, crewing, engineering, logistics and administration, as well as thousands more in the manufacturing, agri-food, retail and logistics sectors. In recent years, we have invested over half a billion pounds in our fleet, ports and services serving Northern Ireland. That includes an investment of over £100 million in two brand new hybrid freight ferries — Stena Connecta and Stena Futura — for the Belfast to Heysham route, which were launched in autumn 2025. Those vessels are equipped for methanol fuel; battery propulsion; shore power connectivity; and where and when infrastructure exists. Those investments demonstrate a long-term commitment to maintaining and modernising Northern Ireland's maritime connectivity.

We stress that Stena Line supports decarbonisation and is actively investing in fleet modernisation, hybrid propulsion and alternative fuels, as demonstrated by Stena Futura and Stena Connecta. We recognise that maritime transport must play its part in achieving net zero, and Stena Line aims to reduce its CO2 emissions by 30% by 2030. However, decarbonisation policy should be aligned with technological and infrastructure readiness. Alternative fuels remain limited in supply and significantly more expensive than conventional marine fuels. Bio-methanol is almost four times the price of the very-low-sulphur fuel or marine gas oil used today. Shore power infrastructure is largely unavailable across UK ports, including those serving Northern Ireland. There is no dedicated revenue-recycling mechanism to reinvest the UK ETS proceeds into maritime transition. In those circumstances, the proposed scheme risks functioning primarily as a tax rather than a practical decarbonisation incentive in the short term. If the purpose of the UK ETS is to stimulate decarbonisation, there must be mechanisms in the system to facilitate that; if not, this is just a tax on trade.

The rising costs will have a disproportionate impact on Northern Ireland because we are so uniquely dependent on maritime transport. Approximately 90% of goods entering or leaving Northern Ireland move by sea. There is no fixed link to Great Britain and no viable alternative to maritime freight given the scale and nature of the trade involved. For most regions in Great Britain, maritime transport is one option among several; for many businesses in Northern Ireland, it is the only route to our principal market. That structural reality means that any increase in maritime operating costs has economy-wide implications for Northern Ireland that are materially different from those felt elsewhere in the UK. In practical terms, increased compliance will raise export costs for Northern Ireland producers. Our shadow calculations indicate the impact to be an extra £1·10 a metre on freight shipments — that is an extra £15 a trailer moving back and forth or an extra 6% on the average cost — which will be applied from 1 July 2026. Please remember that it is a variable and that the cost can move: it can move upwards as well. That will increase input costs for manufacturers and agri-food businesses, and it will hit retailers, SMEs and, ultimately, affect household prices and the cost of living.

Northern Ireland businesses compete daily with firms located in Great Britain. GB competitors do not face the unavoidable sea transportation costs when trading in their domestic market that Northern Ireland businesses do. Even with a 50% allowance surrender reduction for NI to GB routes, a significant structural cost differential remains. That differential risks increasing the relative cost base for Northern Ireland producers compared with their GB-based competitors and impacting on competitiveness. While the 50% reduction is welcome, it does not eliminate the imbalance created by our geography. There is a legitimate argument that Northern Ireland's reliance on maritime connectivity is comparable in structural terms to that of island communities in Scotland, where exemptions recognise the absence of alternatives.

Given Northern Ireland's unique exposure, a proportionate approach is necessary. At minimum, that should include a 12-month implementation delay for all ferries in regular traffic between Northern Ireland and GB to allow proper preparation; a dedicated Northern Ireland economic impact assessment; and a phased introduction, like in the EU ETS — a three-year phased-in model — to help avoid sudden cost shocks hitting the market. I reiterate that, if the purpose of the UK ETS is to stimulate decarbonisation, there have to be mechanisms in the system to stimulate it; otherwise, this is just a tax on trade. There needs to be a clear commitment to ring-fence ETS revenues — again, as there is in the EU ETS — in the maritime decarbonisation, including in port and shore power infrastructure in Northern Ireland. Such measures would not weaken decarbonisation ambitions but ensure that the policy designs reflect economic realities and avoid unintended consequences.

Thank you for your time this morning and for listening to our concerns.

