May 5, 2023
Shipping’s inclusion in the European Union’s Emissions Trading System (EU ETS) will bring carbon pricing to the maritime sector in 2024. For charterers who want to leverage the opportunities of the transition, it’s time to embrace the change and learn how to navigate the EU ETS. A good way to start is to understand how the new regulations will impact your everyday work so we sum up some key aspects of the new regulation - from a charterer’s perspective.
The EU ETS (more info in fact box below) is a key tool for combating climate change and reducing greenhouse gas emissions cost-effectively. Now, the maritime industry is set to join the ranks in 2024, as shipping companies will be required to purchase EU Allowances for their carbon emissions.
Below, we explore the key aspects of the EU ETS from a charterer’s perspective.
Maritime emissions eligible under the EU ETS
There will be no free allowances for the maritime industry. However, a phase-in period of requirements for the shipping industry is scheduled as follows:
Ships included in the EU ETS
Greenhouse gases included in the EU ETS
Impact on freight rates
Now, let's talk about the impact on freight rates, because the added carbon cost from the inclusion of shipping in the EU ETS will eventually be passed on to the cost of freight. And here's the thing - emissions can significantly influence freight rates. For example, at a rate of EUR 90/tonne of CO2, the added carbon cost of a typical EU internal voyage in the MR segment would be roughly EUR 70,000.
EU ETS carbon cost as a competitive advantage
But let's not just see this as a cost, let's see it as an opportunity! If you’re proactive you can leverage the possibilities that come with factoring carbon into your commercial decisions. So, it's time to embrace the changes, stay ahead of the game, and make money while making a positive impact on the shipping industry and the world.
Are you wondering how the coming carbon cost will impact your 2024 shipping program? Or do you have questions about the inclusion of shipping in the EU ETS? Sign up for our webinar.
THE EUROPEAN UNION'S EMISSIONS TRADING SYSTEM
The EU ETS is a key tool for EU policy makers to combat climate change and for reducing greenhouse gas (GHG) emissions cost-effectively. It is the first largest and longest running international system for trading emissions allowances. The system today:
Since 2005 the EU ETS has set a cap on the total amount of GHG emissions that companies can emit each year. A fixed number of allowances, which are the currency of the carbon market, are issued. The cap is reduced over time so that total emissions fall. Within the cap, installations buy or receive emissions, which they can trade with one another as needed.
An EU allowance, or an EUA, is a permit to emit 1 tonne of carbon dioxide or its equivalent (CO2e). The price of the EUA fluctuates and can be followed at the European Energy Exchange (EEX).