European Union Emissions Trading System (ETS): cargo-partner

European Union Emissions Trading System (EU ETS)

Climate change is a global challenge that we must address collectively, and the logistics and supply chain industry has a part to play in reducing global greenhouse gas emissions. Like other industries, we continue to reduce our greenhouse gas emissions in line with global, regional and national legislation.

Ocean carriers remain committed to their own goal of a net-zero ocean fleet by 2050 at the latest, and they continue to make progress towards this goal through:
•   a robust newbuilding program
•   retrofitting existing vessels
•   managing fleet performance and voyage optimization
•   using lower carbon fuels such as biofuels
•   adopting alternative fuels in the future

As part of this, the European Union Emissions Trading System (EU ETS) will become effective for the shipping sector from January 1st, 2024, on.

What is the EU ETS?

The EU ETS, or Emissions Trading System, sets a “cap” on the emissions that companies in certain industries can produce and requires them to obtain allowances equal to their emissions above the cap at the end of each year.

Like other industries under the EU ETS today, ship operators will now be required to purchase and surrender ETS emission allowances, or EU Allowances (EUAs), for each ton of CO₂ emissions reported under the scope of the system.

The EU has adopted a legislative action plan to achieve carbon neutrality by 2050. This plan includes the intermediary objective of reducing greenhouse gas emissions by 55% by 2030, compared to 1990 levels (“Fit for 55”). The EU Emission Trading System is one of the regulations included in this plan to ensure that the intermediate and final goals are met.

Where does the EU ETS apply to shipping emissions?

The EU ETS will cover all emissions from ships calling at an EU port for voyages within the EU (intra-EU), 50% of the emissions from voyages starting or ending outside of the EU (extra-EU voyages), and all emissions that occur when ships are at berth in EU ports.

The EU ETS will be phased in for the shipping industry over the next three years, with 40% of total verified emissions calculated from 2024, 70% in 2025, and 100% in 2026.

How will the ETS impact you as our customer?

As a result of the EU ETS implementation, ocean carriers are advising that any additional costs related to the EU ETS will require a surcharge to be applied to all containers loaded on trade lanes impacted by this regulation.

Customers will therefore contribute to these additional costs through a manifest surcharge called ETS (or similar). The surcharge will be applied to all spot and long-term contracts, both existing and new.

Furthermore, given the phase-in approach adopted by the EU, we expect the cost of compliance to increase over time, further impacting operating costs over the next three years.

The ETS will be periodically reviewed based on a public benchmark index of EUA prices. Each trade will have its own pricing structure for inbound, outbound and roundtrip cargo.

More information and the final surcharge amount for each carrier and each trade will be shared as it becomes available, no later than December 2023.

For further information please get in touch with your local Sea Cargo contact person.

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