The Chairperson (Mr Butler): Thank you for so eloquently stating the case and for reiterating your ambition to contribute to the intergovernmental decarbonisation ambition. I agree with you insofar as I do not think that we are particularly suited at the moment, in many contexts, to look at this as anything other than a tax. You have demonstrated some of the steps that the maritime community has taken on decarbonisation. The briefing paper talks about new freight vessels and the ability to run on alternative fuels. We are also hampered in Northern Ireland because there is no onshore power facility for ships when they dock. On the passing on of cost, what would be the implication for the Northern Ireland consumer or business that is trying to export? Would there be a knock-on cost to their competitiveness, given that GB is the biggest market for our exporters?

Mr Grant: Absolutely. As we have stated, this will increase the cost per freight unit that moves between Belfast and GB. We have already published our shadow prices: it will increase by at least £15. Remember that that £15 is variable and can increase. That is a large charge for most hauliers: it is a 6% increase, at least, in their shipping costs. Given the logistics of the transport industry, ferry operators operate on low margins. Those costs will be passed to hauliers and their customers and, ultimately, consumers in Northern Ireland.

The Chairperson (Mr Butler): There is no indication from London that the revenue that will, potentially, be raised from this will be used for retrofitting or incentivising decarbonisation.

Ms Ross: Not directly, no. We have been told repeatedly that there is no scope for hypothecation in the way that the EU ETS has provided.

The Chairperson (Mr Butler): That is useful to know, because it brings me on to the fact that this does not mirror EU implementation. The briefing paper makes it clear that there is something that could be copied. Would you be in favour of mirroring the EU scheme, if the UK Government were to pick that up? Is there enough in the EU scheme? You have set out clearly that Northern Ireland is a very specific player, given that 90% of our movements are via ships.

Ms Ross: In the absence of a global regulatory framework, we are in favour of linking, via alignment, for a UK/EU ETS. Our main concern about this domestic statutory instrument is that it does not mirror the EU ETS. If the linkage were to be successful — we would hope that it would be — operators would have to change their systems again. If it is felt that there is a great chance of success with our systems being linked, why not do that all in one shot so that the administrative burden on ship operators domestically and internationally is minimised?

The Chairperson (Mr Butler): OK. I have a final question before I let members in. There is plenty of interest in this. Are you aware of the Department making a specific case for Northern Ireland, in particular on the unique position that we occupy in the import and export of goods?

Mr Grant: I am not aware of that, no.

Ms Ross: If you are alluding to the carbon border adjustment mechanism (CBAM), we were provided only with a short paragraph about that impact. First, that is not directly relevant to this statutory instrument. Secondly, we think that it has wider implications. We do not think that it is an either/or; all those costs will compound for both ETS and CBAM, which, I think, is what you are referring to.

The Chairperson (Mr Butler): Yes. Could you expand on that a little, please? From the departmental piece that we have been given, it has been alluded to that, if we do not accept this, things could be worse.

Ms Ross: Yes. Bear with me, because we are not directly impacted by that, but my understanding is that the EU's carbon trade import tax, which is what CBAM is, does not currently apply to Northern Ireland due to the protections that were put in for the Windsor framework. However, the UK Government plan, through their draft legislation, to apply their own carbon trade import tax to the whole of Great Britain and Northern Ireland from 1 January 2027. Therefore, it is a UK-led policy, given that that barrier has not yet been imposed on the EU side.

Whatever happens, it is not an either/or. If there is no success in linking the schemes, costs will be imposed on any transfers of specific products, such as fertilisers, from Northern Ireland to Ireland or any other EU member state or any country, like the United States, which manufactures fertilisers. If a link is agreed, there will be two impacts. One is an extra cost if Northern Ireland has to take 100% of the ETS allowances as part of that agreement. The second is that — yes, imports of fertilisers from Europe may be exempt — the UK Government will impose a cost on importing fertilisers from producer states, such as the United States. Compound that with the current geopolitical war and the input to fertiliser production being severely hampered. The news in today's 'Financial Times' and 'The Guardian' has really raised the alarm for farmers on the impacts of importing fertilisers because it will be more expensive to produce them. The costs will just layer and layer, whatever happens.

The Chairperson (Mr Butler): It adds to the complexity that businesses here face just to facilitate exports under the Windsor framework. I would go as far as to say that it is unnecessary, given that it cannot be clearly linked to a decarbonisation agenda. It seems to me as though the Government have set it up like a draconian tax.

I will bring members in.

