Inclusion of the shipping sector from 2024 – an overview
The EU ETS aims to limit emissions and therefore is based on a "cap and trade" principle in which only a limited number of allowances is made available. After each year, operators addressed by the EU ETS must surrender enough allowances to fully cover their emissions. If they don’t, they face heavy fines. The number of allowances is reduced over time so that total emissions decrease.
The extension of the EU ETS, or more precisely the ETS I, to maritime transport activities basically means that as of this date, also shipping companies are required to surrender a number of allowances equivalent to their total emissions in the previous calendar year by end of September of each calendar year.
Based on this, under the EU ETS, shipping companies will in the future have the obligation to monitor and report the relevant emissions and to procure and surrender allowances accordingly.
Addressees in the shipping sector
The extension of ETS I to the shipping sector addresses “shipping companies”. A shipping company means any organisation or person that has assumed responsibility for the operation of the ship and that, on assuming such responsibility, has agreed to take over all duties and responsibilities for the safe and clean operation of the ship. However, such “shipping companies” in the meaning of the ETS I may, under certain conditions, pass on the cost of the required allowances if the ultimate responsibility for purchasing the fuel or operating the ship, or both, is assumed by an entity other than the shipping company pursuant to a contractual agreement.
Gradual increase of requirement to surrender allowances
The reform aims for a smooth inclusion of the shipping sector in the ETS I by gradually increasing the surrender of allowances by shipping companies in proportion to the verified emissions reported for the years 2024 and 2025. Therefore, shipping companies first have to surrender allowances for 40% of the verified emissions reported for 2024 and then for 70% of the verified emissions reported for 2025. From 2026 onwards, shipping companies then should generally surrender the number of allowances equal to their total verified emissions.
The obligation to surrender allowances shall apply to maritime voyages from a port under to a port outside the jurisdiction of an EU Member State and vice versa for 50% of the emissions and to voyages within ports under the jurisdiction of an EU Member State for 100% of the emissions. In the event that the International Maritime Organization (IMO) does not establish a comparable global measure to reduce greenhouse gas emissions from maritime transport by 2028, the Commission shall submit a report to the European Parliament and the Council examining the need to increase that percentage in the light of the objectives arising from the Paris Agreement.
The renewal of ETS I shall apply to the maritime sector from 1 January 2024. Therefore, Member States shall implement necessary laws and provisions by 31 December 2023, and shipping companies must be prepared to ensure compliance with the regime and avoid facing severe penalties.
Authored by Dr Stefan Schröder and Dr Denise Leinders.