In the beginning of the year the maritime industry was included in the EU Emission Trading System (EU ETS). But how does this affect the industry? This article examines the EU ETS’ scope and exceptions, focusing on the definition of a ‘port of call’.
What does the EU ETS entail?
From 1st of January 2024, the maritime industry was included in Directive 2003/87/EC, also known as the EU Emission Trading System (EU ETS). The system is incorporated in Norway through the Norwegian Emissions Trading Regulation (klimakvoteforskriften) and aims at reducing greenhouse gas (GHG) emissions from various sectors.
The EU ETS obligates companies to obtain and surrender allowances equivalent to their emissions. The number of allowances made available will be reduced yearly, to cater for the EU's target of 55% reduction in GHG emissions by 2030 and net zero by 2050 (relative to 1990). Failure to comply with the system can result in significant penalties for the shipowners, including fines and potential expulsion from EU ports.
Currently, the EU ETS exclusively covers carbon dioxide (CO2) emissions. In time, the system will expand and more and more GHGs will be included. For instance, the inclusion of methane (CH4) and nitrous oxide (N2O) will commence in 2026.
Emissions, Ships, and Voyages – Where Rules Apply and Where They Set Sail
The vessels falling into the scope of application for the EU ETS are cargo and passenger vessels of ≥ 5000 gross tonnage, which transport cargo or passengers for commercial purposes. From 2027 onwards, offshore vessels of minimum 5000 GT will also be included.
For voyages between EU/EEA ports of call or within an EU port, 100% of emissions are subject to the EU ETS. However, for voyages between EU and non-EU ports of call, only 50% of emissions apply to the system. Notably, there will be a three-year transition period: shipowners must surrender allowances for 40% in 2024, 70% in 2025, and 100% from 2026 onwards. In the following, the article will delve into the definition of a “port of call” within the EU ETS.
Port of call definition
Article 3 (b) of the MRV Regulation defines a ‘port of call’ as a port where the vessel calls to load or unload cargo, or to embark or disembark passengers.
The following stops are not considered a “port of call” subject to the EU ETS:
- stops for the sole purposes of refuelling,
- stops for obtaining supplies,
- stops for relieving the crew (other than an offshore ship),
- stops for going into dry-dock or making repairs to the ship and/or its equipment,
- stops in port because the ship is in need of assistance or in distress,
- ship-to-ship transfers carried out outside ports,
- stops for the sole purpose of taking shelter from adverse weather or rendered necessary by search and rescue activities,
- stops of containerships in the neighbouring container transhipment ports listed in the corresponding implementing act.
Scenarios
In order to better understand what constitutes a port of call under EU ETS regulations, we’ve created some different scenarios.
For instance, let us consider a scenario where a ship docks in Oslo to load cargo and then heads to Rotterdam to unload it. These stops are classified as '’ports of call' since they serve the purpose of loading or unloading cargo. As this voyage occurs between EU/EEA ports of call, 100% of the emissions are subject to the EU ETS.
Next, let us consider a voyage from Rotterdam to Dakar, with a detour to Gibraltar for refuelling. Since the loading and unloading occur between EU and non-EU ports of call, only 50% of the emissions are subject to the EU ETS. It is important to note that the stop in Gibraltar is solely for refuelling purposes and does not qualify as a 'port of call’ but will simply be considered as part of the voyage.
Our final example involves a voyage where the ship loads cargo in Dakar, then heads to Antwerp for repairs, and finally discharges the cargo in Casablanca. While the vessel enters the EU during the stop in Antwerp, it is important to note that stops for repairs do not qualify as 'ports of call.' Since both ports of call are outside the EU, 0% of the emissions will apply to the system.
Additionally, it is important to note that the EU ETS has introduced geographical exemptions for voyages to and from EU ports in outermost regions and small islands under specific conditions, aiming to ensure connectivity with these areas.
Our recommendations for navigating EU ETS
Navigating the emissions scheme for maritime voyages requires an understanding of what constitutes a ‘port of call’ within the EU ETS. As highlighted in our article, the classification of stops can significantly influence emissions coverage under the system. Given the inclusion of the maritime sector in the EU ETS, and the continuous expansion to include additional greenhouse gases, we recommend that stakeholders in the industry stay vigilant and proactive in understanding and complying with regulatory requirements. By staying informed and implementing best practices, companies can mitigate risks, ensure compliance, and contribute to collective efforts in combating climate change.
We encourage companies to seek professional guidance in navigating these complexities. Please do not hesitate to reach out to us for support and guidance on ensuring compliance with the EU ETS and other relevant regulations.