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EU revises ETS to include shipping sector

In a new climate plan, the European Commission has proposed to extend the scope of the EU’s Emissions Trading System to cover CO2 emissions from ships.

This is one of several proposals that aim to make the EU ‘fit for 55’ and help deliver on the European Climate Law target to reduce greenhouse gas emissions in the EU by at least 55% by 2030, and enable climate neutrality by 2050.

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As informed, the revised EU ETS will focus on large ships — above 5,000 gross tonnage — regardless of the flag they fly.

The extension will include all emissions from ships calling at an EU port for voyages within the EU as well as 50% of the emissions from voyages starting or ending outside of the EU as well as emissions that occur when ships are at berth in EU ports.

Under the proposal, the EU ETS would cover around two thirds of maritime transport emissions — 90 million tonnes CO2 — and result in a price signal that incentivises improvements in energy efficiency and low-carbon solutions and reduces the price difference between alternative fuels and traditional maritime fuels.

The proposal builds on the provisions in place for other EU ETS sectors as well as the existing EU Monitoring, Reporting and Verification (EU MRV) System for shipping, which tracks CO2 emissions from ships calling at all EU ports.

What is more, the EU has presented FuelEU Maritime proposal to increase the uptake of alternative, low-carbon fuels in maritime to help drive down emissions faster. Specifically, the initiative will stimulate the uptake of sustainable maritime fuels and zero-emission technologies by setting a maximum limit on the greenhouse gas content of energy used by ships calling at European ports. For instance, most polluting shops will be required to connect to onshore power supply or use zero-emission technologies.

In practice, shipping companies will have to purchase and surrender ETS emission allowances for each tonne of reported CO2 emissions. For the administration of the system, shipping companies will be attributed to an administering authority of a Member State that will ensure compliance using the same rules as for the other sectors.

In addition to the EU ETS rules on penalties, ships can be denied entry to EU ports where the responsible shipping company has failed to surrender the necessary allowances for two or more consecutive years.

Illustration. Image by Navingo

To ensure a smooth transition, shipping companies will only have to surrender allowances for a portion of their emissions during an initial phase-in period, reaching 100% after 3 years.

A reporting and review clause is included to monitor the implementation of the rules applicable to the maritime sector and to take account of relevant developments at the level of the International Maritime Organization (IMO).

Danish Shipping, ESPO welcome the new proposal

“We support shipping being a part of the ETS, but we would have preferred that the commission start with travels between two EU-ports. That would have made room for negotiations on global solutions at the IMO,” Maria Skipper Schwenn, Executive Director of Security, Environment and Maritime Research at Danish Shipping, said.

“If the EU plays its cards right, the tariffs in the proposal could be used to put pressure on the global CO2-prices at the IMO, and consequently contribute to creating unified, international solutions,” Skipper Schwenn added.

Specifically, the commission will use the definition from the EU MRV-directive to place the responsibility for payment of quotas under the EU ETS. This means that it is the shipowner or the technical manager, who is responsible. This ensures good avenues for enforcement, thinks Danish Shipping, who are pleased with the proposal.

“It is important that there is an easy and transparent enforcement of placement of responsibility. We are therefore very happy with the commission’s choice of the EU MRV-directive, which we already have good experiences with.”

The European Sea Ports Organisation (ESPO) also welcomed the new proposals but stated that more work is needed to make it fit for purpose.

“The fit for 55-proposals are an important first step: all ingredients are there to deliver the green deal and climate goals. We will now examine the proposals in depth and identify where the port pillar of this green deal architecture should be optimised,” ESPO’s Secretary General Isabelle Ryckbost said.

For Europe’s ports it is essential to ultimately achieve a policy that is effective in reducing emissions, is coherent, keeps an eye on the competitiveness of Europe’s port sector, is future-proof and does not create stranded assets or additional administrative burden for ports. It should take the diversity of the European port and maritime sector into due consideration,” she continued.

To make the proposed package fit for purpose, several aspects will need to be considered, ESPO believes. These include coherence of the package, efficiency in terms of emissions reductions, onshore power supply where it makes sense, safeguarding the competitiveness of the European port and maritime sector, avoiding administrative burden for the port an providing the funding for 55% emission reduction.

“If Europe is to become fit for 55, it needs to fund for 55. The needed investments in ports to facilitate the greening of shipping are huge. Since there is no silver bullet to green the shipping sector, these are high risk investments with hardly any return on investment for the investing port authority,” Isabelle Ryckbost concluded.

ICS: New proposal threatens to sink shipping’s global decarbonization efforts

Separately, the International Chamber of Shipping (ICS) expressed its concerns about the latest draft proposals.

“Other than as an ideological revenue raising exercise, which will greatly upset the EU’s trading partners, it’s difficult to see what extending the EU ETS to shipping will achieve towards reducing CO2, particularly as the proposal only covers about 7.5% of shipping’s global emissions. This could seriously put back climate negotiations for the remaining 92.5% of shipping emissions,” Guy Platten, Secretary General of ICS, noted.

“We know that non-EU States like Japan have already expressed concern over this diplomatic overreach and imposition of a unilateral and extra-territorial tax on trade. It cannot be equitable for non-EU shipping companies to be forced to pay billions of euros to support EU economic recovery plans, particularly under a scheme that undermines CO2 negotiations.”

“It is clear from how such schemes work in other sectors that there will be unintended consequences from the imposition of such a proposal. There are simpler and more effective options – such as a global fuel levy – but these require political leadership rather than political expediency.”

“Another key issue for ICS is that who pays for the cost of fuel should be the same person that ultimately pays the cost of carbon allowances,” Platten further said.

The ICS also expressed its disappointment that the EU failed to include investment in research and development in the proposals at a time when the IEA and the Biden administration are highlighting that emission reduction will be possible only with the development of technologies that currently not exist.

“To indicate one thing at the beginning of the process and then to withdraw it to pay for a post covid recovery sends a clear message to industry that the EU is not truly serious about decarbonising global shipping.”

“This also sends a message beyond shipping that political and investment risk is high in Europe. This only goes to show why we need the 5 billion USD IMO Maritime Research Fund,” Platten stressed.