In July2021 the European Commission presented a large revision of the EU ETS directive and the inclusion of shipping was one of many major amendments. Since then, the European Parliament and the Council of the European Union have suggested several amendments to the Commission's proposal to include shipping in its carbon trading scheme. Mid December, EU institutions managed to come to an agreement and today the revision was finally adopted by the EU Parliament.

From the charterer's perspective these are the most important elements of the inclusion of shipping in the emissions trading system.

Phase-in

• The phase-in of requirements for the shipping industry is scheduled as follows:
  - 40 % of emissions reported in 2024 to be paid for in 2025
  - 70 % of emissions reported in 2025 to be paid for in 2026
  - 100 % of emissions reported in 2026 to be paid for in 2027

Scope

• 100% of emissions from voyages and port stays within the EU/EEA will be covered by the ETS
• 50 % of emissions from voyages into and out of the EU/EEA will be covered by the ETS (to be reviewed in 2028)
• Methane and nitrous oxide will be included in the reporting system (MRV) from 2024 and in the ETS from 2026
• The EU ETS will apply to ships above 5 000 GT transporting cargo and passenger for commercial purposes
• Offshore service vessels are to be included in the MRV system from 2025 and in the ETS from 2027
• General cargo and offshore ships between 400 and 5 000 GT are to be included in the MRV in 2025, by the end of 2026 the EU commission will evaluate whether to include these ships in the ETS

Responsibilities

• The shipping company (ISM manager) is responsible for complying with the ETS directive and surrendering the right amount of allowances
• The shipping company is entitled to pass on the ETS cost to the charterer, regardless of type of contract
• The shipping company's right to claim reimbursement for the costs arising from the surrender of allowances should be enshrined in national law

The inclusion of maritime transport in the ETS is expected to lead to an increase of 80 to 100 million tons of CO2 or million EU allowances(EUA) in the European cap and trade system. The EUA price has traded at around 90 euros lately, however the price is volatile and spot prices can be found at the European Energy Exchange.

The texts have to be formally endorsed by Council. They will then be published in the EU Official Journal and enter into force 20 days later.

Read more about how the EU carbon cost will impact freight costs or contact the Siglar Carbon experts to get prepared for the ETS and carbon cost in shipping.