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[hazl] 11/3/2023 09:45

EU ETS: Preliminary agreement to include shipping in the EU’s Emission Trading System from 2024

The EU’s legislative bodies have reached an agreement on including shipping in its Emission Trading System (EU ETS). Subject to final adoption, ships above 5000 GT transporting cargo or passengers for commercial purposes in the EU will be required to acquire and surrender emission allowances for their CO2 emissions from 2024. Offshore ships will be included from 2027. This statutory news summarizes the current information on EU ETS.
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Relevant for ship owners, managers and charterers.

The European Parliament (EP), Council of the European Union, and the European Commission have reached an agreement on including shipping in the EU’s Emission Trading System (EU ETS) from 2024. There is no consolidated text available yet and this newsletter is based on the available information about the agreement and otherwise the Commission proposal from 14 July 2021. The EP and Council are expected to formally adopt the revised directive later. Further details on the requirements and processes can be expected as the final text is adopted, and the European Commission adopts related implementing and delegated acts.

The EU ETS is an emission cap-and-trade system where a limited amount of emission allowances – the cap – is put on the market and can be traded. The cap is reduced each year, ensuring that the EU’s emission target by 2030 of 55% reduction, relative to 1990, can be met while becoming climate-neutral by 2050.
The EU ETS and EU MRV requirements

Under the EU ETS each company with ships trading in the EU/EEA is required to surrender emission allowances corresponding to a certain amount of its GHG emissions emitted over a calendar year starting with 2024. The requirements apply to the shipping company which is the shipowner or any other organization or person, such as the manager or the bareboat charterer, who has assumed the responsibility for the operation of the ship including duties and responsibilities imposed by the ISM Code. The emissions will be reported and verified through the existing EU MRV (Monitoring, Reporting and Verification) system, which will be revised and extended to cover necessary GHG emissions, ship types and sizes.
Emission scope
Ship types and sizes

From 2024 the EU ETS will include ships above 5000 GT transporting cargo or passengers for commercial purposes. The EU MRV system will be extended from 2025 to apply to offshore ships above 400 GT and general cargo ships between 400 and 5000 GT transporting cargo for commercial purposes. Offshore ships above 5000 GT will from 2027 be included in the ETS. By 2026 the European Commission will review whether general cargo and offshore ships between 400 and 5000 GT will also be included in the ETS.
Type Size (GT) EU MRV EU ETS
Ships transporting cargo or passengers 5000+ In force 2024
General cargo and offshore ships 400-5000 2025 To be evaluated
Offshore ships 5000+ 2025 2027
Greenhouse gases (GHGs)

From 2024 the EU ETS will include CO2 emissions only, while the EU MRV will be extended the same year to include reporting of methane (CH4) and nitrous oxide (N2O) which are two other greenhouse gases (GHG) emitted by ships. From 2026 the EU ETS will also include these two GHGs.
GHG EU MRV EU ETS
CO2 In force 2024
Methane (CH4), Nitrous oxide (N2O) 2024 2026
Voyages

All 100% of emissions on voyages and port calls within the EU/EEA, and 50% of emissions on voyages into or out of the EU/EEA are subject to the EU ETS. To avoid evasive behaviour, container ships stopping in transhipment ports outside the EU/EEA but less than 300 nm from an EU/EEA port, need to include 50% of the emissions for the voyage to that port as well, rather than only the short leg from the transhipment port. The EU will provide a list of transhipment ports.
Voyage scope EU MRV EU ETS
Emissions on voyages and port calls within the EU/EEA 100% 100%
Emissions on voyages into and out of the EU/EEA 100% 50%
Phase-in

The emissions in scope for surrendering allowances will be gradually phased-in, starting with 40% of emissions according to the scope described above for 2024, increasing to 70% for 2025 and to 100% for 2026 onwards.
Phase-in 2024 2025 2026
Share of emissions subject to the EU ETS 40% 70% 100%
Exemptions and derogations

Certain activities are exempted or have reduced obligations to surrender allowances, such as certain ice classed ships, certain ships servicing low population islands without rail or road link or located in the outermost regions, and ships performing public service obligations.
Compliance process

Each company will need to be registered with an administrating authority. For companies registered in the EU, the administrating authority will be the member state where it is registered, while for companies outside the EU it is the member state with the largest number of port calls from voyages performed by the ship company the last two monitoring years, or, if it has not traded in the EU the last two years, the member state of the first port call in the EU. The EU will prepare a list of the administering authorities per company, which will be updated every two years.

Within three months after entry into force of the revised directive (to be decided at adoption), an updated ship EU MRV monitoring plan must be verified by an accredited verifier and submitted to the administrating authority of the company. The monitoring plan shall describe the method for monitoring and reporting of methane and nitrous oxide. From 1 January 2024, each ship needs to start reporting according to the revised monitoring plan.

By 31 March each year from 2025, a verified company emission report needs to be submitted to the administering authority. The company emission report aggregates the emissions within the scope of the EU ETS reported and verified for each ship under the responsibility of the company during the reporting period (i.e., the calendar year). Note that this in practice means that the ship emissions report needs to be verified and submitted a month earlier than under the current EU MRV system. By 30 September (indicated, subject to confirmation) each year the necessary emission allowances are required to be surrendered to the administering authority.
Penalties

Ships that fail to comply with the EU MRV requirements for two or more consecutive periods may be expelled and denied trading in the EU. Companies that fail to surrender allowances are liable to an excess emissions penalty of €100/tonne CO2, and are still liable for the surrendering of the required allowances. Companies that fail to comply for two or more consecutive periods may be denied entry in the EU for all ships under its responsibility.
How will biofuels and e-fuels be handled?

