CORRECTION: A previous version of this article reported that total ETS tax revenues from shipping could be around €11bn-12bn. This incorrectly included total CO2 emissions from the EU Thetis MRV database to estimate the potential costs for ETS, rather than only CO2 emissions from each vessel’s voyages that included EU ports. The correct figure is €7bn-€8bn and the story was updated to reflect this.

THE European Union’s Emissions Trading System will begin to include shipping from January 1, 2024, with global ramifications for the industry as vessels calling at EU ports start paying tax for CO2 emissions.

The tax system will start with a phase-in period in 2024, meaning cargo and passenger vessels 5,000 gt or above will pay for 40% of emissions on voyages that include an EU port, rising to 70% and 100% in 2025 and 2026, respectively.

Eligible vessels will pay for 100% of emissions on voyages between two EU ports and 50% of emissions for voyages that depart from or arrive in an EU port.

The ETS tax will apply to offshore ships of 5,000 gt or above from 2027.

Each vessel will buy EU allowances, or EUAs, for each tonne of CO2 emitted. EUA prices remained between €80-€90 a tonne in the past three months, according to date from Ice Exchange.

Shipping companies must buy allowances for a full-year before the end of September in the following year.

Companies can buy allowances directly from platforms such as Ice Exchange and European Energy Exchange or via intermediaries. Companies must open a trading account or a maritime operator holding account in an EU country.

The shipowner, the charterer or the shipmanager will be responsible for buying emission allowances depending on the contractual agreement between these parties. The responsible entity must have 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.

The amount of EUAs a vessel will buy will depend on its full-year emissions that occurred on voyages that include an EU port and that amount will be determined by each vessel’s reporting as part of the EU Monitoring, Reporting and Verification scheme.

The full-year data reported under EU MRV must be verified by an accredited verifier by March 31 of the following year. Shipping companies have been obliged to report their emissions under EU MRV since 2018.

The EU ETS tax will only cover CO2 emissions in 2024-25, then expand to cover methane and nitrous oxide emissions from 2026.

Passenger vessels other than cruiseships trading between islands of less than 200,000 permanent residents and the mainland of the same EU member state will be exempt from surrendering allowances for such voyages until the end of 2030. The island in question must not have rail or road links with their member state.

Passenger vessels trading between a member state and its outermost region is also exempt until the end of 2030.

Several shipping companies are converging towards using BIMCO ETS clauses for charterparties, market sources said. BIMCO’s clause requires charterers to pay for EUAs by sharing emission data with shipowners for each month in the first seven days of the following month.

Impact

Total ETS tax revenues from shipping could be around €7bn-€8bn, according to Lloyd’s List calculations based on an EUA price of €85 and 2022 emissions data from EU MRV. The containership, tanker and gas carrier sectors would pay the highest ETS bills at around €2bn each, according to calculations based on the same assumptions.

Three leading liners added surcharges to pass their EUA tax costs on to their customers. Maersk will charge €35 per dry teu for voyages between east Asia and north Europe, while CMA CGM and Hapag-Lloyd will charge €25 and €12, respectively, for the same voyage.

In the dry bulk segment, a surcharge of $0.30 per tonne is estimated for a capesize shipment between Brazil and the Netherlands for 2024, then rising to $0.74 in 2026 when 100% of emissions will be accounted for, according to calculations by the Baltic Exchange.

The same calculations estimate a $0.65 a tonne for suezmax shipments between offshore Nigeria to the Netherlands, then reaching $1.62 in 2026.

The EU will exclude containership port calls at certain non-EU transhipment hubs that are up to 300 nautical miles from EU ports to avoid loss of ETS revenue because of port calls at non-EU ports. This means that boxships sailing from a non-EU port to discharge cargo at an EU port via a non-EU transhipment hub will still pay for 50% of emissions of this voyage despite calling at a non-EU port.

The European Commission will publish a list of such non-EU ports, where the share of transhipment exceeds 65% of total container traffic, by the end of 2023.

The EU has earmarked €20m in EUAs to be used for shipping decarbonisation projects, meaning around €1.7bn a year will be allocated to shipping projects from 2026 when 100% of emissions will be accounted for, based on an EUA price of €85 a tonne.

The bloc will provide these funds to the maritime industry through its Innovation Fund, with a view to kickstarting the hydrogen economy in member states among other shipping projects.