Since January 2024, the shipping sector has been subject to the terms and conditions of the ETS, leading to many changes in the way European sea freight operates in order to reduce emissions and finance the transition to a more sustainable world.
In this article, we cover the key aspects to remember from this significant development.
The EU Emissions Trading System (EU ETS) in a nutshell
The EU Emissions Trading Scheme (EU ETS) is a cornerstone of the EU's policy to combat climate change, and its main tool for reducing greenhouse gas emissions.
It is the world's leading carbon market and remains the largest.
Key HTA functions :
- Helps reduce emissions and generate revenues to finance the EU's green transition.
- Operates in all EU countries plus Iceland, Liechtenstein and Norway.
- Covers emissions from around 10,000 installations in the energy and manufacturing sectors, as well as operators of aircraft flying within the EU and leaving for Switzerland and the UK, i.e. around 40% of EU emissions.
- Since January 2024, the ETS has also covered emissions from the shipping sector.
The evolution of the EU Emissions Trading Scheme (EU ETS)
The Green Pact for Europe, announced in 2019, is a plan to achieve zero net emissions by 2050. To ensure its implementation, structural adjustments are needed, leading to the Fit for 55 package, announced in 2021.
Fit for 55 is a set of policy initiatives designed to help Europe achieve a net reduction in emissions of at least 55% by 2030 compared with 1990 levels.
The Emissions Trading Scheme is part of Fit for 55.
This trading system is based on cap-and-trade, where a maximum cap is set on the total amount of greenhouse gases that can be emitted by companies in the EU in a given year for the industries that apply to the ETS.
Companies subject to the ETS must purchase allowances according to the quantity of greenhouse gases they emit, and sell them accordingly.
Emission allowances can be purchased on the primary market through auctions. Consequently, the cost of allowances varies according to the auction value. They are adjusted according to the performance of the index.
There is also a secondary market where allowances can be sold bilaterally or through various derivatives supplied by financial institutions.
Emissions trading applied to European shipping
In practice, shipping companies will have to buy and sell ETS emission allowances for each tonne of CO2 emissions declared, and pass on these costs to their customers.
Key points for players in the maritime sector:
- Vessels over 5,000 gross tons entering/leaving EU ports, whatever their country of origin, are concerned.
- The system covers 100% of emissions occurring between two EU ports, as well as 50% of emissions from journeys starting or ending outside the EU.
- This also applies to ports located less than 300 nautical miles outside the EU.
- There is a transition period: starting with 40% of verified emissions in 2024, 70% of emissions in 2025 and 100% in 2026.
- A surcharge has been in place since January 2024 that applies to all shipboard shipments calling European ports.
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