In a bid to meet its ambitious ecological target of reducing greenhouse gas emissions by at least 55% by 2030, the European Union (EU) is set to roll out the Emissions Trading System (ETS) as part of its Fit for 55 initiative. The ETS, based on a “cap and trade” mechanism, places a cap on total annual greenhouse gas emissions, with companies purchasing emission rights or quotas proportional to their emissions.
As of January 1, 2024, the ETS will extend its reach to the shipping industry, impacting nearly 40% of the fleet, according to Alphaliner data. This shift will prompt significant changes in fuel strategies for carriers, who must now assess the economic benefits of purchasing carbon allowances against reducing emissions.
The ETS will gradually phase in regulations over a three-year period for the maritime sector. Carriers will need to acquire emission rights for 40% of their verified emissions in 2024, 70% in 2025, and 100% from 2026 onwards. The scheme will apply to all maritime transport services calling at EU ports, encompassing 100% of emissions for services between two European ports and 50% for segments between the EU and destinations outside the EU.
To enforce compliance, carriers are required to declare emissions for 2024 by March 2025, with emission rights submission due by September 2025. Failure to adhere to these regulations will result in fines. Emission rights can be acquired through auctions or the secondary market, and the funds raised will be allocated to decarbonization measures.
As the industry braces for the impact of the ETS, carriers have begun unveiling surcharges for the first quarter of 2024. Alphaliner’s comparison reveals disparities in surcharge levels, with COSCO SHIPPING imposing the highest surcharge on three of the four main trades among major carriers. In contrast, MSC and Maersk are positioned at the lower end of the spectrum.
Surcharge rates, based on prevailing EU Allowance (EUAs) prices, vary widely across different trade routes. Notably, Maersk revised its initially proposed surcharge for the Asia-Europe trade from EUR 70 per feu to EUR 42 per feu (EUR 21 per teu). Shippers using carriers’ green services, such as Maersk’s ECO Delivery or Hapag Lloyd’s Green Ship, will be exempt from these surcharges.
While the levies are based on prevailing EU Allowance (EUAs) prices, the overall range is wide, indicating a variety of methodologies:
- · Asia – North Europe: EUR 20 – EUR 28
- · Asia – Med: EUR 11 – EUR 23
- · Europe – N’ America: EUR 24 – EUR 46
- · Intra Europe: EUR 16 – EUR 35
Despite these changes, the cost of ETS to carriers remains relatively minor compared to other expenses such as bunkers, port charges, or canal transit fees. However, the industry is closely watching global developments, particularly those at the International Maritime Organization (IMO), which confirmed plans for a future global pricing mechanism on maritime emissions. This mechanism is expected to be recognized by the EU and finalized by 2025, potentially coming into force in 2027. The evolving landscape poses challenges and uncertainties for carriers, who must navigate the complex interplay of regulations and market dynamics in the pursuit of sustainability.
Source: Alphaliner
