What charterers need to know about the EU ETS

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

100% of CO2 emitted from large ships operating between EU ports and at berth in EU ports.
50% of CO2 emitted from ships sailing to and from EU ports.

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:

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

Ships included in the EU ETS

Cargo and passenger ships above 5000 grosse tonnes from 2024
Offshore ships above 5000 grosse tonnes from 2027
Offshore ship and general cargo ships between 400 and 5000 GT may be included at a later stage

Greenhouse gases included in the EU ETS

CO2 emissions from 2024
Methane and nitrous oxide from 2026

‍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:

operates in all EU countries plus Iceland, Liechtenstein and Norway,
limits emissions from more than 10 000 industrial and power installations, as well as airlines operating between these countries,
covers around 50 % of the EU’s greenhouse gas emissions.

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).