Maritime emissions in the EU ETS
- Category: European Union Carbon Market Glossary
Maritime transport is a major emitter of CO2, generating around 3-4% of the EU’s total CO2 emissions (over 124 million tonnes of CO2 in 2021) when considering all emissions from voyages to and from the EU.
Initially the EU legislative framework for greenhouse gas emissions from maritime transport focused solely on monitoring, reporting and verification of emissions. The Regulation (EU) 2015/757 on the monitoring, reporting and verification of CO2 emissions from maritime transport (Maritime MRV Regulation) was developed and CO2 emissions from ships above 5000 gross tonnage travelling to or from ports located within the EEA were being monitored, reported and verified since 2018. This was considered as a first step before the pricing of these emissions and inclusion in the EU ETS.
|Maritime transport greenhouse gas emissions will be included in the EU ETS from the reporting period starting on 1 January 2024 and methane and nitrous oxide emissions will be included in the scope of Regulation (EU) 2015/757 from the reporting period starting on 1 January 2024.
Directive (EU) 2018/410 states in recital 4 that action from the International Maritime Organization (IMO) or the Union should start from 2023, reducing maritime transport emissions is also a part of the EU economy-wide reduction commitment under the Paris Agreement.
At the global level, a regulatory framework on the energy efficiency of new ships is in place and energy efficiency measures for existing ships have recently been approved. The IMO has also adopted an Initial Strategy on Reduction of Greenhouse Gas Emissions from Ships, which sets a greenhouse gas emission reduction objective of at least 50% by 2050 compared to 2008 levels. Nevertheless, as of July 2021, no adequate measures were in place, either in the EU or at the global level, to achieve the emission reductions necessary from the maritime transport sector to be in line with the EU’s increased level of climate ambition. These measures are also assessed as insufficient to decarbonise international shipping in line with international climate objectives.
The European Commission's Inception Impact Assessment of 29 October 2020 (Ref. Ares(2020)6081850) envisions "urgent actions" with respect to emissions from maritime transport:
"In view of the increasing emissions from maritime transport and the limited decarbonisation options available, action in this sector is urgently needed, including as it recovers from the current crisis. While emissions from EU’s international maritime bunkers, a growing sector, are being monitored, reported and verified, they are not covered by the EU ETS or other EU climate legislation, contrary to the EU’s international commitment to economy-wide action under the Paris Agreement. The EU will need to carefully consider its own measures on maritime, next to any global action".
Also the European Commission Communication of 17 September 2020 "Stepping up Europe’s 2030 climate ambition, Investing in a climate-neutral future for the benefit of our people" (COM/2020/562 final) underlines that in accordance with its international commitment to economy-wide action under the Paris Agreement, the EU should include "at least" intra-EU maritime transport in the EU ETS. The above intentions materialised in the European Commission Proposal of 14 July 2021 for a of the European Parliament and of the Council amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union, Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and Regulation (EU) 2015/757 (COM(2021) 551 final, 2021/0211 (COD)), which equivocally states that building on data coming from the Maritime MRV Regulation emissions from maritime transport should be included in the existing emissions trading system.
Moreover, to ensure a smooth transition, a phase-in period is envisioned where shipping companies would only have to surrender allowances for a portion of their verified emissions, gradually rising to 100% over 3 years. It is estimated that as around 90 million tons of CO2 would be added through the extension to maritime transport to the existing ETS.
EU ETS and maritime transport - Fit for 55: European Commission proposal of 14 July 2021
• Gradual extension of the ETS to maritime starting in 2023, with a 3-year phase in period
The main elements of the ETS Directive which are amended by the said European Commission Proposal of 14 July 2021 - as regards the maritime transport (Article 3, Articles 3g to 3ge, and Article 16) - are the following:
- the definition of “emissions” in Article 3(b) is amended to include emissions from ships performing a maritime transport activity;
- Chapter II of the Directive is expanded to cover “aviation and maritime transport”, Articles 3g to 3ge are added;
- maritime transport is added as a new activity in Annex I;
- new definitions for “shipping company” and “administering authority in respect of shipping companies” are included in Article 3(v) and Article 3(w) respectively.
