In 2013, the EU introduced the Monitoring Reporting and Verification (MRV) of ship emissions as part of the EU strategy toward shipping decarbonization.
From 1 January 2018, MRV Regulation (EU) 2015/757 requires an emission report to be submitted each year to the European Commission (EC) if a vessel above 5000 GT carries passengers or cargo to, from, or between the European Union (EU)/ European Economic Area (EEA) ports, regardless of the Flag they are flying.
The constructive methods of the EU to decarbonize the shipping sector led a few years later to the EU Emission Trading System. In July 2021, the ‘Fit for 55’ package included the revised EU ETS legislative proposal extended to the maritime sector.
The EU ETS works as a ‘cap-and-trade’ principle, and the negotiations among the EU Commission, EU Parliament, and EU Council will finalize the requirements of the forthcoming extension of the ETS into shipping.
A phase-in period will ensure a smooth transition, where shipping companies will only have to surrender allowances for a portion of their verified emissions. Initially, the date of full application was 2026, therefore the phasing-in schedule for surrendering allowances of verified emissions was:
- 20% of verified emissions for 2023
- 45% of verified emissions for 2024
- 70% of verified emissions for 2025
- 100% of verified emissions for 2026
(Scenario 1)
However, the draft of the European Parliament’s rapporteur (Jan 2022) suggested moving forward the envisaged date of full application by one year, from 2026 to 2025, and the phasing-in schedule for surrendering allowances of verified emissions might be:
- 33.3% of verified emissions for 2023
- 66.6% of verified emissions for 2024
- 100% of verified emissions for 2025
(Scenario 2)
Allowance or emissions permit allows its owner to emit one tonne of a pollutant such as CO2e.
The pattern of the voyage plays a key role in carbon pricing. The Commission’s ETS proposal requires shipping companies to purchase allowances for emissions:
- 50% departing from an EU port to a non-EU
- 50% departing from a non-EU port to an EU port
- 100% between EU ports
- 100% at berth in an EU port
Considering that the EU MRV data are public I thought it would be a good idea to analyze the reporting data for 2021 (exported on v-25_05/08/2022) and share with you Queseanians what Companies will need to pay to transport goods.
The current study considers the above-mentioned pattern of voyages and the first phase-in scenario of the European Commission’s proposal. The study is based on raw data and ships are categorized based on the ship type.
Based on the verified emission reports of 2021 and the pattern of the voyages for the EU ETS, the average amount of CO₂ emitted for one vessel per ship type is
For the phase-in period, the average CO2 allowances to surrender for one vessel per ship type and year are presented in the following table.
Assuming that the cost of EU carbon permits will be 70 $, the average allowances for one vessel per ship type and year are presented in the following table.
Assuming that a company has a fleet of 5 vessels the average cost of EU Carbon Permits in $ per company per year will be:
If the shipping company does not surrender the allowances for a year, by April 30 of the next year, the fine will be 100 euros per tonne of CO2 not accounted for.
Where the responsible shipping company has failed to surrender the necessary allowances for two or more consecutive years, vessels can also be denied entry to EU ports.
Aiming to follow the “polluter pays principle”, BIMCO has published a clause to allocate costs and responsibilities for obtaining, transferring, and surrendering GHG allowances.
ETS - EMISSION TRADING SCHEME ALLOWANCES CLAUSE FOR TIME CHARTER PARTIES 2022
The adoption by co-legislators is expected by the end of 2022 and I cannot wait to see the results of EU ETS in shipping.
