The European Union Emissions Trading System (EU ETS) is a “cap-and-trade” mechanism established by Directive 2003/87/EC to encourage the reduction of greenhouse gas emissions. The “cap” represents the total amount of greenhouse gases that can be emitted by the entities covered by the system, and it is gradually lowered each year to align with the EU’s climate goals. Currently, the EU ETS applies to electricity and heat production, energy-intensive industries, aviation, and maritime transport.

Who is responsible for EU ETS?

The shipowner is the default responsible entity for both MRV and EU ETS compliance, as defined by the term “Shipping Company”. However, the shipowner may transfer this responsibility to the ISM Company, provided that there is a signed document indicating that the ISM Company has been mandated by the shipowner to fulfill ETS obligations. This document must be submitted to the Administering Authority.

Although the “Shipping Company” is responsible for overall compliance with MRV and EU ETS, the Company may seek reimbursement for costs associated with surrendering allowances if the responsibility for purchasing fuel and/or operating the ship lies with another entity, such as a charter.

What is the shipping company required to do?

– Starting January 1, 2024, implement the updated MRV monitoring plan for each ship, upload the updated version to the THETIS-MRV platform for assessment by the verifier, and include monitoring of methane and nitrous oxide emissions, emission factors of biofuel/RFNBO/RCF, and data flow activity procedures.

– By April 1, 2024, submit the MRV monitoring plan, already assessed by the verifier, for each ship to the responsible administering Authority.

– Starting in 2025, and each year thereafter, submit the aggregated verified emissions data at the Company level, covering emissions in the reporting period, to the responsible administering Authority by March 31.

– Starting in 2025, and each year thereafter, surrender the required allowances by September 30. The allowances to be surrendered are: 40% of the verified aggregated CO2 emissions reported for 2024, 70% of the verified aggregated CO2 emissions reported for 2025;and 100% of verified aggregated GHG (CO2, CH4, N2O) emissions reported for 2026.

What happens in the event of non-compliance?

In the event of non-compliance, the company must pay a penalty of 100 € for each ton of emissions for which allowances have not been surrendered by September 30 of each year.

However, paying the penalty does not exempt the company from surrendering the required allowances. If the company fails to comply with the surrender requirements for two or more consecutive reporting periods, and other enforcement measures have been unsuccessful, all of its ships may be denied entry to EU ports until the company fulfills its surrender obligations.