The European Carbon Market: Maritime Transport – 28/08/2023

The EUA continued to increase last week towards the level of 85 euros/tCO2. If it exceeds the resistance line of 91 euros/tCO2, it is estimated that it can exceed the highest levels reached insofar.

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 The maritime sector and the EU ETS

Maritime transport emissions account for about 3 percent of global emissions. There was a long negotiation on maritime transport and the Fit for 55 Package operation among European organizations, and an agreement was reached after intensive lobbying. On April 18, the European Council approved the final text for including maritime transport in the ETS from January 2024. The final legislative text was published in the European Official Journal in May and entered into force within 20 days of publication. Directive 2003/87/EC of the European Parliament and the Council establishing the ETS was therefore amended by Regulation 2023/957 to include maritime transport activities in the ETS. This ensures that these activities contribute to the emission reductions set by Regulation 2021/119, which establishes the European Green Deal and the Union’s binding climate neutrality target by 2050.

Regulation 2023/957 establishes rules for monitoring, reporting, and verification of CO2 emissions with respect to ships arriving at, sailing in, or departing from ports under the jurisdiction of a member state. From 2024 all ships traveling to and from European ports, of all flags, regardless of their port of origin, will be subject to ETS obligations, while for non-European voyages only 50 percent of emissions will be covered by the scheme. Maritime operators must compulsorily open an account in the Union ETS Registry to trade EUAs, submitting the necessary documentation to the operator’s home national administration, which will collect and verify the information. Importantly, from 2024 all ships entered into the system will not receive free allocation of allowances, and thus permission to pollute will have to be purchased through the auction mechanism or authorized financial intermediaries.
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Monitoring, reporting, and verification of CO2 emissions

The Regulation also mentions the MRV system. Ships within and above 5,000 Gigatonnes (GT), transiting the European maritime space and within EU ports, must monitor and report their fuel consumption and emissions, information that an EU-accredited body must then verify. This process is formally defined by EU Regulation 2015/757. The phase-in period is gradual: cargo and passenger ships within and above 5,000 G.T. to 40 percent of ETS obligations in 2024, 70 percent in 2025, and 100 percent in 2026. Offshore vessels over 5000 GT will have a 100% obligation directly from 2027. Ships of less than 5000 GT will not be included from 2024, because the EU wanted to avoid assuming an unnecessary regulatory burden for ships that consume only a small amount.

The Regulation also includes a section on the administrative authority of shipping companies. For shipping companies registered outside the Union, the administrative authority is the member state where the fleet has transited most in the last two years. For fleets that are still registered in a non-EU country but have yet to make any voyages to or from Europe in the past two years, the administrative authority becomes the Member State from which the fleet finished its first voyage since the ETS came into force.

In conclusion, from January 1, 2024, shipping companies must start monitoring their emissions until December 31, 2024. Verification of emissions by certifying bodies has a deadline of March 31, 2025, and the surrender of allowances must take place by September 30, 2025.

The Regulation under analysis also mentions the failure to surrender allowances, which will result in a penalty of 100 euros per ton, which is the standard penalty for ETS operators in the case of violation. Failure to surrender allowances for two or more consecutive periods will result in the expulsion of the shipping company from the ETS.

Source: European Commission, Aither Group AG.

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