This weekend, EU institutions managed to come to a agreement during their final discussions on how to reform the European Union’s Emissions Trading System (EU ETS). With this agreement the last hurdle to the inclusion of shipping emissions in the EU ETS is overcome.

The details on how to include shipping emissions in the EU ETS were agreed upon in a provisional agreement reached on 29 November 2022. From the charterer’s perspective these are the most important takeaways:

• There will be a three year phase-in for the shipping industry
  – 40 % of emissions reported in 2024 will have to be paid for in 2025
  – 70 % of emissions reported in 2025 will have to be paid for in 2026
  – 100 % of emissions reported in 2026 will have to be paid for in 2027
• 50 % of emissions from global EU voyages will be covered by the ETS – Depending on progress at International Maritime Organization (IMO) the coverage of global  voyages should be revised in 2028
• The scope of greenhouse gases will be extended to methane and nitrous oxide (N2O) – Methane and N2O will be included in reporting system (MRV) from 2024 and in the ETS from 2026
• The EU ETS will apply to all cargo vessels and passenger ships over 5,000 gross tonnes.
• Offshore service vessels are to be included in the MRV system from 2025 and in the ETS from 2027
• Ships of 400 gross tonnage and above is to be included in the MRV in 2025 to evaluate whether they are to be included in the ETS in 2026
• The Innovation Fund is strengthened with 20 million extra allowances, and there will be dedicated calls to decarbonise the maritime sector under the Innovation Fund
• Failure to surrender emission allowances may lead to fines and refusal of port calls
• The shipping company will be responsible for the compliance with the EU ETS however, the shipping company will be entitled to claim reimbursement for the compliance costs from the entity that is directly responsible for the decisions affecting the CO2 emissions of the ship

The agreement reached last night still needs to be officially approved before entering into force. This is usually a mere formality.

It is now clear that shipping emissions will have a cost from 2024. Charterers will be impacted by increased freight rates and should start preparing. By understanding how their chartering and shipping decisions influence emissions, charterers can reduce emissions and cost exposure. Contact the Siglar Carbon experts to get prepared.