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New EU ETS amendments – what do they mean to the charterer?

Newly suggested EU ETS amendments have the potential to strongly impact charterers and freight rates. The commercial operator’s requirement to pay the final carbon cost is enforced and the inclusion of emissions from the shipping industry is accelerated and expanded.
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New EU ETS amendments – what do they mean to the charterer?

March 18, 2022

Newly suggested EU ETS amendments have the potential to strongly impact charterers and freight rates. The commercial operator’s requirement to pay the final carbon cost is enforced and the inclusion of emissions from the shipping industry is accelerated and expanded.

UPDATE: This blog describes a suggestion made by the European Parliament’s rapporteur on the proposed revision, Peter Liese, in January 2022. Please find updated blogs on our Insight page.

The revision of the European Emissions Trading System (ETS) is currently being discussed in the EU Parliament, and the final design of the inclusion of the maritime sector in the carbon trading scheme is still pending. The latest amendments suggested by the European Parliament’s rapporteur on the proposed revision, Peter Liese, underline the charterers’ role in the ETS and in the decarbonisation of the shipping industry. His suggestions have the potential to strongly impact charterers and freight rates.

Several amendments are suggested, but we believe that three stand out as more consequential to the charterer.  

Three suggestions that charterers ought to pay attention to:
  • Charterers to pay the final price of the EU ETS  
    There are still uncertainties as to who will be the responsible entity under the EU ETS, being accountable for reporting and buying allowances. However, Liese’s amendments enforce the polluter pays principle, as it underlines the need for a contractual clause making sure the ETS costs would fall on the entity that is ultimately responsible for the decisions affecting the CO2 emissions of the ship (including choice of fuel, route, speed and choice of cargo). Using slightly stronger wording, this echoes what the Commission has already proposed, so it seems that a consensus is building that the charterer in many cases will be held legally responsible for paying the final carbon cost connected to maritime emissions.
  • Accelerated phase-in with full reporting in 2025
    Under the current proposal shipping would be incorporated into the EU ETS from 2023, with a phase-in period ending in 2026. The shipping companies would have to surrender 20 % of verified emissions for 2023, 45 % for 2024, 70 % for 2025 and 100 % for 2026. Liese’s draft calls for an acceleration of the phase-in period recommending that shipping companies report on 33.3 % of verified emissions for 2023, 66.6 % for 2024 and 100 % for 2025 and each year thereafter.  
  • 100 % of emissions from global EU voyages included in the EU ETS
    Under the current proposal only 50 % of emissions from incoming and outgoing global EU voyages are included in the scheme. The new draft from the EU Parliament’s rapporteur suggests that if there has been insufficient progress at International Maritime Organization (IMO) level by 2028 the Commission should have the option of extending the ETS to cover 100 % of the emissions from ships performing global EU voyages.  

See examples of how these changes would impact the carbon exposure of commonly traded tanker routes.

These suggestions could all strongly impact freight rates. At today’s level, adding the carbon cost of 100 % of the emissions from an MR vessel Antwerp / New York, could increase freight rates by 10-30 %. Accordingly, the freight rates of a VLCC US Gulf /UKC would increase by more than 30 %.

Want to know how the ETS could impact the carbon cost exposure of your shipping book, contact the Siglar team for more information.  

Want more information on shipping decarbonisation initiatives? 

The most influential COP26 shipping initiatives

Quick summary of IMO's MEPC77: Still left to individual companies to drive shipping decarbonisation

Three ways in which the EU's "Fit for 55" package affects ship and cargo owners