Miss McIlveen: Thank you very much for your detailed presentation. There seems to be a difference in emphasis when it comes to the economic impact that it will have on Northern Ireland. Certainly, when that was raised with officials a couple of weeks ago, they seemed to downplay the costs and the impact on the consumer. Are you aware of a robust economic impact assessment being carried out on the GB-NI route specifically?

Mr Grant: There has not been an economic impact assessment of the impacts. Some work by Frontier Economics was mentioned, but that work related to carbon leakage; it was not about the economic impact that the additional charges would have on Northern Ireland's businesses and consumers. That vital information is missing in the taking of these decisions.

Miss McIlveen: I have been contacted by hauliers who are obviously distressed about the potential impact on their businesses, given that they work on incredibly narrow margins. I am interested to hear your response on that.

You also said that the proposals are being "rushed through". You have asked for a 12-month delay in implementation: what difference would it make for us were we to pray against this?

Mr Grant: To go back to your first question, you would have a proper economic assessment and be better informed about how it will affect Northern Ireland. There is no doubt that hauliers are concerned about it, and I am sure that other sectors in the business community are concerned about increased costs and reduced competitiveness.

Ms Ross: We also think that the SI actually undermines linkage, because, for example, the way that enforcement works is completely incomparable. Take the geography of Ireland and Northern Ireland together. If a ship that has no UK footprint calls at Dublin port and there are discrepancies in the data submissions under its document of compliance, Irish maritime authorities have the right to arrest that ship. The UK does not have that mechanism, so, if that same ship goes to Belfast port and does not have a corporate presence in the UK, we are really unsure of how the UK maritime authority will be able to arrest that ship in the same way that the EU could. Given that they are talking about a level playing field and market distortion, if you do not have the same enforcement powers, how is it possible for that to link? I do not understand.

Miss McIlveen: I have one final question. All politics is local: I represent the Strangford constituency, where we have the Strangford ferry. I understand that, under the current proposals, the Strangford ferry will not be caught by the regulation but that there may be a review that could subsequently include it. I am concerned for the number of people who use the ferry daily. It is an essential lifeline for them to go to work, school, hospital etc. What are the implications of that? What might it look like?

Ms Ross: Our understanding from previous consultation responses is that the Government intend to review the regime in 2028 to consider increasing the scope of the ETS — basically to lower the size threshold from 5,000 gross tons to 400 gross tons. Any ships that are above 400 gross tons will be caught in that review.

The good thing about linking with the EU — this is a choice that the UK Government have to make — is that the EU allows for temporary derogations for lifeline community services for passenger ships. We have consistently called for the UK Government to use those derogations in its implementation of the UK ETS, but, for now, they have decided to implement those only for Scottish ferries. The UK Government have excluded the Isle of Wight. The Isle of Wight has three operators, and the rule has already distorted its market. Two of the Isle of Wight operators are not caught by the rules, because their vessels are below the threshold of 5,000 gross tons. Two of the third operator's 11 vessels will be caught by the rules. There is a 100% cost to the Isle of Wight communities, and, ironically, the vessel that will be caught is the newest investment, which has hybrid technology.

We have consistently asked the UK Government to conduct proper impact assessments for all the geographic areas that rely on maritime links. We do not think that that assessment has been done adequately. They have not used the power from the EU to allow the derogations for communities for whom a ferry is a lifeline.

Miss McIlveen: Thank you very much.

Mr Blair: Thank you, both, for your presentation. You have touched on some of the following already. I know that you could give a detailed response, but a summary will suffice. How successful has your lobbying of the UK Government, either directly or through your UK-wide representative bodies, been? Is there a summary update on how the UK Government have responded to the mitigations that you mentioned that are specific to Northern Ireland, including the 12-month delay?

Ms Ross: The consultation came out in 2022, and we duly responded to it. We have had some meetings with the various departmental officials, but, because of perceived market sensitivities when discussing the emissions trading scheme, it has been difficult to get a genuine back-and-forth conversation going. The EU does not seem to have that trouble. That is because it has various open working groups to discuss the impact of the implementation of ETS on maritime.

Yes, the process has been there, but the answers about the impacts were not released to us until the UK Government produced the domestic impact assessment alongside the SI. The SI is incredibly revealing of the Government's perceptions of the impacts: apparently, Scotland deserves an exemption, but the Isle of Wight does not, even though they have similar dynamics. The reasoning did not make much logical sense to us either. We have tried to engage and to be constructive, saying, "There are EU mechanisms for doing this. Why are you not doing similar things?". There has not been to and fro with them.

