EU Emissions Trading System and ETS Surcharge

The aim of the ETS is to significantly reduce the EU's greenhouse gas emissions. From 1 January 2024, the shipping sector will also be integrated into these efforts.

Nowadays, climate change and concerns about its possible effects are omnipresent. At the same time, increasing efforts are being made to curb the influence of humans and minimise any possible consequences. As a result, individual industries are also being analysed more closely and their contribution to climate change assessed. In the case of the shipping industry, there is a great need for action to reduce the ecological footprint. As a result, a price will be assigned to shipping emissions from 1 January 2024 and the permitted emissions will be gradually reduced.

What is the EU Emissions Trading System (ETS)?

The aim of this initiative is to reduce greenhouse gas emissions in the EU by 50% and make the EU climate neutral by 2050. The core of the EU Emissions Trading System is the creation of financial incentives for the reduction of greenhouse gas emissions, thereby promoting the transition to sustainable practices. To this end, upper limits are defined for greenhouse gas emissions in certain sectors of the economy. To date, these have primarily applied to energy-intensive sectors such as electricity generation, but shipping will also be integrated in the future.

How is the EU ETS used in the shipping industry?

The EU Emissions Trading System defines an upper limit for all greenhouse gases that EU companies are allowed to emit during a year. Companies must monitor their emissions and submit an allowance for every tonne of CO2 they emit. This means 1 European Union Allowance (EUA) per tonne of CO2. The responsible companies receive the required allowances on exchanges such as Nasdaq or on the over-the-counter market. The number of allowances available throughout the EU decreases every year. This reduces the total amount of greenhouse gases emitted over time.

To which ships and regions does the EU ETS apply?

The Emissions Trading System applies to shipping activities within the European Economic Area (EEA). This consists of the EU Member States plus Iceland, Liechtenstein and Norway. The pricing is based on the ships, not the cargo. Freight and passenger vessels over 5000 GT will be included from 2024 and offshore vessels over 5000 GT from 2027.

The calculation includes 100% of CO2 emissions for journeys between EU/EEA ports. It also includes 100% of CO2 emissions at berth in EU/EEA ports. For journeys between an EU/EEA port and a non-EU/EEA port, 50% of the emissions are taken into account.

How is the EU ETS implemented?

From 1 January 2024

EUAs are required for 40% of the total emissions in the area of application

From 1 January 2025

EUAs are required for 70% of the total emissions in the area of application

From 1 January 2026 and beyond

EUAs are required for 100% of the total emissions in the area of application

Do the shipping rates change?

Shipping companies have already announced increased operating costs and the calculation of an ETS surcharge. In most cases, this will be added to all existing and new spot and long-term contracts. The level of the surcharge is very likely to change over time, partly due to the phased integration. Some shipping companies want to refer to a public index in order to enable comparability and transparency.

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