The extension of the EU ETS to maritime transport applies in respect of emissions from intra-EU voyages, half of the emissions from extra-EU voyages and emissions occurring at berth in an EU port; the same rules that apply to other sectors covered by the EU ETS should apply to maritime transport with regard to auctioning, the transfer, surrender and cancellation of allowances, penalties and registries (Article 16). The obligation to surrender allowances in the maritime transport sector is gradually phased-in over the period 2023 to 2025, with shipping companies having to surrender 100 % of their verified emissions as of 2026 (Article 3ga).
In accordance with this phase-in, to the extent fewer allowances are surrendered in respect of verified emissions for maritime transport during those years, the amount of allowances not surrendered should be cancelled. The monitoring and reporting rules, as well as verification and accreditation rules laid out in Regulation (EU) 2015/757, as amended, shall apply (Articles 3gb and 3gc). In addition to the general EU ETS rules on penalties, 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, with the result that ships under its responsibility can be detained by the flag Member State and denied entry into a port under the jurisdiction of a Member State other than the flag State (Article 16(11a)).
Each shipping company falling within the scope of application of the EU ETS is attributed to a Member State – the administering authority – for its administration under the Directive. The administering authority is determined based on where the shipping company is registered. If the company is not registered in a Member State, it is attributed to the Member State where it had the highest number of port calls in the two previous monitoring years. As of 2024, the Commission is to publish and regularly update a list of shipping companies covered by the Directive and their respective administering authority (Article 3gd).
Outcome of the legislative process
On 2 June 2022, the Transport Council reached a general approach on the proposal. On 23 March 2023 the provisional political agreement between the Council and the European Parliament has been reached to decarbonise the maritime sector. The text of the provisional agreement retains the core aspects of the Commission’s proposal. The co-legislators made some amendments, in particular:
- introducing time limited exceptions for the specific treatment of the outermost regions, small islands, and areas economically highly dependent on their connectivity,
- introducing reduction factors for ice classed ships, as well as ships navigating in ice,
- increasing the reduction targets for the greenhouse gas intensity of energy used on board by ships as from 1 January 2035 and introducing measures to encourage the use of the so-called renewable fuels of non biological origin (RFNBO),
- amending the requirements for on-shore power supply (OPS) and provisions relating to zero-emission technologies based on the underlying principle that the system should be coherent with the Alternative Fuel Infrastructure Regulation (AFIR),
- excluding fossil fuels from the certification process when it comes to the certification of fuels but also improving the provision to make the process more future proof,
- amending the provisions on revenues generated from the penalties under the FuelEU regulation and their allocation to projects to support decarbonisation of the maritime sector with an enhanced transparency mechanism,
- further specifying the Commission’s obligations to monitor the implementation of the regulation in the relevant report and review clause.
On 16 May 2023 the Directive (EU) 2023/959 of the European Parliament and of the Council of 10 May 2023 amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union and Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading system has been published in the EU Official Journal.
To conclude, under the revised ETS Directive, the EU ETS will cover greenhouse gas emissions from maritime transport as of January 2024. Initially, it will only concern CO2 emissions and then CH4 (methane) and N2O emissions from 2026. Methane and nitrous oxide emissions will be included in the scope of Monitoring Regulation (2015/757) from the reporting period starting on 1 January 2024.
Emissions from all large ships (of 5 000 gross tonnage and above) entering EU ports are included, regardless of the flag they fly, in respect of:
- 50% of emissions from voyages starting or ending outside the EU (allowing the third country to decide on appropriate action for the remaining share of emissions);
- 100% of emissions that occur between two EU ports and when ships are in EU ports.
The system builds on the provisions in place for other EU ETS sectors as well as Regulation 2015/757 for monitoring and reporting emissions from maritime transport.
The ETS obligations for the maritime sector will be introduced gradually. During an initial phase-in period, shipping will only be obliged to surrender allowances for a portion of their emissions as set out below.
- 2025: for 40% of their emissions reported in 2024;
- 2026: for 70% of their emissions reported in 2025;
- 2027 onwards: for 100% of their reported emissions in 2026 and later years.