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With just over two months to go until its implementation for shipping, the European Union’s emission trading system (EU ETS) is proving to be as contentious as the 2020 scrubber debate. The new regional regulation is set to begin implementation on January 1, 2024, and opinions on it are divided into two completely opposing sides – from “bullshit” to very welcoming. The ETS, also known as cap and trade, sets a cap on the amount of greenhouse gas emissions which shipping operators, operating vessels of over 5,000 gt, are allowed to emit. The shipowner or manager will surrender to the authorities acquired EU allowances (EUAs), or carbon credits, corresponding to fleet emissions based on reported monitoring, reporting and verification (MRV) data for the previous year. Where the ships emit more than the permits they hold, they may choose to purchase more permits from the government or other shipping operators.Shipping companies will buy and surrender quotas for 40% of emissions in 2024, rising to 70% and 100% of emissions in 2025 and 2026, respectively, under the three-year phase-in of the EU ETS. You will use smaller tonnage for the final leg into the EU, which by definition will increase emissions per tonne-mile All emissions on voyages and port calls within the EU/EEA, and 50% of emissions on voyages into or out of the EU/EEA, will be subject to the EU ETS once fully implemented. It will initially apply to CO2 emissions while methane and nitrous oxide emissions will be covered from 2026 and offshore vessels set to be included from 2027. There are hefty penalties for non-compliance, with an inflation-linked fine of €100 ($106) per tonne of CO2 equivalent for emissions not covered by EUAs, as well as the requirement to make up any shortfall of allowances. There is also the risk of an entire fleet being expelled from trading in EU waters if a company fails to surrender sufficient allowances for a single vessel over two consecutive years or more. From the get-go industry players and experts noted striking flaws within the system. One of those is the possibility of cargo diversion from European ports to nearby non-European ports. Namely, with the implementation of the ETS, there is the possibility that there will be a reduction of the transhipment business with ships of Asian and American flags choosing to dock at other non-European ports such as Tanger Med in Morocco, East Port Said in Egypt, and Tekirdag Asyaport in Turkey. The port authority of Valencia even requested the EU to add these ports to the list of ports to be monitored to avoid carbon leakage and imposition of environmental taxes on vessels stopping there. According to Roar Adland, global head of research at shipbrokers SSY, ETS is a tax grab as it has no clear path for the funds raised to go to maritime zero-carbon fuel research, infrastructure, or price subsidies. He also believes that the introduction of the scheme will “almost certainly” increase overall emissions and make the “relatively green” European industry less competitive by increasing the costs. “[Introduction of ETS could move] marginal production to areas of the world with less strict regulations on emissions or to areas just outside EU borders which are not subject to this transportation tax, thus, increasing sailing distances. Secondly, because the loopholes that might be used – e.g. transshipments or ship-to-ship transfers – means you will use smaller tonnage for the final leg into the EU, which by definition will increase emissions per tonne-mile,” Adland said. Another problem with the introduction of the ETS are the surcharges which will cover this added cost. Carriers are by law prevented from agreeing on a common surcharge formula so misalignment, from a shipper perspective, is inevitable. Maersk, CMA CGM, and Hapag-Lloyd have announced preliminary indications of these surcharges.Charges from Europe to the west coast of South America range from EUR12 to EUR83. Regardless of the discrepancies, all three companies have given their support for the measures. Some shipping associations see the introduction of the ETS differently. Nina Porst, director for climate, environment, and security for Danish Shipping, told Splash Extra that her organisation fully supports the purpose of the scheme and the need to speed up the green transition but she noted that more time to implement the practical aspects of the ETS would have been nice. “The EU ETS will kick off on January 1 and some important details still need to be settled, such as the set-up for designation of the administering authority, which we urge the regulator to settle ASAP. However, some of the major tasks following the ETS are well known. This goes for the monitoring and reporting, which we have been doing at the EU level since 2018,” she said. “The new tasks of buying and surrendering CO2 allowances on the other hand is new for the sector. Even though the allowances will not be surrendered before mid-2025 there is a huge task in organising and running this new exercise within each company, both when it comes to daily tasks but also concerning the contractual agreements with customers,” Porst concluded. Caroline Yang, president of the Singapore Shipping Association (SSA), gave Splash Extra a completely different view of the upcoming measures. She said that the ETS was “not a welcome measure” in her view. The SSA, Yang stated, believes that any carbon taxation should be done on a global level via the International Maritime Organization (IMO) and not through any regional and local authorities. “SSA is now concerned that other regional and local authorities may levy some form of carbon taxes and the shipping industry will bear the brunt as its ships move from country to country, region to region. The EU ETS is now accepted by the European national shipping associations because it is now promised that a certain part of this revenue will be carved out for the maritime industry,” Yang said. According to her, the EU may consider a carve-out of EU ETS on shipping if the IMO creates some form of a carbon tax with a possible issue of the amount of tax that would be acceptable to the EU. “The other question of whether we are well-prepared. We understand that not many are well-prepared for ETS’s extension into shipping. As an association representing 500 maritime companies in Singapore, including ship owners, managers, charterers, and maritime technology companies, the SSA has members whose vessels trade to and from or within Europe and are concerned about how this will impact them,” Yang added. This ultimately leads to one of the more notable recent reactions to the introduction of the EU ETS. The new regulations were branded as “bullshit” and “a complete waste of effort” by one of Greece's largest shipowners, George Procopiou, while speaking at an event in Cyprus this month. “We always go to the shipyard, and we try to improve — through air lubrication and new engines, for example. Although our ships are 11 years old, we order a huge number of assets because the new models are 35% or 40% better in consumption. These are the little steps. The rest is just bullshit,” Procopiou said. He told the attendees that he calculated that each tonne shipped by sea resulted in emissions of less than 40g of carbon dioxide and that regulating to lower this to 35g per tonne was “a complete waste of effort.” He briefly touched on green fuels like methanol, ammonia, and hydrogen which are for “his granddaughter’s generation” because “LNG has been available for the last 50 years and still the distribution system is not available.” As demonstrated, the response to the introduction of the EU ETS is widely different and the problems that lie ahead for stakeholders are obvious. How all of it will be done in practice remains to be seen after the regulation comes into force.

Scrubbers on steroids: EU ETS proving deeply controversial with two months to go

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