Since January 2024, the European Union’s (EU) Emissions Trading System (ETS) has included maritime transport.
What does that mean?
According to the European Commission, maritime transport is one of the most energy-efficient modes of transport. However, because of its importance to the EU economy, it is a large and growing source of greenhouse gas emissions. In fact, in 2018, global shipping represented 1076 million tonnes of CO2 and was responsible for around 2.9% of global emissions caused by human activities.
By 2050, there are indications that the maritime transport contribution to global man-made emissions could rise by up to 130% of 2008 emissions. This would have the effect of undermining the objectives of the Paris Agreement, the global framework that seeks to avoid dangerous levels of climate change by limiting global warming to well below 2ºC and pursuing efforts to limit it to 1.5ºC.
At the European Union level, maritime transport represents 3-4% of the EU’s total CO2 emissions, or over 124 million tonnes of CO2 in 2021.
To address this issue, in July 2023 the International Maritime Organisation (IMO) took the step of committing to new targets for GHG emissions reductions and set out to develop and adopt in 2025 a basket of measures delivering on the reduction targets.
The rules regarding EU ETS as they apply to maritime transport were adopted on 16 May 2023 and entered into force on 5 June 2023.
EU ETS and EU ETS2
The EU ETS is a carbon emissions trading scheme that began in 2005 with the intention of lowering greenhouse gas emissions in the EU.”
“Cap and trade components allow companies to trade emissions rights within that area. The ETS covers approximately 45% of the EU’s greenhouse gas emissions.”
Mark Lumsdon-Taylor Executive Development & Sustainability Lead, MHA
The ETS was divided into four ‘trading periods’: from January 2005 to December 2007, from January 2008 to December 2012, from January 2013 to December 2020 and from January 2021 to December 2030.
However, from January 2027, road transport, buildings and industrial installation, outside the original EU ETS, will be covered by the new EU ETS2.
The major difference between EU ETS and EU ETS2 is that the latter also covers CO2 emissions upstream – where accredited fuel suppliers that place fuel on the EU market are obliged to cover that fuel with ETS2 emission allowances. The EU ETS2 covers around 40% of the EU’s greenhouse gas emissions.
EU ETS and maritime transport
Returning to EU ETS and maritime transport, this covers:
Cargo and passenger ships of 5,000 gross tonnage (GT) and above, and
Offshore ships of 5,000 GT and above from 2027
The emissions covered are:
100% of emissions between two EU ports when ships are within EU ports
50% of emissions from voyages starting or ending outside of the EU
Initially carbon dioxide (CO2) emissions are covered, with methane (CH4) and nitrous oxide (N2O) added in 2026
Emissions from maritime transport are included in the overall ETS cap, which defines the maximum amount of greenhouse gases that can be emitted under the system.
To comply with the EU ETS, shipping companies need to:
Monitor and report their greenhouse gas emissions
Surrender emission allowances
Submit an annual emissions report
Ensure data is verified by an accredited verifier by 31 March of the following year
Surrender the equivalent number of allowances by September of that year
Emissions from maritime transport are included in the overall ETS cap, which defines the maximum amount of greenhouse gases that can be emitted under the system. The cap is reduced over time to ensure all ETS sectors contribute to climate change objectives, by incentivising energy efficiency, low-carbon solutions, and reductions of the price difference between alternative fuels and traditional maritime fuels.
Mark Lumsdon-Taylor Executive Development & Sustainability Lead, MHA
The importance of EU ETS as it applies to maritime transport is underscored by the penalties related to non-compliance which comprise:
- Detention by the EU Member State the ship is flagged in
- Denial of entry into a port under the jurisdiction of an EU Member State
In practice, shipping companies have to purchase and surrender (use) EU ETS emissions allowances for each tonne of reported CO2 (or CO2 equivalent) emissions in scope of the EU ETS system.
The system builds on the provisions in place for other EU ETS sectors, as well as the revised EU Monitoring, Reporting and Verification Regulation for maritime transport (MRV Maritime Regulation).
To ensure a smooth transition, shipping companies only have to surrender allowances for a portion of their emissions during an initial phase-in period:
The first surrendering date is September 2025 in all Member States, relating to emissions reported as occurring from 1 January 2024 to 31 December 2024.
Beyond EU ETS
In addition to the application of EU ETS to maritime transport, a number of other EU proposals have addressed its climate impact, including:
A new FuelEU maritime Regulation: to boost demand for marine renewable and low-carbon fuels. By setting a maximum limit on the GHG content of the energy used by ships calling at European ports, and by encouraging zero-emissions technology at berth (staying in port) with a technology-neutral approach.
Revision of the Directive on Deployment of Alternative Fuels Infrastructure: which would bring, amongst other benefits, mandatory targets for shore-side electricity supply at maritime and inland waterway ports.
Acceleration of the supply of renewables in the EU: through revision of the Renewable Energy Directive (RED) which increases the current EU target of at least 32% of renewable energy sources in the overall energy mix to at least 40% by 2030, with a focus on sectors where progress has been slower to date (including transport).
Revising the existing Energy Taxation Directive (ETD): which aims to align the taxation of energy products with the EU’s climate change objectives and remove outdated exemptions such as those for the intra-EU maritime transport sector.
This package of proposals reflects the EU goal of cutting greenhouse gas emissions by addressing the barriers to the decarbonisation of the maritime transport sector including technological barriers, economic barriers and more.
The EU Commission approach adopts two complementary components:
- The improvement of energy efficiency (ie lower levels of fuel usage)
- The greater use of a virtuous ecosystem for cleaner fuels that will boost demand, distribution and supply
Interrelated data solutions – the global context
Following adoption of the MRV Maritime Regulation in 2015, the IMO (International Maritime Organisation) established an IMO Data Collection System.
The system requires owners of large ships (above 5,000 gross tonnage) engaged in international shipping to report information regarding fuel consumption to the flag States of those ships. The flag States then report aggregated data to the IMO which, in turn, produces an annual summary to the IMO Marine Environment Protection Community.
The collection of this data commenced in January 2019.
In February of the same year, the European Commission made a proposal to amend the MRV maritime Regulation to take account of the global data collection system, with the goal of streamlining and reducing administration for companies and administrations.
In July 2023, the IMO agreed to revise its initial greenhouse gas emissions reduction strategy.
The revised strategy set a goal of net zero emissions from ships ‘by or around 2050’. This represented a significant increase in the level of ambition compared to the 2018 strategy which aimed at reducing emissions from ships by 50% against the same time horizon.
Indicative checkpoints (compared to 2008 levels) are:
The strategy also sets a target for at least 5% (striving for 10%) uptake of zero or near-zero GHG emissions technologies, fuels and/or energy sources by 2030.
In conclusion
The inclusion of maritime transport in the EU ETS system, and the alignment with IMO ambitions and data collection processes, ensures that loftier goals for GHG emissions reduction from shipping related to the EU can be pursued.
The current contribution of 3-4% of the EU’s CO2 emissions by shipping is unsustainable if the EU is to meet its Paris Agreement, Fit for 55 and EU Green Deal obligations.
EU ETS for the maritime transport sector will ensure marine transport plays a valuable part in achieving climate neutrality in Europe by 2050, by incentivising the necessary contribution from maritime transportation to EU GHG reductions.
