As part of the European Commission's “Fit for 55” package, aimed at reducing EU-wide net GHG emissions, the European Parliament and Council have come to an agreement on the revision of the EU Emissions Trading System (ETS) Directive 2003/87/EC, introducing the extension to maritime transport by January 1, 2024. Beginning in 2025, shipping companies will have to surrender EUAs based on their verified emissions as quantified per EU MRV Regulation (EU) 2015/757.
Main Principles
ETS is a ‘cap-and-trade’ system for cutting down GHG emissions. It has two principles, setting a ceiling on the yearly maximum amount of GHG emissions and the trading of EU emission allowances (EUAs). To that end, covered installations have to surrender an EUA at the end of each period for each tonne of carbon-dioxide equivalent (CO2e) they emitted during that period.
Inclusion of the Maritime Industry
Beginning from 2025, shipping companies will have to surrender EUAs based on their verified emissions as quantified as per Regulation (EU) 2015/757 (Monitoring, Reporting and Verification of CO2 emissions from maritime transport, MRV). To ensure a smooth transition, shipping companies will be given a three year phase-in period where they will surrender allowances for a portion of their emissions based on the following schedule:
- 40% of verified emissions in 2024
- 70% of verified emissions in 2025
- 100% of verified emissions in 2026
The regulated entity shall surrender sufficient allowances by 30 April of each year to cover its emissions during the preceding year.
Vessels and Greenhouse Gases Covered
EU ETS will initially cover the CO2 emissions generated from ships of 5,000 GT and above, which call at EU ports. More specifically, shipping companies will have to surrender allowances for:
- 50% of emissions from ships performing voyages departing from an EU port to a non-EU port
- 50% of emissions from ships performing voyages departing from a non-EU port to an EU port
- 100% of emissions from ships performing voyages from an EU port of call to another EU port of call
- 100% of emissions from ships at berth in an EU port
From 1 January 2026, EU ETS will be extended to also cover methane (CH4) and nitrous oxide (N2O) emissions. From 1 January 2027, the regulation will also be applicable to offshore vessels of over 5,000 GT.
Next Steps
The political agreement is preliminary pending the adoption of the legislation by the European Parliament and Council, its subsequent publishing in the EU’s Official Journal and entry into force.
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