With the goal of achieving net-zero emissions by the year 2050, the European Union is set to expand the use and scope of the ETS (EU Emission Trading System), which was established in 2005, by including the shipping industry in the very near future. “Net zero” refers to the balance between the amount of greenhouse gases (GHGs) produced and the amount removed from the atmosphere. This can be achieved through a combination of emission reduction and emission removal. Starting from January 1, 2024, shipping lines and ship operators will begin paying for carbon emissions.
While shipping operations are an essential part of global supply chains, they also contribute to carbon emissions. However, in comparison to other modes of transport, shipping remains the most environmentally friendly transportation option.
ETS is a “cap and trade” scheme where a limit (the cap) is placed on the total amount of greenhouse gas emissions that can be emitted by factories, power plants, ships, and other entities included in the ETS scheme. This emission obligation requires companies to hold an allowance for each tonne of CO2 and other carbon-equivalent gases being emitted. The proceeds from the sale of allowances will be used for the EU’s green fund, which will support investments in alternative fuels and new technologies.
As shipping companies will need to purchase emission allowances from the EU, the ETS will significantly impact the cost base for the industry. These additional costs will need to be absorbed by the market. There will be no fixed price list for these emission allowances; instead, the price will be determined by supply and demand in the market. As the supply side of these emission allowances gradually decreases to support the 2050 goal of net-zero emissions, emission allowances will become increasingly expensive, placing even greater pressure on shipping companies to accelerate their efforts to reduce their environmental footprint.
The UK has announced its intention to introduce a similar system, which will affect both UK domestic routes and UK-EU routes in the future.
ETS in an overview
- Application to all vessels over 5,000 GT trading within EU waters, irrespective of flag
- Start date of 1 January 2024
- A phased-in implementation, with 40% of emissions covered by the system during 2024, 70% for 2025 and 100% for 2026.
- All intra-EU voyage emissions to be covered by the scheme by 100%
- 50% of EU in-bound/out-bound voyage emissions will be covered
- The ‘shipping company’ (defined as owner, manager or bareboat charterer) will be responsible for surrendering the allowances
- The system will cover carbon dioxide, methane, and nitrous oxide (the latter two not before 2026)
- Non-compliance can lead to penalties and expulsion orders
Before 1st January 2024 Ellerman will inform its partners and customers regarding the charged amount of the additional surcharge. As does the whole industry, Ellerman will be working on decarbonizing the vessel fleet.
For further information on our ocean schedules and supply chain services contact our Ellerman City Liners team at firstname.lastname@example.org.