This report provides a summary of the agreement made on Saturday December 17th 2022 and concerns the European Union’s unified amendments to Directive 2003/87/EC with the aim of strengthening the European Union (EU) Emissions Trading System (ETS) and extending it in line with the EU’s increased climate ambition for 2030.

Amongst a raft of policy measures introduced as part of the “Fit For 55” climate and energy programme, the EU has expanded the application of the ETS to include maritime transport. Although there are wordings around clauses that have not yet been published, this Summary gives an overview of what we know to date including the scope and phase-in levels which have now been agreed, pending formal approval by the Parliament and Council.

The ETS covers all 27 EU Member States as well as Iceland, Liechtenstein and Norway, who are members of both the European Economic Area (EEA) and the European Free Trade Association (EFTA). For the purposes of this report, we refer to all countries under the scope of the ETS as “Member States” and refer to the jurisdiction of the ETS as being the “EU”.

In addition to this summary, Affinity are preparing to announce an innovative, turn-key solution that will offer our clients advice, procurement and compliance services relating to the ETS.

Affinity are partnering with an established shipping services provider to build an ETS outsourcing offering around these three pillars and look forward to launching the concept in January 2023.

The party responsible for the operation of the ship under the ISM Code is responsible for surrendering the allowances required for compliance.
➢ The “shipping company”, defined as either the shipowner or the entity that has assumed responsibility for the ship under the ISM code, is responsible for surrendering the requisite allowances. However, it is not necessarily liable for the cost of those allowances.
➢ When another entity is responsible for purchasing the fuel or taking operational decisions that affect the CO2 emissions of the ship, a binding clause should be included in such arrangements for the purpose of passing on the costs to that entity.

The geographic scope of the ETS expansion incorporates vessels on voyages both arriving at an EU port and departing from an EU port.
➢ All of the emissions generated by vessels performing voyages between EU ports, and emissions generated while at berth at an EU port, come under the scope of the ETS.
➢ Furthermore, allowances must be purchased and surrendered for half of the emissions generated by ships performing voyages arriving at an EU port from outside the EU (“inbound voyage”), and half of the emissions generated by ships on voyages that depart from an EU port and arrive at a non-EU port (“outbound voyage”).

Shipping will be phased into the ETS from 2024, with more comprehensive inclusion by 2026.
➢ Shipping companies will be liable for 40% of their applicable emissions in 2024, increasing to 70% in 2025, and 100% in 2026 and every year thereafter.
➢Shipping companies will not receive any free allowances but 20 million EUAs are earmarked for investment in green shipping technology.

Non-CO2 emissions caused by the maritime sector will be included: first under the MRV, then the ETS.
➢ From 2024, nitrous oxide (N2O), soot and methane (CH4) will be observed under the Monitoring, Reporting and Verification system.
➢ From 2026, those emissions will be priced into the ETS.

Punishments for non-compliance include penalty charges and blacklisting.
➢ Failure to surrender sufficient EUAs will result in an excess emissions penalty of ~€106/tCO2. As well as this charge, unpaid emissions are rolled-over to the following year, when their corresponding allowances must still be acquired and surrendered.
➢ If a shipping company fails to comply for two consecutive years, they may be issued with an expulsion order, to be observed by all Member States until the shipping company has fulfilled its surrender obligations.

Source: Affinity