Mr Blair: OK. My next question is on a slightly more delicate issue. I hope that you will understand my rationale for asking it. I ask it notwithstanding the significant contribution to the economy that the businesses represented make for us all. The reality, however, is that the turnover of some operators is counted in billions of pounds, as is the profit. That is according to the 2024 figures that I looked at, and I assume that that pattern has been consistent for a number of years. There was a consultation in 2022, which you mentioned, and a more detailed consultation in November 2024, which, as I understand it, gave more information about the proposed technical design of the scheme. Has your investment in decarbonisation increased over the years, specifically since those consultations took place?

Mr Grant: I mentioned the two brand new ferries that we have just invested in, which, together, cost £100 million and into which we have put systems and propulsion mechanisms that are ready for methanol fuel and plug-in electricity. In fact, one of our ferries has a unique rotor sail to reduce the ship's fuel consumption — that is a first in the Irish Sea. Stena Line has invested many millions of pounds in decarbonisation.

You mentioned large turnovers: there are large turnovers, but profitability does not match turnover. Like everyone in the transport sector, we are a high-cost, low-margin business.

Mr Blair: Thank you.

Ms Finnegan: Thank you for your oral briefing. The EU has already extended its emissions trading scheme to maritime transport. From an operator's perspective, do you see benefits in the North aligning with that system, particularly given the number of routes that operate between ports in the North and ports in the EU?

Ms Ross: It is the global rules, rather than the UK ETS per se, that have driven a lot of the investments in decarbonisation. Stena's ships can, for example, be traded in and out of international routes; they are not purely domestic.

Yes, NI is a domestic route, but it needs to make that investment in order to deploy those ships to international routes. Having said that, in the absence of a global regulatory regime, there are benefits to linkage to the scheme, so long as it is phased in and the costs are smoothed out over years. That should be allowed, because the EU phased the ETS in at 40%, 70% and then 100%, which smoothed it out. It is only this year that the EU is facing 100%. In principle, it is good, but, for the benefit of the community, the implementation needs to be phased.

Mr Grant: There is another key point. Yes, we have EU ETS, which applies across other parts of the Stena group. From our perspective, however, there is a significant flaw, in that it is still a tax. There is still nothing there that encourages or incentivises us to provide the relevant fuels that will help with decarbonisation or the infrastructure for plug-in electricity at ports. It would be easier, in some respects, if it were aligned with the EU, but the very nature of ETS is that it is a charge that is applied on consumers before the infrastructure is in place.

Ms Finnegan: OK. My reading is that, if they are not aligned, they are likely to be hit by CBAM. Is that correct?

Ms Ross: In any case, they will be hit by some sort of CBAM; it is a question of the extent of the CBAM and where the lines will be drawn. If there is no linkage, it will be drawn between Northern Ireland, Ireland and the rest of the world, affecting imports of fertilisers from the US. If there is a linkage, Northern Ireland will still be hit in imports of fertiliser from the US, and it may be subject to 100% of emissions for ETS. The costs will stack up however they are formulated.

Ms Finnegan: What do you see as a realistic timeline for the sector moving significantly away from traditional fuels and transitioning to lower-emission ferry services?

Mr Grant: That very much depends on the supply of methanol and other alternative fuels and on the economic viability of operating using those fuels. As I mentioned, those fuels are currently four times more expensive than the fuel that we use today. Also, we do not have the opportunity to plug in for the electricity. Those two fundamental factors need to be considered in the decarbonisation journey. As operators, we are doing everything in our power to make sure that our ships are as fuel-efficient and energy-efficient as they can be. We are getting ourselves ready by investing many millions of pounds to have ships ready in advance of the infrastructure being ready.

The Chairperson (Mr Butler): Before I bring in anybody else, I want to jump on the fuel question, because it is pertinent at the moment, given geopolitics, with the state of play in the Middle East and the discussions locally about the price of diesel, petrol, oil and so on. I imagine that you will be impacted on by that as well, given that you have not been able to move to methanol. Do you want to raise anything in that space? Will you also give us a bit more detail on methanol and how sustainable it is and on other biofuels?

