EU Parliament proposes amendments to ETS for maritime

Earlier this month, the EU Parliament’s Rapporteur, MEP Peter Liese, published his draft report on a proposal to revise the Emissions Trading System (ETS) Directive which forms part of the ‘Fit for 55’ package of climate and energy reforms unveiled in July 2021.

The draft report includes a number of ambitious amendments to emissions trading for the maritime sector – the Maritime ETS.

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“The latest set of amendments to EU Maritime ETS proposal will, if agreed, put more pressure on the maritime industry to switch to cleaner fuels sooner than originally planned,” Watson Farley & Williams said.

Further amendments are expected to be submitted in response to ongoing feedback from businesses in the coming weeks.

Key amendments

Although the underlining principle of the Maritime ETS proposal is consistent with the ‘polluter pays’ principle, there are a number of significant changes to the definitions, scope, phase-in periods and thresholds which are being proposed in the draft report:

  • Full reporting on emissions to commence in 2025
  • 100% of non-EU emissions from ships calling at EU ports to be caught if IMO fails to introduce a similar global measure by 2028
  • ‘Time charterers’ now expressly included in the definition of ‘shipping company’
  • ETS responsibility and payment of final price to fall on the commercial operator who may not always be the shipping company
  • Operation of the ship’ is now also expressly defined for the purposes of the contractual allocation clause
  • The scope of greenhouse gases that would have to be accounted for by shipping companies could widen from 2026 onwards to ensure alignment with the Paris Agreement targets.
  • Establishment of an ‘Ocean Fund’ is recommended to fund R&D into maritime decarbonisation, cleaner fuels, short-sea shipping and cleaner ports

The draft report is the first step in a long process before the European Parliament adopts its position for the negotiations with the Council. The draft report is due to be considered on 10 February 2022 and further amendments are due to be submitted on 16 February 2022. A vote on the final amendments is likely to occur around June 2022. 

World Shipping Council: The EU Parliament proposed amendments to EU ETS put Green Deal goals at risk

The proposed amendments to the ETS for maritime put the impact and efficiency of the EU Green Deal at risk, according to World Shipping Council (WSC).  

The EU ETS intends to impose a technologically neutral greenhouse gas (GHG) price across all elements of industries like shipping, to incentivize the most cost-effective GHG emissions reductions and innovative solutions. Carbon pricing is a key part of driving adoption of zero-GHG fuels, and the EU ETS can be an important step toward global market-based-measures that would apply to all ships, not only to a fraction of international fleets. 

As explained, WSC has two primary concerns:

  • The proposed changed definition of “responsible entity” would corrupt the ETS: The proposed amendments are intended to shield shipowners from ETS costs and then provide them with front-of-line access to ETS revenues such as the Ocean Fund. This would corrupt the whole idea of the ETS, changing it from a “polluter-pays” policy to a system where the “polluter-gets-paid”, and vastly reduce its effectiveness.  A market incentive for technological change that cannot be applied to shipowners who control the pace of shipboard technology innovation will fail to achieve EU Green Deal goals, slowing down the pace of transition.
  • The bilateral agreements proposed would undermine progress towards global GHG policy: Other amendments direct the European Commission to abandon its principle of multilateralism and engage in bilateral deals with nations to extend carbon pricing only for routes serving Europe. This would be a costly distraction, undermining progress towards global GHG policy at the IMO and slowing progress toward decarbonising shipping. It would also undermine the GHG and economic goals of the EU Green Deal, amplifying the risks identified in EU impact assessments – GHG leakage, loss of EU port competitiveness, and distortion of trade.

“Ship greenhouse gas emissions result from the combination of design technology, fuel consumed, and operational practices. It’s obvious, frankly, that one cannot decarbonise shipping without addressing the ship itself. A regional EU ETS carbon price must apply to all parties who have a role in GHG reductions– shipowners and operators,” John Butler, President & CEO of WSC, commented.

Amendments directing the European Commission to pursue bilateral agreements to extend GHG pricing further beyond the European Economic Area (EEA) can only slow progress toward global market-based-measures, WSC believes.

Any resulting agreements would also be ineffective as the bilateral extension of regional EU ETS could at best extend it to address about 20% of global emissions. Gaining nothing globally, these amendments would also amplify regional EU risks of GHG leakage, voyage evasion and diversion of seaborne trade, and competitive losses across EU ports and supply chains, WSC added.

“WSC members are owners, operators, and charterers of ships and are committed to decarbonising shipping. We understand the shared responsibility for GHG reductions in the maritime sector, and we don’t underestimate the challenge. Decarbonising shipping is an “all hands” and global effort, and regional policy must lead rather than impede,” Butler concluded.