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PRELIMINARY AGREEMENT TO INCLUDE SHIPPING IN THE EU’S EMISSION TRADING SYSTEM FROM 2024
Published: 31 January 2023
On 18 December 2022 the European Parliament and Council came to an agreement on the revision of the EU Emission Trading System (EU ETS) extending this to also include shipping from 1 January 2024. The official text of the agreement is expected to be finalised in the first quarter of 2023 with the full adoption of the agreement expected by April 2023.
MAIN PRINCIPLES OF THE ETS
The ETS is basically based on two principles, setting a ceiling on the yearly maximum amount of greenhouse gas (GHG) emissions and the trading of EU emission allowances (EUAs). Each year by 30 April a shipowner shall surrender sufficient EUAs to cover its “tank to wake” emissions during the previous year, so for 2024 the EUAs will need to be surrendered by 30 April 2025 and henceforth. To “push’ the industry towards greener and more efficient technologies the EUAs made available by the EU will gradually be reduced every year.
SCOPE OF THE ETS AGREEMENT ON SHIPPING
The EU ETS will initially cover the CO2 emissions generated from ships of 5,000 GT and above when calling at EU ports. The shipowners will have to surrender allowances for:
- 50% of emissions from ships performing voyages departing from an EU port to a non-EU port
- 50% of emissions from ships performing voyages departing from a non-EU port to an EU port
- 100% of emissions from ships performing voyages from an EU port of call to another EU port of call
- 100% of emissions from ships at berth in an EU port.
From 1 January 2026 EU ETS will be extended to also cover methane (CH4) and nitrous oxide (N2O) emissions.
From 1 January 2027 the regulation will also be applicable to offshore vessels of over 5,000 GT. The inclusion of ships below 5,000 GT but above 400 GT will be subject to a further review by the European Commission in 2026.
Furthermore, the EU will implement anti-evasion measures, which will include certain stops at non-EU ports which are less than 300 nautical miles from EU territory.
TIMEFRAME
Beginning from 2025, shipping companies will have to surrender EUAs based on their verified emissions as quantified by their Measurement, Reporting and Verification (MRV) reporting. A three year phase-in period has been agreed, where shipowners will surrender EUAs for a portion of their emissions based on the following schedule:
- 40% of verified emissions in 2024
- 70% of verified emissions in 2025
- 100% of verified emissions in 2026
FAILURE TO COMPLY
In case a shipowner’s EUAs are not adequate to cover its emissions, they may be subject to fines or detention of the ship. BIMCO has issued an ETSA Clause to assist Shipowners and Charterers to co-operate on the timely sharing of data and information to ensure compliance with the EU ETS obligations. However, this will be subject to a separate contractual discussion with the charterer.
More information can be found on the DNV website here.