EU EXPECTS TO APPLY ETS TO INTERNATIONAL SHIPPING

Other measures include the FuelEU Maritime initiative, which aims to increase the demand and deployment of renewable alternative transport fuels. The proposals also include a proposal to review the Energy Taxation Directive (ETD) to remove the tax-exempt status of fuel used by ships.

ETS extension

The package also confirms that the scope of the EU’s Emissions Trading System (ETS) will be extended to cover emissions from the shipping sector. The scheme will be applied to emissions occurring at berth in an EU port, emissions occurring during voyages between EU ports, as well as emissions occurring during voyages between EU and non-EU ports. A 50% discounted rate will apply to the latter category.

The ETS scheme will make use of emissions reported via the existing Monitoring, Reporting and Verification (MRV) mechanism, but will “will need to be amended with a view to make them fit for emissions trading”.

The scheme will be introduced in 2023, with shipping companies benefiting from a four year phase-in period before allowances apply fully to their verified emissions from 2026.

The extension of the ETS to cover shipping will coincide with revision to the operation of the ETS, which will lead to a reduction in the number of allowances in circulation. For details, see the source document here.

Penalties for non-compliance

The proposal includes a number of penalties for non-compliance, including the cancellation of allowances that are not surrendered. Expulsion orders can be issued against ships under the responsibility of a shipping company that has failed to surrender allowances for two or more consecutive reporting periods, which the European Commission expects to result in potential detention by Flag State.

Carbon leakage and verification

To deter companies from relocating assets (and company headquarters) outside the EU, companies not registered in a Member State will be “attributed to the Member State where it had the highest number of port calls in the two previous monitoring years”.

The European Commission plans to publish and regularly update a list of shipping companies covered by the Directive and their respective administering authority from 2024.

The proposal also notes that member states may request the assistance of the European Maritime Safety Agency (EMSA) with regard to the approval of monitoring plans and the verification of emissions.

Carbon capture and utilisation

The Fit for 55 proposal also includes a number of schemes to encourage the adoption of technological solutions to reduce emissions, including carbon capture and utilisation. “Surrender obligations do not arise for emissions of CO2 that end up permanently chemically bound in a product so that they do not enter the atmosphere under normal use.”

Methane and NOx

Both the MRV Regulation and FuelEU Maritime initiative are currently limited to CO2 emissions, but the proposal plans to extend their scope to cover other GHGs at a later phase “once the monitoring approaches and emission factors of these gases have been agreed”. The conversion factor for CH4 emissions into CO2 emissions is just one area where further clarification will be required.

Funding

The inclusion of shipping in the trading bloc’s emissions trading system will lead to increased costs for operators in the global supply chain. To counteract concerns that the revenues from the ETS will be used as general revenue, the European Commission is requesting that Member States spend their entire emissions trading revenues on climate and energy-related projects.