European carbon price above USD 100 could increase freight rates by 10-30 %

February 17, 2022

The EU ETS allowances have been traded above USD 100 every day since the start of February. At this level the carbon price could increase freight rates by 10-30%. We use four example voyages from the tanker segment to show how this carbon price could impact freight rates on intra EU voyages and on global EU voyages.

Last week’s average settlement price in the EEX spot market was approx. EUR 93, or USD 105, per tonne emitted CO2. Using four commonly traded tanker routes to exemplify, we see that a carbon cost at this level would lead to a substantial increase of freight rates:

Emissions and carbon cost related to four commonly traded tanker routes
Carbon price impact on freight rates at USD 105

MR vessel from Riga / Amsterdam

Emissions: 700 tonnes of CO2
Added carbon cost: USD 73 500 *
Percentage of freight rate: 17 %
Added carbon cost per tonne cargo: USD 2.0

Intermediate vessel Riga / Amsterdam

Emissions: 450 tonnes of CO2  
Added carbon cost: USD 47 500 **
Percentage of freight rate: 19 %
Added carbon cost per tonne cargo: USD 3.8

MR vessel Antwerp / New York

Emissions: 1 700 tonnes of CO2
Added carbon cost: USD 89 500***
Percentage of freight rate: 10 %
Added carbon cost per tonne cargo: USD 2.4

VLCC vessel from US Gulf / UKC

Emissions: 4 700 tonnes of CO2  
Added carbon cost: USD 247 000****
Percentage of freight rate: 15 %
Added carbon cost per tonne cargo: USD 1.0

According to the current revision of the European Emissions Trading System (EU ETS), only 50 % of emissions from global EU voyages would be included in the scheme, whereas 100 % of emissions from internal EU voyages and 100% of port stays in the EU would be included. This is reflected in the above numbers.

New EU suggestion: ETS could cover 100 % of emissions from global EU voyages

In a new draft, an EU Parliament committee suggests that 100% of emissions from global EU voyages could be included in the scheme.  In that case the carbon cost in our extra-EU voyage examples would increase substantially.

Carbon price impact if 100 % of emissions are accounted for

Read more about the new proposal from the European Parliament ENVI Committee

MR vessel from Antwerp / New York

Added carbon cost: USD 179 000
Percentage of freight rate: 19 %
Added carbon cost per tonne cargo: USD 4.8

VLCC US Gulf / UKC

Added carbon cost: USD 494 000
Percentage of freight rate: 31 %
Added carbon cost per tonne cargo: 1.9 USD

The final design of the expansion of the ETS to the maritime sector is not yet decided upon. The phase-in of the sector will however start in 2023 leaving companies with little time to prepare.

Commercial decarbonisation of the maritime industry

Carbon reporting is a good place to start if you want to prepare for the coming EU ETS exposure and to understand the carbon exposure of your chartering decisions. There are great emissions reduction opportunities in commercial decarbonisation of the maritime industry. Therefore, we have developed a Siglar carbon standard reporting system, gathering the data you need to understand and mitigate your carbon cost exposure, and to map the opportunities that lie within your commercial decisions.

Want to know more about our reporting standard or our predictive emissions analytics? Or do you want to speed up you commercial decarbonisation journey? Get in touch with the Siglar team.  

* Emissions from a modern MR vessel transporting 37 000 tonnes of gasoline from Riga to Amsterdam, ballasting from Le Havre.  

**  Emissions from an intermediate vessel transporting 12 500 tonnes of gasoline from Riga to Amsterdam, ballasting from Le Havre.

*** Emissions from a modern MR vessel transporting 37 000 tonnes of gasoline from Antwerp to New York, ballasting from New York. For simplicity we use round voyage and assume similar emissions in load and discharge port.

**** Emissions from a VLCC transporting 260 000 tonnes of crude oil from US Gulf to UKC, ballasting from Rotterdam. For simplicity we use round voyage and assume similar emissions in load and discharge port.

Factbox ENVI suggestion