In January 2024, the European Union Emissions Trading Scheme (EU ETS) will be extended to also cover marine transportation i.e., vessels with a size of 5000 gross tonnage and above, entering EU ports regardless of the flag on the vessel.

In connection with the European climate law, where the EU sets out to reach climate neutrality in 2050 and reduce net emissions of greenhouse gases by 55% compared to 1990 levels by 2030, EU also introduced the EU ETS back in 2005.

The EU ETS works via a ‘cap-and-trade’ principle, setting a cap on the total amount of greenhouse gas emissions that can be emitted across different industries. The cap is reduced anually in line with the climate target, ensuring that emissions decrease overtime, and makes polluters pay for their greenhouse gas emissions.

In addition, the European commission introduced the “Fit for 55” package in 2021 – an initiative to make all sectors in the EU economy fit to meet the 2030 target. This included an expansion of the EU ETS to include emissions from maritime transport from January 2024, thus having a direct effect on our business operations.

How it works:
The EU ETS consists of a fixed set of emissions allowances, where one allowance gives the right to emit one tonne of CO2 equivalent. EU sets the cap, the number of allowances available, and it is then up to each company to purchase enough allowances to account for their respective emissions – otherwise, companies will receive a fine.

The EU ETS sets out to govern European carbon emissions and companies conducting voyages on EU territory must purchase allowances for:

• 50% of emissions from voyages departing from an EU port to a non-EU port
• 50% of emissions from voyages departing from a non-EU port to an EU port
• 100% of emissions from voyages between EU ports and
• 100% of emissions from ships at berth at an EU port

However, to ensure a smooth transition, the EU have created a phase-in period where shipping companies only have to surrender allowances for a portion of the emissions during the phase-in.

• 40% of the emissions reported in 2024
• 70% of the emissions reported in 2025
• 100% of the emissions reported from 2026 and onwards

How does it impact our customers?
As with other regulations, there will be costs associated with complying with the EU ETS, adding extra costs to shipping in general.

To meet the requirements of EU ETS, we have expanded our in-house risk system and enabled our voyage management system to handle allowances, as well as ensured that the price is embedded into our contracts.

In order to offer the most optimal solutions for our customers, we have settled on different ways of pricing under the EU ETS Scheme.

• Floating price: Charterer covering the costs either by transferring allowances or cash.
  • This is a pricing options relevant for time charter outs, clients that already have a carbon desk and prefer to trade themselves, and cargo clients where a lot of optionality is needed and therefore difficult to estimate the allowance exposure.
• Fixed price: Emission cost integrated into the freight contract.
  • This is relevant for clients that want an all-inclusive price.

At NORDEN we are committed to reaching net Zero in 2050, and we therefore work proactively with adopting the EU ETS regulation and integrating it into our business operations, so that we can continue to offer our customers the best possible services.