EU-ETS
EU's Emission Trading System
EU-ETS Shipping - The Background
The European Union Emissions Trading System (EU-ETS) is one of the world’s largest and most comprehensive carbon trading frameworks, initially established in 2005 to curb GHG emissions across power, industry, aviation and many other sectors. Now, as part of the EU’s ambitious European Green Deal, the Fit for 55 Package and commitment to achieving net-zero emissions by 2050, the EU-ETS extended to include the maritime industry. From 1st January 2024, the EU-ETS was officially applicable to the shipping industry too. This page shares more about this EU-ETS Regulation, how it impacts shipping, and what you can do to stay ahead of these compliances.
The need for EU-ETS in Shipping
Maritime transport is the most cost-effect & energy-efficient mode of transport, both in terms of dollars per tonne & MJ per tonne traveled. However, it still is a growing source of GHG emissions. In 2018, around 1000+ million tonnes of CO2 were emitted by global shipping, which were responsible for 2.9% of global emissions caused by humans. At an EU level, about 3-4% of EU’s total CO2 emissions came from the shipping sector, which accounts to over 124 millions tonnes of CO2 in 2021 (EU Study). Projections showed that these emissions could increase by 130% (of 2008 baseline) by 2050. If things go on like this, it will violate the Paris Agreement, and we will cross tipping point far earlier than projected. In order to reduce emissions, the EU-ETS action was taken. Lets look at what is ETS first :
What is EU-ETS? How does Emission Trading work?
In EU-ETS, Emissions trading is an approach to control emissions by providing economic incentives for achieving reductions in emissions of pollutants, or by penalizing the ones not-complying with emission norms. In particular, the EU-ETS works on a cap-and-trade system, in which :
- a limit (or cap) is set on the amount of emissions of pollutants
- tradable allowance equal to the limit that allow the company to emit a specific amount of the pollutant.
These allowances can be bought & sold between entities in an allowance market, which consists of primary & secondary markets.
What are EUAs or EU Allowances?
EUAs, or EU Allowances, are permits issued by the EU that allow companies to emit a certain amount of CO2 or other GHGs.
1 EUA means the right to emit 1 tonne of CO2 or its equivalent emission.
Previously, under the cap & trade system, every industry (i.e. power, aviation, etc.) was allotted a cap. If a company emits less than this cap, they could sell their extra EUAs to others. And if the company emits more, they must buy additional EUAs from the market. Since the shipping industry was introduced relatively late to the EU-ETS scope, the cap is already set to zero. Which means that shipping companies will have to somehow pay for every tonne of CO2 or its equivalent emissions, in order to accumulate the EUAs
EU-ETS Timeline & Key Dates
31 August 2017
(or within 60 days of your ship's first EU port of call)
Prepare & get your EU-MRV Monitoring Plan assessed by an accredited verifier
1 January 2018 to
31 December 2018
First reporting period for EU-MRV. Every 1st January to 31 December is taken as EU-MRV’s reporting period
30 April 2019
(henceforth 30th April of the year after the reporting year)
Emissions reports for each ship must be verified by an EU-accredited verifier
30 June 2019
(henceforth 30th June of the year after the reporting year)
the DOC (Document of Compliance) issued by the verifier is to be on-board
Who is the EU-ETS applicable on?
EU-ETS Maritime Regulation Explained
From 1st January 2024, the EU-ETS covers CO2 emissions from ships of 5000 GT and above, entering EU ports, regardless of their flag. The applicability is as follows :
- 100% Emissions are in scope for voyages between two EU ports of call
- 50% Emissions are in scope for voyages between EU port & non-EU port ports of call
Voyages between two non-EU ports of call are not applicable for EU-ETS Compliance.
Currently, EU-ETS covers only CO2 emissions, but from 1st January 2026, it will cover CH4 and N2O emissions as well.
To understand the amount of emissions, EU-ETS uses the verified voyage & fuel consumption data reported by ships in their EU-MRV THETIS portal. In practice, shipping companies have to purchase and surrender EUAs for each tonne of CO2 emission as reported in MRV. The EU Member State Administering Authorities ensure compliance to the rules of these regulations.
To ensure a smooth transition, there is an initial phase-in period, where shipping companies will have to surender only a portion of their emission allowances :
- 2025 : for 40% of reported emissions in 2024;
- 2026 : for 70% of reported emissions in 2025;
- 2027 : for 100% of reported emissions in 2026.
Our Thoughts on the EU-ETS Regulation
The path to sustainability comes with a lot of challenges. More than 10,000 ships yearly sail in EU waters. Commercially speaking, adding the shipping sector in EU-ETS scope will undeniably have a trickle down effect, as ship operators will pass down the penalties onto the charterers and ultimately, shipping costs will rise. With ETS, the EU has taken a bold step, as there will be carbon leakage & overall strain on the economy. Less efficient ships who might face compliance issues simply will start sailing in regions where the regulations are less intense, or avoid shipping routes around European Economic Areas. This could potentially undermine an effort towards decarbonization.
How can Ecosail help with EU-ETS Compliance?
Ecosail’s digital leverage & data advocacy can help to optimize your vessel’s fuel consumption & emission figures. With our voyage simulator, you can predict any voyage’s emissions & applicable EUAs and get key risk management insights, typically before you undertake a voyage.
Developing & using alternative fuels like Ammonia, Hydrogen or Biofuels can decrease your GHG footprint substantially as compared to Fuel Oils like HFO, LFO or even Diesel Oil. However, these fuels are costlier & in some cases not readily available. The best practices, especially if you have older vessels, are around minimizing risk & understanding how your fleet can plan ahead of time with regards to the company’s EU Allowances & ship-related modifications plan.