Emissions trading begins to bite
The European Union’s Emission’s Trading Scheme has been expanded to include the maritime sector and it is now in force. Director Ian Short and Associate Ahmed Hassan provide a review on what this means for the sector and in particular its impact on owners and charterers.
What is the ETS?
Emission trading systems (ETS) are “cap and trade” schemes regulating greenhouse gas emissions through allowances. The EU’s ETS, launched in 2005 and now in its fourth phase, aims to enhance shipping efficiency and reduce emissions.
The maritime sector was added to the ETS following the Intergovernmental Panel on Climate Change’s Sixth Assessment Report, which highlighted the urgent need to cut emissions to meet Paris Agreement targets. The IMO’s measures like EEXI and CII have seen mixed feedback.
Directive 2023/959 expanded the ETS to include maritime, aligning with the EU’s goals of a 55% emissions reduction by 2030 and climate neutrality by 2050. The EU ETS is stringent, and shipping companies must understand its compliance requirements.
How does the ETS work?
The “cap” sets the total greenhouse gas emissions allowed for a shipping company. Each allowance permits the emission of one tonne of CO2 or its equivalent in other gases (N2O, PFCs). The cap reduces annually to meet EU climate targets. Companies must not exceed their allowances or face heavy fines, making the ETS more enforceable than the current CII measures.
Who does this effect?
Directive 2003/83/EC mandates that the ‘Shipping Company’ ensures compliance with the EU ETS. This includes shipowners, managers, or bareboat charterers responsible for the ship’s operation under the ISM Code.
The draft ‘Commission Implementing Regulation’ clarifies that the shipowner is responsible unless documented otherwise, allowing for reimbursement from entities like time charterers who purchase fuel.
The EU ETS applies to all vessel flags based on routes:
- 100% for voyages within the EU.
- 50% for voyages between the EU and non-EU ports.
- 2025: 40% of 2024 emissions.
- 2026: 70% of 2025 emissions.
- 2027: 100% of emissions.
From 2024, cargo and passenger ships ≥5000 GT must comply, with offshore ships ≥5000 GT added in 2027. Ice-class IA ships have reduced allowances until 2030.
Regulation 2023/957 mandates monitoring and reporting of emissions, requiring a verified plan by April 1, 2024. Annual reports and surrendered allowances are due by September 30 each year.
Non-compliance incurs a €100 per tonne CO2 penalty and potential expulsion from EU ports. Shipowners may need to use their own allowances and seek reimbursement from charterers.
Do you want to understand the ETS in debt, you can learn more here: www.cjclaw.com/emissions-trading-begins-to-bite
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