A Greener Voyage: the EU Emissions Trading Scheme finally given the all clear to set sail for maritime
“The EU ETS will be extended to cover Maritime Transport in respect of (i) 100% of the emissions from intra-EU maritime voyages; (ii) 100% of emissions from ships at berth in EU ports; and (iii) 50% of emissions from voyages which start or end at EU ports, where the other destination is outside of the EU.”
Update on carbon trading
Carbon allowances hit an all-time high in mid-February 2023 by trading at €101 per carbon tonne. Allowances are (as of 18 April 2023) trading at €95.31/tonne.²The secondary market for carbon is therefore both lucrative and costly depending on the carbon intensity of an entity’s operations.
Please refer to our previous article for a recap of what the EU ETS is. We will also refer to the EU MRV within this article, which is the monitoring, reporting and verification framework of carbon dioxide emissions from maritime transport, as established under Regulation (EU) 2015/757 of the European Parliament and of the Council (“EU MRV”). The emissions will therefore be verified in compliance with data produced under the EU MRV.
Preparing for 2024: EU ETS updates for the maritime sector
We summarise the key amendments to the Agreed Text below:
Scope – ships
Ships above 5000 GT and transporting cargo or passengers for commercial purposes (“Maritime Transport”) will be covered from 1 January 2024, while ships between 400 and 5000 GT fall outside of the EU ETS. However, in line with the inclusion of these exempt ships under the EU MRV from 2024, the Commission will review the possibility of including the exempt ships by the end of 2024.
The Commission will then present a report to the EU Parliament and the Council by the end of 2026 on the possibility of including exempt ships within EU ETS.
Scope – emissions
The EU ETS will be extended to cover Maritime Transport in respect of (i) 100% of the emissions from intra-EU maritime voyages; (ii) 100% of emissions from ships at berth in EU ports; and (iii) 50% of emissions from voyages which start or end at EU ports, where the other destination is outside of the EU. The Amendment also provides that if the IMO fails to introduce a global market-based mechanism (“MBM”) similar to the EU ETS or in the form of a global carbon levy then the Commission will consider whether to capture “more than” 50% of international emissions from ships after 2028. This aspect of the Amendment has been watered down from the originally proposed 100% of international emissions being captured from ships in the absence of an IMO MBM.
The Amendment also amends the definition of “port of call” to exclude a stop at a neighbouring container transhipment port less than 300 nautical miles from a port inside the EU, therefore preventing ships from calling at a nearby non-EU port and surrendering a much smaller amount of allowances in respect of the short voyage from the nearby port to the EU. It is expected that the Commission will publish a list of such neighbouring ports through implementing acts by the end of 2023 and these will be updated every two years.
The Amendment also contains some geographical exemptions, for example a voyage between a port in an outermost region of a Member State to another port within the same Member State.
The emissions covered from 2024 will be carbon dioxide from Maritime Transport. However, from 1 January 2026, emissions under the EU ETS will be extended to cover methane and nitrous oxide.
Phased surrender and allowances
A shipping company will be required to surrender allowances by 30 September of each year incrementally as follows:
(i) 40% of emissions in 2025, for its 2024 verified emissions;
(ii) 70% of emissions in 2026, for its 2025 verified emissions; and
(iii) 100% of emissions in 2027 (and thereafter), for its 2026 verified emissions (and each year thereafter).
In June 2022, it was proposed that as of 2024, 100% of the verified emissions of shipping companies reported for the previous year would have to be surrendered. The reintroduction of the incremental phase-in is intended to allow maritime to adjust to its obligations and incorporate these into future operations more smoothly.
The Amendment proposes that 78.4m allowances will be allocated to Maritime Transport by auction and, unlike aviation, there will be no free allocation of allowances. Surplus allowances not yet auctioned will be cancelled rather than available for trading on the secondary market.
Who is responsible for compliance?
The “shipping company” in the Amendment (in line with the EU MRV) is defined widely as the shipowner or any other organisation or person, such as the manager or bareboat charterer of a ship, that has assumed (contractually) the responsibility for the operation of the ship from the shipowner and that, on assuming such responsibility, has agreed to take over all the duties and responsibilities imposed by the International Management Code for the Safe Operation of Ships and for Pollution Prevention. This is usually the entity responsible for the choice of fuel, route and speed of the ship – i.e. the factors affecting the emissions of the ship – however arrangements may vary depending on what has been agreed in the ship management services agreements and/or the charterparties applicable to the ship.