The EU ETS allows using a zero CO2 emissions factor for biofuels, renewable fuels of non-biological origin, and recycled carbon fuels fulfilling the sustainability and GHG emissions saving criteria under the EU’s Renewable Energy Directive (RED). The RED revision proposal, which is still under negotiation, sets this GHG emissions saving criteria to 70% for transportation fuel. However, the EU has not finalised the delegated act defining the rules for renewable fuels of nonbiological origin and recycled carbon fuels under the RED.
How to acquire emission allowances?

Ship companies will not receive any free allowances. Emission allowances can be acquired in the primary market through auctions arranged by the European Energy Exchange (EEX) which is currently contracted by the EU to handle this.

There is also a substantial secondary market where allowances can be traded bilaterally or through various derivatives offered by financial institutions.
Where do the revenues end up?

The revenues from the auctions are distributed to various recipients. The introduction of shipping into the EU ETS means that an additional approximately 80 to 100 million emission allowances will be put on the market. Of these, auction revenues from 20 million emission allowances will go to the Innovation Fund to be used for shipping specific projects. The remaining revenues will go to the EU member states and will not be earmarked for specific purposes beyond climate and energy-related activities.
Recommendations

DNV recommends that companies with ships within the scope of the EU MRV and EU ETS from 2024, prepare for the updated monitoring and reporting requirements. Companies with ships within the scope of the EU ETS are recommended to make the necessary updates to contractual arrangements and to start considering how to acquire the necessary emission allowances.

DNV will inform customers about further developments of the EU ETS though Technical and Regulatory News, webinars, podcasts and more.
References

EU ETS – Emissions Trading System topic page
Decarbonize shipping information hub
MRV topic page

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Published:
23 Janua

[kreature] 10/3/2023 18:03

Wonder if anyone gives a st where Leandra is now ?

[hazl] 10/3/2023 15:12

Some good chat on the L S E about valuations with Morocco and then of course if MSC give contracts.

IMO

[hazl] 10/3/2023 15:09

Wonder where the Leandra is now?
There's an example of some people doing some real work.

[hazl] 10/3/2023 15:08

Oh yes I remember now.....wasn't one of them in PURP??

Oh dear.

[hazl] 10/3/2023 15:07

Ha ha they are still trying.

Wonder what stocks they have got?
Might be worth avoiding them considering their judgement!

[tongosti] 10/3/2023 14:59

"swimming against the tide" ...Do you mean zero interest instead?!The wise looks at facts wherever it may lead one. Mr F makes own facts.

[hazl] 10/3/2023 13:19

I see the emojii queen is still bleating on about 2013.



Every share nearly, is plummetting, while you are here swimming against the tide.
QFI Has had good news lately and we expect more good news.
Let's hope it gets rid of the negative posters once and for all.

IMO

[hazl] 10/3/2023 13:15

I said I derisked in most shares a long time ago.
The companies I have now are interesting and speculative.

[kreature] 10/3/2023 11:00

No wonder there’s no change out of a tenner at co-op

[sarkasm] 10/3/2023 10:31

Green lobby urges Europe to end incentives for biofuels production

Biofuels have been gaining traction in the shipping industry recently, as some companies ramped up biofuels blending in fossil bunker fuels

09 Mar 2023
News

Enes Tunagur @@enestunagur [e-mail]

‘Biofuels are a failed experiment,’ said Maik Marahrens, biofuels manager at Transport & Environment. ‘To continue to burn food as fuel while the world is facing a growing global food crisis is borderline criminal.’

[kreature] 10/3/2023 10:28

“I derisked a long time ago.”

Ffs, you could’ve told us

[hazl] 10/3/2023 10:20

Standing still in this market is brilliant.
A time for people new to the market to be very careful though if they have loaded up on any stock.
I derisked a long time ago.
Have a few for interest.

[hazl] 10/3/2023 10:15

You lot could have picked from 95% of shares probably and yet you are here!

IMO

[kreature] 10/3/2023 09:30

Im here just incase anti gravity emulsion is invented. Well phase 1 anyway

[hazl] 10/3/2023 09:26

Ha ha I say it again....al l these stocks plunging are you are stuck here!

Hilarious!

[kreature] 10/3/2023 09:21

Placings make life possible in the universe. I wouldn’t know if they are rigged. I blame deliberate intergalactic seeding for life of earth tho. The double helix can’t just invent itself

[tongosti] 10/3/2023 08:41

Universe is rigged for sure - otherwise how is life possible in an otherwise hostile universe?

[kreature] 10/3/2023 08:11

The important things also seem to cause the most grief….

[tongosti] 10/3/2023 00:10

Important things in life...A friend of my neighbour has just retired a one happy bunny. Not sure what he did but sure as day he did well for himself. He says he's very happy with the Universe he lives in.

[kreature] 09/3/2023 19:39

Perhaps gave it to charity? Difficult to know. Isn’t 99.9% of this company now in mugs hands ? Not sure of the free float percentage

[tongosti] 09/3/2023 16:07

Don't remember that but if so, fair to assume he did well for himself?

[kreature] 09/3/2023 14:19

Credit where credit deserved. Didn’t the former CFO dump at 33p, then resign ?