The EU ETS, established in 2005, stands as the world’s largest emissions trading system. It operates on a “cap and trade” mechanism, wherein a cap is set on the total amount of greenhouse gases that companies within the EU can emit in a given year.
Companies subject to the EU ETS must purchase allowances (quotas) corresponding to their emissions, with 1 ton of CO2 equating to 1 ETS allowance. Over time, the number of available allowances decreases, thereby incentivizing a reduction in greenhouse gas emissions in line with EU targets.
While initially limited to energy-intensive industries, the EU ETS will expand to include shipping from January 1, 2024, to encourage the maritime sector to reduce its environmental impact and transition to low-carbon fuels.
The application of the EU ETS to shipping will consider emissions for voyages between EU ports, with 100% of emissions calculated for legs between two EU ports and 50% for legs between EU ports and non-EU ports.
Starting in 2024, shipping lines will be obliged to report their emissions and purchase allowances on the EU ETS market following a phased schedule:
- In 2024, 40% of reported emissions must be converted into allowances.
- In 2025, 70% of reported emissions must be converted into allowances.
From 2026 onwards, 100% of reported emissions must be converted into allowances.
It’s important to note that certain aspects of the EU ETS law, such as the list of designated transshipment ports, are yet to be finalized and will be reviewed periodically.
ETS impact on customers
The implementation of the EU ETS in shipping will introduce carbon pricing to the industry, encouraging the reduction of carbon footprints throughout the supply chain.
To cover the added costs resulting from the EU ETS, major shipping companies have announced the introduction of surcharges on applicable bookings. These surcharges will be adjusted quarterly based on changes in the market value of carbon allowances.
Here are some estimations of surcharges per TEU (Twenty-foot Equivalent Unit) for specific trade routes, based on the current market value of carbon allowances (approximately EUR 90 per ton of CO2)
CMA CGM:
| DRY | REEFER | |
|---|---|---|
| surcharge per TEU in EUR | surcharge per TEU in EUR | |
| Europe to North America: | EUR 43 | EUR 65 |
| Intra Mediterranean: | EUR 25 | EUR 40 |
Maersk:
| DRY | REEFER | |
|---|---|---|
| surcharge per TEU in EUR | surcharge per TEU in EUR | |
| East Asia to North Europe: | EUR 12, | EUR 31 |
| East Asia to South Europe: | EUR 7 | EUR 16 |
| North Europe to North Am East Coast incl. MX East Coast: | EUR 9, | EUR 16 |
Hapag-Lloyd:
| DRY | REEFER | |
|---|---|---|
| surcharge per TEU in EUR | surcharge per TEU in EUR | |
| East Asia – North Europe: | EUR 12 | EUR 31 |
| East Asia – South Europe: | EUR 7 | EUR 16 |
| Europe – West Africa: | EUR 17 | EUR 29 |
Container shipping expert warns of “confusing and unaligned landscape”
Container shipping industry expert Lars Jensen has long warned the industry of the chaos the new system will bring to shipping.
In a recent LinkedIn post, Jensen pointed out several challenges in calculating the ETS surcharges.
One major issue is that carriers can only determine the actual costs they will incur after the fact, which forces them to make assumptions upfront.
Also, determining how to distribute these costs among carriers poses another challenge, as there are multiple justifiable approaches.
Jensen predicted that this situation will lead to a confusing and unaligned landscape across different carriers.
Furthermore, he emphasised that achieving deep transparency regarding how these surcharge numbers are arrived at will be nearly impossible due to the complex nature of the EU ETS regulations.
Jensen also noted that aligning these surcharges across carriers is unlikely, similar to the challenges faced with bunker surcharges. EU legislation prohibits carriers from aligning such surcharges, even when the foundation for the surcharge is the same for all carriers and shippers.
Photo: Guilhem Vellut / Flickr / CC BY 2.0 DEED