What does the integration of maritime traffic into the EU Emissions Trading System mean? How can you address the additional burdens in sea freight?
At the beginning of the new year, additional costs are expected for sea freight due to a significant change in the EU Emissions Trading System.
Climate change and its environmental impacts are increasing pressure on all players in the global economy. Consequently, public awareness has grown. Shipping, as one of the major contributors to greenhouse gas emissions, is now increasingly in the spotlight of regulators. In an effort to address this issue, political negotiators reached a provisional agreement in December 2022 to expand the EU Emissions Trading System to maritime traffic. This agreement was subsequently finalized in May 2023 and published in the Official Journal of the European Union.
Expansion of the EU Emissions Trading System (EU-ETS) to Shipping from 2024
The aim of the EU Emissions Trading System (EU-ETS), introduced as a market-based instrument in 2005, is to internalize external costs that affect third parties and are often not considered in companies’ operational decisions. These external costs relate to social and environmental damages caused by greenhouse gas emissions. The EU-ETS has traditionally focused on energy-intensive industries such as power generation and manufacturing.
Starting in 2024, the EU-ETS will also include maritime activities within the European Economic Area (EEA). As a result, shipping companies are required to monitor their emissions and acquire and surrender certificates for each ton of CO2 equivalent they emit.
Scope of Integration into the EU Emissions Trading System (EU-ETS)
The implementation covers both ships traveling between EU countries and those traveling between an EU port and a non-EU port. Consequently, shipping companies are obligated to acquire certificates for the following emissions:
- 50 percent of emissions from voyages between an EU port and a non-EU port and vice versa
- 100 percent of emissions from voyages between EU ports
- 100 percent of emissions from ships docked in an EU port
Pricing of Certificates
The integration of maritime traffic into the EU-ETS is considered a significant advancement in the effort against climate change. The goal is to create financial incentives for reducing greenhouse gas emissions while promoting the transition to more sustainable practices. The new law envisions a phased introduction of CO2 pricing for maritime traffic. According to the following schedule, shipping companies must submit certificates for a portion of their emissions:
- In 2024, companies must submit certificates for 40 percent of their verified emissions.
- In 2025, companies must submit certificates for 70 percent of their verified emissions.
- Starting in 2026, companies must submit certificates for all of their verified emissions.
Potential Cost Increase for You as a Shipper or Importer
Each reported ton of CO2 requires the acquisition of a European Union Allowance (EUA) and its annual submission to the EU. This task applies to all shipping companies responsible for obtaining EUAs, which can be acquired on exchanges.
The implementation of the EU Emissions Trading System (EU-ETS) from 2024 will lead shipping companies to incorporate the costs associated with emissions into their sea freight rates. Compliance costs are expected to be substantial and are anticipated to increase continuously with the phased implementation. Additionally, due to the volatility of the certificate market, these costs are assumed to be reassessed quarterly.
Conclusion
The integration of maritime traffic into the EU Emissions Trading System marks a significant step in combating climate change. While the integration brings new challenges, it also presents opportunities for a more sustainable and environmentally friendly shipping industry. At Kloepfel Consulting, we are here as logistics consultants to help you monitor the rising freight rates within the EU-ETS framework and find solutions. We can assist you in developing strategies to optimize costs while minimizing environmental impact.
If you seek information about the EU-ETS and solutions to address the potential cost increase, contact Kloepfel Consulting. Together, we can optimize your logistics and costs.
Contact:
Kloepfel Group
Christopher Willson
Tel.: 0211 941 984 33 | Mail: rendite@kloepfel-consulting.com