Emissions Trading System for Shipping Update - EU ETS

Hello Quesenians,

On 16 May 2023, new amendments were published in the EU Official Journal relevant to the EU emissions trading system (EU-ETS) and will enter force on 5 June 2023.

Starting from 1 January 2024, shipping companies should surrender allowances (EUA) by the deadline of 23 September each year.

Greenhouse Gases

EU-MRV:

  • From 2018, carbon dioxide (CO2)
  • From 2024, carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O).

EU-ETS:

  • From 2024, carbon dioxide (CO2)
  • From 2026, carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O).

Application

EU-MRV:

  • From 1 January 2018, ships that are over 5,000 GT fall under the scope of EU MRV, with certain exceptions like warships, fish-catching, etc.
  • From 1 January 2025, the EU-MRV will also apply to:
  • general cargo ships between 400 ≤ GT ≤ 5,000.
  • offshore vessels of 400 gross tonnage and above

EU-ETS:

  • From 2024, ships above 5,000 GT engaged in commercial activities at EU/EEA ports.
  • From 2027, offshore ships above 5000 GT will be included in the ETS.
  • In 2026, the EU will decide if smaller general cargo and offshore ships between 400 and 5000 GT should also be subject to the ETS.

Pattern of Voyages

The surrender requirements will apply to voyages as follows:

  • 50% of the emissions from ships performing voyages departing from an EU port and arriving at a non-EU port
  • 50% of the emissions from ships performing voyages arriving at an EU port from a non-EU port
  • 100% emissions from ships performing voyages between EU ports
  • 100% of emissions from ships at berth in an EU port

Phase-in

Schedule to surrender allowances by the Shipping companies:

  • 40% of verified emissions reported for 2024
  • 70% of verified emissions reported for 2025
  • 100% of verified emissions reported for 2026 and each year thereafter

Shipping Company definition

The person or organization responsible for compliance with the EU ETS should be the shipping company, defined as the shipowner or any other organization or person, such as the manager or the bareboat charterer, that has assumed the responsibility for the operation of the ship from the shipowner and that, on assuming such responsibility, has agreed to take over all the duties and responsibilities imposed by the International Management Code for the Safe Operation of Ships and for Pollution Prevention.

Port of Call definition

The port where a ship stops to:

  • load or unload cargo or embark/disembark passengers, or
  • for offshore ships the port stops to relieve the crew

Excluded from being considered ports of call:

  • stops in port because the ship is in need of assistance or in distress
  • ship-to-ship transfers carried out outside port limits
  • stops for the sole purpose of taking shelter from adverse weather or rendered necessary by search and rescue activities
  • stops of containerships in a neighbouring container transhipment port
  • stops for purposes of refuelling, obtaining supplies, relieving the crew of a ship other than an offshore ship, going into dry-dock or making repairs to the ship and/or its equipment.

Transfer of the ETS costs from the shipping company to another entity

The shipping company is responsible for complying with the emissions rules and surrendering the allowances.

However, if someone else assumes the responsibility for buying fuel or operating the ship, the shipping company can recover the costs from them.

The shipping company can determine the ship’s cargo, route, and speed. The EU Member States have yet to decide how to enforce this, so it would be best to include in the charter party a provision that clearly allocates liability for the allowances’ cost and provision.

Transhipment ports

For container transshipments ports, the Commission shall, by 31 December 2023, establish a list of neighbouring container transhipment ports and update that list by 31 December every two years thereafter.

The list will contain a port as a neighbouring container transhipment port

  • where the share of transhipment of containers, measured in twenty-foot equivalent units, exceeds 65 % of the total container traffic of that port during the most recent twelve-month period for which relevant data are available and
  • where that port is located outside the Union but less than 300 nautical miles from a port under the jurisdiction of a Member State

Administering authorities

The administering authority in respect of a shipping company shall be:

  • in the case of a shipping company registered in a Member State, the Member State in which the shipping company is registered.
  • in the case of a shipping company that is not registered in a Member State, the Member State with the greatest estimated number of port calls from voyages performed by that shipping company in the preceding four monitoring years.
  • in the case of a shipping company that is not registered in a Member State and that did not carry out any voyage falling within the scope of the EU MRV Regulation in the preceding four monitoring years, the Member State where a ship of the shipping company has started or ended its first voyage falling within the scope set out in that Article.

Ice-class vessels

Until December 31, 2030, shipping companies operating ships with ice-class IA or IA Super or a similar ice class can surrender 5% fewer allowances than their verified emissions.

Exceptions

Until 31 December 2030, EU Member States can request exemption in relation to:

  • voyages performed by ro-pax ships and passenger ships (other than cruise passenger ships) between a port of an island with no road or rail link with the mainland and a port under the jurisdiction of that same Member State and from the activities within a port from those ships in relation to those voyages. The island must have a population of fewer than 200,000 permanent residents according to the latest data available in 2022. The Commission will publish and regularly update a list of these islands and their ports.
  • Voyages made by passenger or ro-pax ships under a transnational public service contract or obligation between two Member States, and activities in ports related to those voyages, are exempted.

Up until 31 December 2030, there is no obligation to surrender allowances between ports in an outermost region of an EU Member State, including ports within and between those regions, and activities in those ports related to those trips, are exempted.

Risks for Non-Compliance

  • Member States shall ensure the publication of the names of operators, aircraft operators and shipping companies that are in breach of requirements to surrender sufficient allowances
  • Member States shall ensure that any shipping company that does not surrender sufficient allowances by 30 September each year shall be held liable for an excess emissions penalty. The excess emissions penalty shall be EUR 100 for each tonne of carbon dioxide equivalent emitted for which the shipping company has not surrendered allowances. The penalty is EUR 100 without releasing the operator from the obligation to surrender the allowances from these excess emissions the following calendar year.
  • If a ship fails to meet the surrender requirements for two or more reporting periods, the competent authority of the port’s Member State may issue an expulsion order after allowing the company to provide its comments. This order will be communicated to the Commission, the European Maritime Safety Agency (EMSA), other Member States, and the relevant flag State. If an expulsion order is issued, all Member States (except the flag State) must refuse to allow the concerned ships into their ports until the company complies with the surrender requirements.

QUESEAS -EU ETS - June 2023.pdf (311.8 KB)

Reference: Official Journal of the European Union, L 130, 16 May 2023

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