EU ETS
EU ETS is a carbon tax for shipowners, costs are ∼ €250 per mT fuel at €85 per mT CO2 ETS price
Starting per April 2025, vessels subject to EU ETS need to pay for their CO2 emissions from 2024. Yearly reporting is required via EU MRV.
It is expected virtually all vessels above 400GT will be incorporated with only a few exceptions.
The European Commission has proposed a reduction of allowable ETS with 62% by 2030, and 100% by 2038.
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About EU ETS
The EU ETS (EU Emission Trading System) is a market instrument used by the EU to reduce greenhouse gas emissions. It is a ‘cap and trade’ system of allowances with a maximum amount of allowable emissions for participants. One allowance equals the right to produce 1 metric tons of CO2-equivalent. This right can be traded. For shipowners however, there will be no rights to be traded. Shipowners will de facto pay a ‘carbon tax’ from the get go.
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The total amount of emissions (or allowances) in the system are ‘capped’ based on a country’s target. The limit on emissions is gradually lowered. The European Commission has proposed a 62% reduction by 2030, and 100% by 2038.
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‘Trading’ takes place through allowances. The number of allowances is limited, giving them a financial value. Market supply and demand determines the value (and therefore the price) of allowances. Trading takes place every quarter at an auction in Frankfurt where companies or proxies can trade allowances in order to comply with their annual target.
What is means for companies subject to EU ETS
Most companies that ‘participate’ in EU ETS receive an annual allocation of free allowances. Each year, companies must ‘surrender’ a quantity of allowances equal to their greenhouse gas emissions in tonnes. If companies produce more emissions than their available allowances, they must purchase additional units through trade or auction.
Emissions may also be lower than expected and fall below the number of free allowances, e.g. due to company investments in emission-reduction measures. Companies will then have allowances left over, which they can sell. Companies can therefore decide for themselves whether it is more cost-effective to invest in clean technologies, or to purchase additional units.
What it means for shipping
The European Parliament voted in September 2020 to include shipping into the EU ETS. Since then it has been subject to numerous changes, but the following can be concluded:
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The geographical scope is 100% on intra-EU voyages and 50% of voyages from/to the EU.
In case the charterer is responsible for the efficiency or operations of the ship (with regards to speed for example), shipowners will be entitled to get compensated.
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Vessels of more than 5000 GT in their voyages for transporting, for commercial purposes, cargo or passengers will be covered 2024 onwards (currently in EU MRV).
From 2025, general cargo ships and offshore vessels between 400 GT and 5000 GT will be covered by the EU MRV. By end of 2026, the Commission will present a report on the possibility to include them in the EU ETS.
From 2025, offshore vessels of more than 5000 GT will be covered by the EU MRV. From 2027, they will be covered by the EU ETS.
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40 % of verified emissions reported for 2024 will be surrendered in 2025.
70 % of verified emissions reported for 2025 will be surrendered in 2026.
100 % of verified emissions reported for 2026 will be surrendered in 2027.
The European Commission has proposed a 62% reduction by 2030, and 100% by 2038. The exact impact on shipping is unknown.
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In addition to CO2, methane (CH4) and nitrous oxide (NOX) will be covered by the EU MRV from 2024 and by the EU ETS from 2026.
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Compliance and enforcement is done by the National Emissions Authorities of EU member states.
Responsible entity under ETS is the Shipowner or Shipping Company (the ISM Holder. European commission designates companies to Administering Authorities. Based on registration of companies in EU—member states. For non-EU companies, highest number of port calls, or 1st port call.
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Earmarking of at least 20 million ETS allowances for maritime under the ETS Innovation Fund up to 2030, which will finance the improvement of the energy efficiency of ships and ports, innovative technologies and infrastructure, as well as the deployment of sustainable alternative fuels and zero-emission propulsion technologies.
Within 18 months after the adoption of an IMO measure and before it becomes operational, the Commission will present a report examining the global marketbased measure and the coherence between the EU ETS and the IMO measure.
The system can be seen as an extension of EU MRV (Monitoring, Reporting and Verification). Starting as per January 1st 2018, large ships over 5,000 GT loading or unloading cargo or passengers at ports in the European Economic Area are to monitor and report their related CO2 emissions and other relevant information.
