According to Freight Forwarding Network, global attention to climate change and its environmental impact has increased significantly in recent years. Among industries responsible for greenhouse gas emissions, the shipping industry is facing increasing scrutiny and needs to take effective measures to reduce its environmental footprint.
The EU Emissions Trading System (ETS) was originally established in 2005 as a market-based mechanism to address greenhouse gas emissions within the EU. While it primarily targets energy-intensive sectors such as power generation and manufacturing, recent developments include shipping in the EU's emissions trading system. "
Recent progress
December 2022, political negotiators reached an interim agreement to extend the EU ETS to shipping. The agreement was subsequently adopted and finalized on 16 May 2023 and published in the Official Journal of the European Union, which conveys the new laws and regulations adopted by the EU institutions. By 2024, the ETS will cover shipping activities within the European Economic Area (EEA), which is made up of EU member states, Iceland, Liechtenstein and Norway. Ship operators will therefore be required to monitor and report their emissions and surrender allowances for each tonne of CO2 they emit. "
Carbon pricing and extraterritorial applications
Under the new law, carbon pricing in the EU ETS is set on ships rather than cargo. In addition to introducing carbon pricing for ships sailing between EU countries, the law has extraterritorial application. This means that if a ship sails between an EU port and a non-EU port, half of the emissions from the voyage will be subject to the EU ETS. Shipping companies are obliged to purchase the following emission allowances:
from EU ports to non-EU ports by 50% and vice versa.
Emissions from EU port-to-port navigation are 100 per cent.
Ships calling at EU ports emit 100 per cent.
as the expansion of the ETS into maritime transport activities increases shipping costs, negotiators are concerned about the risk of tax evasion and transshipment activities moving outside the EU. To mitigate this, the law specifically targets non-EU ports with a high proportion of transshipment near the EU. For these ports, ETS has effectively extended voyage lengths to address carbon leakage concerns.
Start carbon pricing and incorporate additional greenhouse gases
The integration of shipping into the EU ETS in is an important milestone in the fight against climate change. It aims to develop financial incentives for reducing greenhouse gas emissions and facilitating the transition to more sustainable practices. Carbon pricing for shipping will be implemented in phases as the new law is passed. This means that shipping companies will be required to submit allowances equivalent to part of their emissions according to the following schedule:
By 2024, companies must submit 40 percent of their verified emissions allowances.
By 2025, companies must submit their verified emissions of 70% of the quota.
From 2026, companies must submit all verified emission allowances.
In addition, from January 1, 2026, the regulations of the carbon emissions trading system will be expanded to include the emission of two additional greenhouse gases: nitrous oxide and methane. While the immediate impact of this expansion is limited, it sends an important signal to encourage the use of renewable fuels in the future. This step-by-step approach will gradually increase the price of shipping carbon per tonne of CO2 equivalent until 2026.
What does this mean for customers?
For every tonne of CO2 reported by the, 2 EU quotas (EUAs) must be purchased and submitted to the EU each year. This applies to all transport companies responsible for purchasing EUAs. EUAs can be purchased on exchanges such as ICE,EEX and NASDAQ, as well as on the over-the-counter market.
The EU Emissions Trading System will introduce carbon pricing for shipping from 2024. Compliance costs are expected to be high and will continue to increase with phased implementation. It will be passed on in the form of a separate surcharge known as the "emissions surcharge", which applies to all voyage bookings subject to the EU emissions trading system. ECO delivery bookings will not be subject to the Emission Surcharge. Choosing an ECO Delivery means that we replace fossil fuels with green fuels. This investment reduces scheduled greenhouse gas emissions and decarbonizes your supply chain. Learn more about ECO Delivery.
expect that the volatility of the European Union Allowance (EUA) traded at ETS may increase due to supply and demand factors. As a result, the emissions surcharge will be updated on a quarterly basis to be consistent with changes in EUA prices. To ensure transparency, we will refer to the EUA price public index.
The following is an estimate of each FFE emission surcharge (in euros) for the first quarter of 2024 applicable to bookings in the following transactions. The CO2 emission obligation for 2024 is 40%, and for the purpose of calculating the estimate, the price of the EU allowance (EUA) is considered to be around € 90. We will announce the actual emission surcharge at least 30 days before the effective date of implementation.
Source: Maersk website