May 9, 2023
If you’re a mid size charterer or owner you can expect an added carbon cost of approximately 10 million USD to your freight costs, once shipping enters the EU ETS. Do you know the carbon cost of your chartering activities? We've outlined three steps that will allow you to predict the 2024 EU ETS cost of your chartering activities.
As in any transition, it comes with both risks and opportunities and to leverage both you need to understand its consequences. That’s why we present 3 steps to make sure you understand the carbon cost exposure of your shipping programme.
First, you need to get an overview of emissions from your shipping program. You can do this internally or with the help of external providers. However, when preparing for the EU ETS, it’s crucial to analyse emissions on voyage leg and ports stay level as this allows you to pin emissions to the right voyage leg.
If you don’t have access to the necessary emissions data, estimates can be made to give you a rough idea. There are many providers of emissions estimates, but be aware of variations in level of details and accuracy. Make sure to define how you want to use your emissions insight before choosing level of detail.
Siglar Carbon experts can provide advice on the accuracy and granularity needed to achieve your objectives.
Next, you need to quantify EU ETS eligible emissions related to your shipping programme. This requires identifying how much of your total emissions will have to be paid for under the EU ETS.
In the EU ETS reporting system (MRV), emissions are accounted for voyage by voyage and divided into ballast leg, ports stays and laden leg. 100 % of emissions from voyages and port stays within the EU and EEA countries are eligible under the ETS whereas only 50% of emissions from global EU voyages are eligible. There will be a two year phase-in of maritime emissions which means that only 40% of emissions reported in 2024 and 70% of emissions reported in 2025 will be eligible under the ETS. In 2024 the EU ETS will apply to all ships above 5 000 GT transporting cargo and passenger for commercial purposes.
For further information about what emissions are eligible under the EU ETS, read the article What charterers need to know about EU ETS.
If you have access to the Siglar Carbon Analyser, EU ETS eligible emissions and related carbon cost are highlighted on voyage level, segment level and full program level.
Finally, you can predict your carbon cost. Once the amount of eligible emissions is quantified, you can calculate the carbon cost of your completed voyages and start predicting the EU ETS cost exposure of your coming shipping program.
Keep in mind that trading pattern and volatility of the EUA market will impact your future carbon cost. To cover all eventualities, you might want to outline different scenarios specifying different cargo quantities, vessel segments and destinations.
An EU allowance, or an EUA, is a permit to emit 1 tonne of carbon dioxide or its equivalent (CO2e). The EUA price is fluctuating and has over the last 12 months varied between USD 60 and USD 110, so you should also factor different carbon price levels into your calculations.
If you're still unsure about the value of this process, let's have a look at some numbers.
Our analysis shows that a charterer or owner who is active in the European short sea market with 20 ships could generate approximately 100 000 tonnes of CO2 emissions a year. At a carbon cost of USD 100 per EUA, this would mean an added cost of USD 10 million per year once the EU ETS is fully phased-in.
Charterers and owners engaged in larger vessels could easily generate emissions close to 500 000 tonnes of CO2 per year with an annual carbon cost of 50 million USD.
With these three steps, you'll be prepared for the added ETS cost, and you can also start looking for ways to take advantage of some of the opportunities that come with this giant transition.
If you want to dig deeper into possibilities to reduce emissions and increase profit you’ll need to dig deeper into your emissions analysis. By analysing emissions at daily level our experts can highlight the areas where you can cut emissions most efficiently, so that you gain a competitive edge.
The EU ETS cost is only months away from hitting the shipping industry and it is more important than ever to understand your exposure. That's why we offer a free EU ETS analysis to provide you with the insights you need to understand and mitigate your exposure. Sign up for a free Siglar Carbon Cost Exposure Analysis.