The recent extension of the European Union Emissions Trading System (EU ETS) to include the maritime shipping industry marks a significant shift in the regulation of emissions for one of the world's major transport sectors. This move is part of the European Union's broader climate change mitigation strategy, aiming to reduce greenhouse gas emissions by setting a cap on the total amount of greenhouse gases that can be emitted by the industries covered by the system. The cap will be reduced over time, ensuring that total emissions fall.
The new directive, which came into effect on 5 June 2023, will require shipping companies to monitor, report, and verify CO2 emissions for large ships (over 5,000 gross tonnes) calling at any EU port. These regulations will be phased in gradually, starting from January 2024. Initially, the system will cover emissions from voyages between EU ports, as well as 50% of the emissions from voyages that start or end outside the EU. From 2026, it will also include emissions during ships' time spent at berth in EU ports. This inclusion is a significant step, as the maritime industry has been one of the few sectors not previously covered by the EU ETS.
Shipping companies will be required to purchase emissions allowances, which will cap the total amount of greenhouse gases that the shipping industry can emit. If a company's emissions exceed its allowance, it must purchase additional allowances or face penalties. This system incentivizes companies to reduce emissions or invest in cleaner technologies to avoid the cost of extra allowances or penalties for exceeding their cap.
The penalties for non-compliance are steep. Companies failing to surrender enough allowances to cover their emissions will face an excess emissions penalty of €100 per tonne of CO2. Furthermore, repeated failure to comply with monitoring and reporting obligations could lead to an expulsion order from EU ports, a significant operational constraint for shipping companies.
The extension of the EU ETS to maritime transport is not just a regulatory change but also introduces new financial dynamics to the industry. Shipping companies may pass on the costs of purchasing EUAs to charterers. Additionally, there's potential for trading EUAs, which could offer a new revenue stream or a way to manage costs for companies within the industry. However, this new trading activity falls under the regulatory scope of EU MiFID 2, introducing another layer of complexity. Parties engaging in the sale or purchase of EUAs must be aware of their obligations under this and other relevant financial regulations.
The EU's actions reflect a commitment to meeting its ambitious climate targets, including a 55% reduction in greenhouse gas emissions by 2030 compared to 1990 levels, and achieving net zero by 2050. The inclusion of maritime transport in the EU ETS is a critical step towards these goals, given the significant emissions from the sector. It represents a push towards a more sustainable maritime industry by encouraging the adoption of greener technologies and practices.
In summary, the extension of the EU ETS to include the maritime sector is a landmark regulation that not only aims to reduce greenhouse gas emissions from one of the largest and most vital industries globally but also introduces significant financial and operational considerations for companies within the maritime transport sector.
