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Shipping sets sail for EU emissions trading
New rules mark an important step towards cutting the maritime industry’s GHG emissions
Keith Mullin 4 Sep 2023
Keith Mullin
Keith Mullin

Big ships sailing to and from, between or within EU ports emitted 126 million metric tonnes of carbon last year. That would have cost ship owners, managers and operators €8 billion (US$8.6 billion) at today’s spot price of emissions allowances issued under the European Union’s Emissions Trading System (ETS). That level of emission would have required the surrender, on a fully phased-in basis, of almost 83 million allowances.

I was pretty taken with those numbers, which came from OceanScore, a Hamburg-based company whose tools track the emissions of the world’s maritime fleet (and which, incidentally, just completed its first funding round). More than two-thirds of emissions were generated on voyages to and from non-European ports; the rest between or within European ports, it calculated.

Why is the data important? Because the EU’s ETS extends to the international maritime industry from 2024 on a phase-in schedule: from 2025 for 40% of emissions reported in 2024; from 2026 for 70% of emissions reported in 2025; and from 2027 onwards, 100% of reported emissions. The EU Monitoring, Reporting and Verification Regulation for maritime transport was amended in May to account for the extension and to monitor, report and verify emissions.

Correlating emissions with a direct euro cost is a real mind filter. It will stimulate investment in R&D into new technologies and fuels, and push ship owners, managers and operators to improve operational efficiency and performance.

Under the rules, big ships, i.e., those with of more than 5,000 gross tonnage sailing to/from and between EU ports, regardless of what flag they fly, must acquire allowances under the ETS cap-and-trade scheme for 50% of emissions from voyages starting or ending outside the EU and 100% of emissions between two EU ports and when ships are in EU ports. The rules initially cover carbon dioxide. Methane and nitrous oxide will be included from 2026. Smaller vessels are likely to be brought into the ETS later.

By ship type, OceanScore calculates, perhaps unsurprisingly, that container ships account for the biggest share of that €8 billion emissions price tag, at 28%, followed – potentially more surprisingly – by cruise ships and passenger ferries (so-called Ro-Pax vessels, 14%), and only then by bulk carriers and oil tankers (11% each).

On a per-vessel basis, cruise ships and passenger ferries have materially bigger costs, though: €3.2 million and €2.8 million respectively. In fact, nine of the top 10 CO2 emitters under the EU’s ETS are Ro-Pax vessels, each emitting more than 100,000 tonnes of CO2. By comparison, bulk carriers, which account for 30% of all ships covered by the ETS, have annual average allowance costs of €241,000.

Concerted action

The European Commission says shipping represents a large and growing source of GHG emissions. Indeed, ship emissions were projected to increase by up to 130% of 2008 emissions by 2050, the EC says, if no action were taken. Hence, the new rules mark an important step on the path to cutting the sector’s emissions footprint.

Expanding the ETS to shipping is an important component of the EU’s Fit for 55 initiative, a wide range of measures designed to cut emissions by at least 55% by 2030. Other shipping-related measures include:

  • The FuelEU Maritime initiative, which sets an upper limit on the GHG content of energy used by ships;
  • Revisions to the Directive on Deployment of Alternative Fuels Infrastructure, which sets mandatory targets for shore-side electricity supply at ports;
  • Revisions to the Renewable Energy Directive, which increases the current EU target of at least 32% of renewable energy sources in the overall energy mix to at least 40% by 2030; and
  • Revisions to the Energy Taxation Directive, to align taxation of energy products with EU climate objectives and remove outdated exemptions such as for intra-EU maritime transport.

IMO’s 2023 strategy

The International Maritime Organization (IMO) has similarly been pushing to cut the sector’s emissions footprint for years. The UN agency adopted its 2023 Strategy on Reduction of GHG Emissions from Ships in July 2023, designed as a framework for member states that sets out the vision for international shipping, levels of ambition to reduce GHG emissions and guiding principles, and identifies barriers and supportive measures (e.g., capacity building, technical co-operation, R&D).

The strategy envisages a reduction by at least 40% in the carbon intensity of international shipping by 2030. And it has a new level of ambition regarding zero or near-zero GHG emission technologies, fuels and/or energy sources: it wants these to represent at least 5% (striving for 10%) of energy used by international shipping by 2030.

The strategy introduced two indicative checkpoints to reach net-zero GHG emissions: a 20% reduction (striving for 30%) in annual GHG emissions by 2030 compared to 2008, and a 70% reduction (striving for 80%) in GHG emissions by 2040. The IMO already implemented a series of mandatory technical and operational requirements in November 2022 aimed at reducing the carbon intensity of international shipping by at least 40% in 2030 compared to 2008. Progress on those measures will be reviewed by the start of 2026.

The IMO had called some years ago for better collaboration between ships and ports, including the provision of onshore power (ideally renewable), a supply of low-carbon and zero-carbon fuels, and making port calls more efficient, including just-in-time arrival of ships to avoid ships waiting for hours or days while running their diesel engines, and a more efficient logistics supply chain.

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