Emissions trading scheme will be extended to maritime transport in 2024 – is the maritime transport sector ready?
Ten years after aviation was incorporated into the EU Emissions Trading Scheme (EU ETS), the pace is picking up for the expansion of the Emission Trading Scheme (ETS) to the maritime transport sector. On November 29th, 2022, unity was achieved amongst the Council, the Commission, and the Parliament in a so called trialogue – an informal negotiation amongst the three EU institution – to include shipping in the ETS from 1 January 2024.
The gist of the regulation is that vessels calling on ports in the EU and EEA, must off set their greenhouse gas emissions by buying emission allowances under the EU ETS. Shipping companies must establish their own account with the registry to submit and trade in emission allowances, and thus fully take part in the EU ETS market for the first time. The inclusion of the maritime sector in the ETS will have impact on shipping companies by introducing an extra compliance requirement for operations, in addition to the commercial and financial effects of having to purchase or trade ETS allowances. Failing to comply with the scheme, may result in expulsion – which entails being denied entry into EU or EEA member state ports – or even ships being detained in its flag state.
The preliminary agreement of 29 November 2022 entails a postponement of the sector’s entry into the scheme compared to the Commission’s ‘fit for 55’ package proposal, which suggested including shipping from 2023. At the same time, the previous proposed gradual inclusion over a three-year span, has been replaced by full inclusion from the first day of the year 2024. Other main points of the Commission’s proposal remain unchanged, such as the inclusion of all ships calling at EEA ports, with 50% emissions coverage for ships entering and exiting the EEA and 100% coverage for intra-EU voyages. Ships below 5000 gross tonnage will still be exempted, but this threshold is set to be lowered in 2027.
The European Union Emission Trading Scheme is applicable to Norway through the EEA Agreement and will therefore apply to vessels calling at Norwegian ports, both internationally and cabotage, and regardless of the ship’s flag state. The obligations under the scheme, applies to the shipowner or any other organization or person, such as the manager or the bareboat charterer, which has assumed the responsibility for the operation of the ship from the shipowner. The specific contract regulation between ship owner and operator of the ship, will therefore be crucial also in an ETS context. Shipping companies should take care to adopt appropriate contract terms in order to make clear who is responsible for the ETS compliance. Companies must apply to set up an ETS account at the national level, depending on the company domicile, or – for non-EU/EEA companies – the member state where the company had the highest number of port calls in the two previous monitoring years.
The trialogue is set to continue today 16 December 2022. The negotiations are expected to concern certain details of the entry of the sector, such as the administering of the funds extracted from the sector – which will be designated to research and innovation in the field of maritime transport.
To get an early acquaintance with the Emissions Trading Scheme, ship owners may already register for an EU ETS trading account. In Norway this may be done with the registry run by the Norwegian Environment Agency. If you have any questions regarding registering for an account, or the EU Emissions Trading scheme in general, please do not hesitate to contact us.