Mr Grant: Absolutely. Fuel represents a massive cost for anybody operating in the transportation industry. We use a mechanism called the bunker adjustment factor (BAF), particularly when it comes to freight operators, whereby the price fluctuates depending on how the fuel moves. In recent periods, there has been a reduction, because oil prices have been low, but, as oil prices increase, the costs will be borne by hauliers. Our business will have to absorb a lot of the costs as well.

We have made ourselves ready for methanol, but the big problem is that there is not a sufficient supply and the infrastructure is not in place to make sure that we have sufficient supply to operate our seven ferries.

The Chairperson (Mr Butler): Thanks, members for allowing me to jump in there. Daniel, you are next.

Mr McCrossan: Thank you both for the presentation. A number of my questions have been touched on already. You both said that there is a risk of the policy acting more like a carbon tax than a decarbonisation mechanism, because the required alternatives, such as shore power and low-carbon fuels, are not available. From your perspective, what infrastructure technology would need to be in place before the scheme could genuinely drive emission reductions?

Mr Grant: For the industry, the points that we have mentioned would need to be in place. There needs to be a supply of alternative fuels or incentives in the form of the prices of those alternative fuels. We also need to have the ability to plug our ships in at different ports, which, as far as I am aware, is many years away. That is not just for Belfast; we have to think about places like Cairnryan, Heysham and Birkenhead, which are three of the places that we serve, where people go back and forth between Northern Ireland and GB.

Ms Ross: The Government have been working with the aviation industry, for example, to create a revenue mechanism for sustainable aviation fuels, but no equivalent is in train for maritime. There is nothing in place to set up a coalition for offtake agreements. A little bit of de-risking is needed on that from government to work together on key ports that need it. We have not seen policy developed on that at sufficient pace compared with the pace of developments on ETS, which is a regulatory stick, as opposed to the carrots that are needed to join together and make this work.

Mr McCrossan: It is a bit of a cart-before-the-horse exercise, clearly. If the infrastructure required to decarbonise shipping is not in place, should the Government not invest in it before introducing a scheme that increases costs for routes that people here depend on?

Ms Ross: Yes, we agree with that.

Mr Grant: Absolutely.

Mr McCrossan: It is a bit of a strange one. The objective is to drive down emissions, but that will not be the effect; in fact, it will increase costs as you try to battle with the reality.

Mr Grant: In the short to medium term, it will not effect decarbonisation; it will just increase the costs.

Mr McCrossan: Yes, the cost to operators.

I had a final question on the risk assessment, but Michelle touched on that fairly strongly in her questioning. Given our dependence here and the fact that Northern Ireland has the highest level of such activity out of the entirety of the UK, a specific economic risk assessment would probably be more beneficial. Do you see that happening?

Mr Grant: We do not, but we see it as being appropriate. That is one of the reasons why we have asked for a delay to the implementation. That information is essential when taking any decision. Without it, we will walk into this with no clear knowledge of how it will affect the economy and the flow of trade.

Mr McCrossan: Thank you.

Mr McAleer: We got correspondence from the Department on the trading scheme, and what I have picked up from it is that, if we do not align the UK ETS and the EU ETS, businesses here could be hit by the EU carbon border adjustment mechanism — there is £7 billion in scope that could be hit by the CBAM — which would result in larger administration and direct costs that would be collected by the EU. What would result in the biggest impact on businesses? If the two schemes did not align, would the impact of the additional costs from the CBAM be greater or less than the projected costs that, you say, would come about if the UK ETS came in here?

Ms Ross: That is a difficult analysis to make, but, from my understanding, the CBAM hits seven products and the ETS hits all products, whether finished, raw or whatever. The CBAM is about the competition between specific producers of those materials, but the ETS covers everyone, because it covers everything from raw material to finished goods. There are between five and seven products within the scope of CBAM. You would have to do a proper economic assessment to work out the trade-off on which scheme would be more expensive, especially given that CBAM is not relevant either to this SI or how it works in the maritime context.

Mr Grant: I still do not think that it is an either/or question. There will still be the transportation costs. I am not really sure what the direct linkage is here.

The Chairperson (Mr Butler): The Minister will be in with the Committee following this evidence session. It is an important one to tease out, because it is in the departmental written statement. I am not convinced by it, and it would be a risk to accept it without a guarantee that it will offer protections.

