Shipping | The EU Emissions Trading System (ETS) – Proposed Amendments

On 14 July 2021 the European Commission presented the “Fit for 55 Package” – the legislative proposals to reach the emission targets of reducing greenhouse gas emissions in 2030 to at least 55% compared to 1990 levels.

The proposals will have a direct impact on the maritime sector. This includes:

  • The EU Emissions Trading System (ETS): Extended to include maritime transport
  • The FuelEU Maritime Initiative: A maximum limit on the greenhouse gas intensity of energy used on-board and certain obligations to use on-shore power supply or zero-emission technology
  • The Energy Taxation Directive (ETD): Introduction of a minimum tax rate on certain fuels / vessels

In the European Parliament, the proposal by the European Commission has been referred to the Committee on Environment, Public Health and Food Safety, and Peter Liese has been appointed rapporteur.

The rapporteur presented his draft report in January 2022. The draft report outlines several amendments to the proposals presented by the European Commission.

The European Green Deal and “Fit for 55 Package”

The EU has set an ambition to be climate-neutral by 2050 – an economy with net-zero greenhouse gas emissions. This objective is at the heart of the “European Green Deal” and in line with the EU’s commitment to global climate action under the Paris Agreement. The European Green Deal was presented by the European Commission December 2019.

As part of the European Green Deal, the European Commission has set a target of greenhouse gas emissions in 2030 to 55% compared to 1990 – hence the name “Fit for 55”. The European Climate Law sets out in binding legislation the EU’s commitment to climate neutrality and the intermediate target of reducing net greenhouse gas emissions by 2030.

In order to reach such target – the European Commission has considered actions required across all sectors – which has led to the legislative proposals presented on 14 July 2021. The proposals include revisions to existing legislation as well as a number of new instruments.

EU Emissions Trading System (ETS) – Maritime Sector – Proposal by the European Commission

The EU Emissions Trading System (ETS) sets an absolute limit or ‘cap’ on the total amount of certain greenhouse gases that can be emitted each year by the entities covered by the system. This cap is reduced over time resulting in a reduction of total emissions.

Entities buy or receive emissions allowances within the limit. The limit on the total number of allowances available ensures that they have a value. The trading is intended to bring flexibility to ensure emissions are cut where the cost is lowest.

The European Commission is proposing to extend the scope of the ETS to cover the maritime sector.

Pursuant to the proposal, the ETS will be extended to include emissions from all vessels above a gross tonnage of 5000 regardless of their flag.

The extension is proposed to apply in respect of 50% of the emissions from vessels performing voyages departing from a port under the jurisdiction of a Member State and arriving at a port outside the jurisdiction of a Member State, 50% of the emissions from vessels performing voyage departing from a port outside the jurisdiction of a Member State and arriving at a port under the jurisdiction of a Member State, 100% of emissions from vessels performing voyages departing from a port under the jurisdiction of a Member State and arriving at a port under the jurisdiction of a Member State and 100% of emissions from vessels at berth in a port under the jurisdiction of a Member State.

It is proposed that the ETS is gradually extended to include the maritime sector over the period 2023 to 2025. Shipping companies will have to surrender allowances for a portion of their emissions during an initial phase-in period, reaching 100% after three years.

The proposed phase-in of requirements to surrender allowances are as follows:

– 20 % of verified emissions reported for 2023

– 45 % of verified emissions reported for 2024

– 70 % of verified emissions reported for 2025

– 100 % of verified emissions reported for 2026 and each year thereafter

The entity responsible for the compliance with the ETS is the “shipping company”, defined as the shipowner or any other organisation or person, such as the manager or the bareboat charterer, that has assumed the responsibility for the operation of the vessel from the shipowner and that, on assuming such responsibility, has agreed to take over all the duties and responsibilities imposed by the International Management Code for the Safe Operation of Ships and for Pollution Prevention.

Shipping companies will have to purchase and surrender ETS emission allowances for each tonne of reported CO2 emissions.

Shipping companies will be subject to an administering authority of a Member State that will ensure compliance using the same rules as for the other sectors under the ETS. There are regulations on penalties and vessels can also be denied entry to EU ports where the responsible shipping company has failed to surrender the necessary allowances for two or more consecutive years.

A reporting and review clause has been proposed to monitor the implementation of the rules applicable to the maritime sector and to take account of relevant developments at the level of the International Maritime Organization.

EU Emissions Trading System (ETS) – Maritime Sector – Proposed Amendments by the Rapporteur 

The rapporteur, Peter Liese, presented his draft report on the proposals from the European Commission on the EU Emissions Trading System (ETS) in January 2022. The draft report includes the following proposed amendments with respect to the maritime sector:

  • Earlier effectiveness: EU ETS to be applicable to 100 % of verified emissions from the maritime sector from 2025, with phase-in from 2023 (European Commission proposal for 100% from 2026).
  • Extended emissions: EU ETS to cover both CO2 (carbon dioxide) and CH4 (methane) emissions.
  • Geographical extension: 100 % of the emissions from vessels performing voyages between a port outside the jurisdiction of a Member State to a port under the jurisdiction of a Member State to be covered over time unless a global market-based measure has been adopted at IMO level (50% proposed by the European Commission).
  • Extended definition of “shipping company”: Specific inclusion of “time charterers” in the definition of “shipping company” – the company responsible for compliance with the EU ETS.
  • Ultimate responsible party: The commercial operator to be the ultimate responsible party for the payment of the EU ETS price. Requirement for a binding clause in contractual arrangements for the purpose of passing the costs to the entity that is ultimately responsible for the decision affecting the emissions of a vessel to make sure that entity is held accountable for covering the compliance costs paid by the shipping company. This entity should normally be the entity that is responsible for the choice and purchasing of the fuel used by the vessel, or for the operation of the vessel.
  • Ocean Fund: An Ocean Fund to be established from revenues generated in respect of maritime transport activities under the EU ETS and under the FuelEU Maritime to i.a. improve the energy efficiency of vessels and ports, support investments aimed at facilitating the decarbonisation of maritime transport, support innovative technologies and infrastructure for decarbonising the maritime transport sector, including short sea shipping and ports, and zero-emission propulsion technologies, including wind technologies.
  • Ice-class vessels: More gradual phase-in of ice class vessels in combination with specific support for the innovation and decarbonisation of ice-class vessels through the Ocean Fund.

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Do not hesitate to contact any of BAHR’s shipping team members for further information.

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