Sign in
Enterprise Explains: How does the EU Emissions Trading System impact global shipping?The EU’s Emissions Trading System (ETS) is a cap-and-trade regulation that looks to limit GHG emissions by assigning a restricted yearly number of EU Allowances (EUAs) for trading in the carbon market. ETS went into effect this January, but saw pushback from stakeholders in the shipping sector over concerns it would drive business away from European ports.
First developed in 2005 as a market-based mechanism to curb emissions from energy-intensive sectors, ETS was initially limited in scope to manufacturing and power generation before extending to cover shipping. ETS compels shippers to purchase EUAs that cover 50% of emissions for voyages between EU/European Economic Area (EEA) and non-EU/EEA ports, and 100% of emissions incurred by trips between EU/EEA ports and while docking at an EU/EEA port.
In a nutshell… The mandate is applicable to all vessel types, passenger and cargo included, and will see a three-year phased introduction. The ETS will cover 40% of emissions in 2024 — the initiative’s first year — ramping up to 70% in 2025 and 100% in 2026, DNV says. In terms of vessel sizes, EU ETS will apply to general and cargo vessels that are upwards of 5k GT in 2024, and offshore vessels above 5k GT in 2027. Although not initially required to offset their emissions, offshore vessels and general cargo vessels that are between 400 and 5k GT will be required to report their emissions volumes and may be included in future updates to the mandate. EU ETS will cover CO2 emissions to begin with, but will also cover methane and nitrous oxide beginning in 2026, DNV also said.
How will global shipping be impacted? The trading system was forecast to set back the global shipping sector some USD 3.6 bn in levies in 2024. That figure is expected to increase y-o-y as later phases of ETS require shippers to offset larger proportions of their emissions.
Hapag Lloyd, Maersk, and CMA CGM have all indicated that they will introduce EU ETS surcharges as the mandate comes online. Hapag-Lloyd set a surcharge in October 2023 of between EUR 7 and EUR 31 per TEU, depending on cargo type and destination, which will be recalculated on a quarterly basis. Maersk’s charges range from EUR 46 to EUR 137 per FEU. Meanwhile, CMA CGM was expected to charge an additional EUR 43 to EUR 90 per TEU in October 2023, before updating the range to between EUR 20 to EUR 61 per TEU according to a statement out a month later.
What’s the outlook for EUA markets? Following a tumble on the back of falls in emissions and front-loaded supplies, EUAs are expected to see sustained increases beginning in 2026, a study by Bloomberg says. EUA prices are expected to decline to an average of EUR 65 per ton in 2024, ramping up to EUR 146 per ton by decade’s end, Bloomberg NEF says. If carbon offset mandates and other policies remain unchanged, EUAs could surpass the EUR 200 per ton threshold by 2035.
Geopolitical turmoil has also racked up costs for shippers: Liabilities under EU ETS surged on the back of Red Sea disruptions. Alternative routes have stretched journey distances by some 80%, while also compelling vessels to boost sailing speeds 25% to 20 knots, tripling fuel consumption. The boosted emissions implied a near threefold increase in carbon offset costs to some EUR 285k per voyage, at March’s EUA pricing of EUR 55 per ton. Shipping company MSC released an updated ETS surcharge notice calculated on the rerouting of vessels via the cape of Good Hope, in December 2023, with surcharges going up to EUR 90 per TEU when the mandate kicked off in January, according to a statement.
Going forward, regional bunkering is moving to stay ahead:EU ETS charges, alongside other regulations that look to curb emissions, are piling up the pressure on global shipping to transition to alternative fuels, DNV VP Eirik Nyhus says in his podcast (pdf). Angling to get in the game early, Oman’s Sohar Port is positioning itself as a regional LNG bunkering hub in a bid to supply growing demand for transitional shipping fuels. AD Ports subsidiary Masdar inked an MoU with the Port of Amsterdam and a consortium of Dutch companies in December 2023 to explore the development of a green hydrogen supply chain between Abu Dhabi and Amsterdam, with applications to green bunkering. Egypt’s Suez Canal Economic Zone (SCZone) also inked a USD 3 bn framework agreement in October 2023 with C2X — owned by AP Moller Holding and AP Moller-Maersk — for the production and sale of green methanol to power shipping.