Ms Ross: Absolutely.

Mr Grant: Yes, and without the economic assessment too. We do not have an economic assessment of the impacts.

Ms Ross: They talk about exports. We are quite heavily dependent on imports. We import a lot more than we export. Yes, that figure might be high, but that is an import tax on everything. It is not just international imports but imports from GB to NI.

The Chairperson (Mr Butler): I will make a quick point on the CBAM. There are six items, I think: cement; iron and steel; aluminium; fertilisers — mainly nitrogen-based fertilisers; hydrogen; and electricity. That is, if that list is accurate; do not take that as being absolute. You were correct: it is between five and seven, which is six. Excellent.

Ms Ross: Northern Ireland's electricity is not included in the CBAM; it is in EU ETS. It is not —.

The Chairperson (Mr Butler): Declan, do you want to finish your question? Sorry. Thank you, Katrina.

Mr McAleer: Paul indicated that it would be better if the two schemes were aligned: what would it take for the EU ETS and the UK ETS to mirror each other? What are the current flaws in the UK ETS? What would it take to align the schemes?

Ms Ross: I have covered the enforcement piece that is needed to ensure that there is a level playing field and that the markets maintain their integrity. We highlighted the risk with the data quality to the UK Government, because, when Brexit happened, the UK MRV scheme had to be created to replicate its previous obligations with the EU. The scope of that is different from what has been proposed, so the quality of data needed to underpin how much is owed needs to be tested. That is why the EU always phases in such schemes and starts by saying, in this case, that emissions must be reported. Once there have been one or two years of data, the EU will say that the subsequent reporting will attract a liability for allowances.

The UK has not done that for maritime here. We do not know why that has not been done, because it was done for the waste incinerator industry in the UK to ensure the data quality was up to scratch. Although operators have collected some data, that data has sat on internal corporate spreadsheets without being submitted, because there was no mechanism to submit the MRV data to the UK Government post Brexit. The quality of data is a serious issue. It is not a delay for the sake of it. If the EU regime is to keep its integrity, the UK's data must have that same integrity, which, at the moment, it does not.

Mr McAleer: Thank you.

Mr Grant: I will add one other point, Declan. The UK scheme lacks a clear mechanism for how the revenue that is raised will be used to support decarbonisation. That is a fundamental difference and a big omission from the UK scheme. We have raised that point consistently throughout the process.

Ms Ross: We are also put at a competitive disadvantage if we cannot access the same revenues as those who operate in the EU.

I will make a quick point on the offshore sector. Whether or not we align, the current rules will create a lot of distortion, disincentivising UK ships from calling at Northern Irish or UK ports to service UK offshore wind farms. I can explain more later, but there needs to be a dialogue between the UK and the EU on those rules in order to iron things out and not disincentivise each of them from using their own ports for their offshore wind farms.

The Chairperson (Mr Butler): John will finish out the session. The Minister is outside.

Before I bring in John, I make Members aware that there are two amendments to the Order in the House of Lords: one tabled by Baroness Hoey and the other by Lord Moynihan. They are worth looking at, on the other side, if you want to pick them up. That is another step to take.

Mr Blair: I am grateful for all the information that you have given us, but I have to ask something. I am surprised that we have not touched on this previously. You will understand that, as a Committee for the environment, as well as for agriculture and rural affairs, we are regularly contacted, as members are in their constituencies, by people who are extremely concerned about water and air quality. Do you agree that some such scheme has to exist to encourage those who are not willingly investing in decarbonisation? If it were not this scheme, what scheme would you suggest?

Mr Grant: We do not have a suggestion for an alternative, but I believe that decarbonisation is fundamentally important. As an industry and a business, we fully support decarbonisation, but we question the mechanism that is being used and the lack of any economic impact assessment that would show whether it will bring benefits or do more damage by making Northern Ireland less competitive.

Ms Ross: The importance of a fuel standard will drive decarbonisation globally. The EU has also set that standard, and that has a huge influence on the UK as well.

Mr Blair: Thank you.

The Chairperson (Mr Butler): Are members content? Yes.

Thank you so much for your presentation. I appreciate your correspondence and the detailed evidence session. We have the Minister in shortly, so I am sure that some of the questions for him will float in that direction.

Mr Grant: Thank you.

Ms Ross: Thank you.