Heavy lift operators are looking at how they can fairly implement the EU’s Emissions Trading Scheme (ETS), with costs that could run to thousands of euros a day, per vessel.
The European Parliament confirmed on April 18 that from 2024 onwards, the shipping industry will be subject to the EU emissions trading scheme (ETS). This will significantly increase costs for carriers calling at EU gateways, with the charges almost certainly being passed on to clients.
Ships travelling between EU ports will have to hand over ETS allowances for 100 percent of their emissions. Ships arriving at an EU port from beyond the bloc must pay for 50 percent of its emissions.
This is a de facto export of EU law beyond its borders; to do business with the bloc, you must comply with its rules (similar to the General Data Protection Regulation laws). Notably, the legislation states that port calls at non-EU ports within 300 nautical miles of an EU port will be considered EU ports. This is to avoid a situation where ships on long transits add a port call in a bid to reduce their ETS contribution.
All ships of 5,000 gross tonnes and above fall within the scope of ETS. As of next year, these ships will have to surrender allowances for 40 percent of their emissions, going up to 70 percent by 2025 and 100 percent by 2026.
Some EUR1.5 billion (USD1.66 billion) of the revenue generated by the auctioning of ETS allowances will be allocated via the EU Innovation Fund to invest in maritime decarbonisation efforts.
ETS has been applicable to many industries for a number of years, and its roll out to shipping will certainly put pressure on those operating older, inefficient tonnage. Burning 1 tonne of MGO/MDO emits roughly 3 tonnes of CO2. At the time of writing, the cost of emitting 1 tonne of CO2 was roughly EUR90. So carriers are looking at EUR270 per tonne of fuel burn in surcharges. Therefore, it’s apparent that ETS charges for a multipurpose ship could broach the five figure mark, per ship, per day.
Anders Hyrup, president of the Jumbo-SAL-Alliance USA, said the regulations will “force the shipowners to optimise the emissions or reduce emissions on the ship… Like anything else it comes at a cost. Like we have said before, we have to pass that on.”
BBC Chartering’s ceo, Ulrich Ulrichs, said that it is the carrier’s duty to raise awareness of the regulation and how it will affect shippers beyond the EU’s borders. “We have little bit of time, like an extended landing strip, so to speak,” in terms of their full implementation, he said. The carrier is combing through the regulation’s fine print.
Complex calculations
The industry is looking at a complex picture, and it is still yet to determine how the cost of these emissions will be passed on to customers, be it in freight tons or cubic metres, for instance. Carriers are liaising with shippers, working groups and consultants to find a fair and transparent way to implement the charges.
“We do not want to make an extra margin out of it, but also we cannot afford to just let it go,” said Ulrichs.
An HFW briefing explained that the EU ETS is a mandatory ‘cap and trade’ system that currently applies to greenhouse gas (GHG) emissions from power stations, industrial plants and aircraft located or operated within the EU. Participants must acquire and surrender ‘emissions allowances’, which represent quantities of regulated emitted GHGs on an annual basis. These allowances can be freely traded in the emissions marketplace.
With the legislative framework now in final form, HFW has prepared a factsheet which analyses the key features of the EU ETS, along with the potential implications and challenges facing the maritime transport sector.
