Expansion of the EU Emissions Trading System to the Maritime Transport Sector
Expansion of the EU Emissions Trading System to the Maritime Transport Sector: Implications and Requirements for Shipping Companies
The companies listed in the Commission Decision 2024/411 (COMMISSION EXECUTIVE DECISION (EU) 2024/411 of 30 January 2024 on the list of shipping companies designating the administering authority in relation to the shipping company in accordance with Directive 2003/87/EC of the European Parliament and of the Council) have been allocated to specific countries based on where the shipping company is registered. However, this does not imply an obligation to account for Emission Trading Allowances (ETA) in that country if more than one entity with respect to a particular vessel may be considered a shipping company in accordance with the Regulation 336/2006 (Regulation (EC) No 336/2006 of the European Parliament and of the Council of 15 February 2006 implementing the International Management Code for the Safe Operation of Ships and for Pollution Prevention, and repealing Council Regulation (EC) No 3051/95), typically the registered owner, ISM manager, or bareboat charterer.
These shipping companies shall be liable to surrender the emission allowances and report data in accordance with Articles 3(gb) and 3(gd) of Directive 2003/87/EC.
If the owner authorizes the ISM manager to do so, the manager may report under the EU ETS and account for ETA. However, in the absence of such choice, the principal responsibility lies with the owner in accordance with Article 1(1) and (4) of Regulation 2023/2599 (COMMISSION EXECUTIVE REGULATION (EU) 2023/2599 of 22 November 2023 laying down rules for the implementation of Directive 2003/87/EC of the European Parliament and of the Council with regard to the administration of shipping companies by administrative bodies in relation to the shipping company).
For EU ETS purposes, you will need an operator, as per Article 15 of Directive 2003/87/EC, which can be your classification society if it offers such a service and is appropriately accredited. The operator will verify the report based on data from the shipping company, but the obligation and responsibility for reporting lies with the shipping company.
According to Article 19 of Directive 2003/87/EC, the shipping company must establish a settlement account in the Union Registry in the country to which it has been assigned (Maritime Operator Account) within 40 working days from the publication date of the list in Commission Decision 2024/411, a deadline derived from Article 15a of Regulation 2019/1122 (COMMISSION DELEGATED REGULATION (EU) 2019/1122 of 12 March 2019 supplementing Directive 2003/87/EC of the European Parliament and of the Council with regard to the functioning of the Union Registry), as amended by Regulation 2023/2904 (COMMISSION DELEGATED REGULATION (EU) 2023/2904 of 25 October 2023 amending Delegated Regulation (EU) 2019/1122 supplementing Directive 2003/87/EC of the European Parliament and of the Council with regard to the functioning of the Union Registry).
Generally, on the governmental side, there are two entities involved: the administering authority and the national administrator.
The national administrator is responsible for opening and maintaining the settlement account in accordance with Article 3(2) of Regulation 2019/1122, as amended by Regulation 2023/2904. In Poland, this authority is KOBIZE.
The administering authority will ensure compliance of the settlement account with the EU ETS legislation the administering authority refers to the respective EU country where the shipping company is registered, so in the case of shipping companies based in Poland, it will be Poland, as per Article 3gf(1) of Directive 2003/87/EC. Currently, there is no information regarding which specific authority in Poland will be responsible for ensuring compliance with the EU ETS.
Starting January 2024, the EU has extended its Emissions Trading System (EU ETS) to cover CO2 emissions from all large ships (of 5,000 gross tonnage and above) entering EU ports, regardless of the flag they fly.[1] The said system will encompass:
- 50% of emissions from voyages starting or ending outside the EU, with third countries deciding on actions for the remaining share of emissions.
- 100% of emissions occurring between two EU ports and when ships are within EU ports.
Following that, starting in 2027, the coverage will extend to vessels engaged in offshore activities such as oil and gas exploration or maritime construction, again with a gross tonnage of 5000 or above.[2]
The EU ETS will also cover CO2 (carbon dioxide), CH4 (methane), and N2O (nitrous oxide) emissions, with the latter two being included as of 2026.
Emissions from maritime transport will be included in the overall ETS cap, which defines the maximum amount of greenhouse gases that can be emitted under the system. The cap will be reduced over time to ensure that all ETS sectors contribute to the EU’s climate objectives. This will incentivize energy efficiency, low-carbon solutions, and reductions in the price difference between alternative fuels and traditional maritime fuels. The system builds on the provisions in place for other EU ETS sectors, as well as the recently revised EU Monitoring, Reporting, and Verification Regulation for maritime transport (‘MRV Maritime Regulation’).
In practice, shipping companies will have to purchase and surrender to the administering authority the EU ETS emission allowances for each tonne of reported CO2 (or CO2 equivalent) emissions within the scope of the EU ETS system. Administering authorities of EU Member States will ensure compliance using similar rules as for other ETS sectors. To ensure a smooth transition, shipping companies will only have to surrender allowances for a portion of their emissions during an initial phase-in period:
- 2025: for 40% of their emissions reported in 2024;
- 2026: for 70% of their emissions reported in 2025;
- From 2027 onwards: for 100% of their reported emissions.
A reporting and review clause is included to monitor the implementation of the rules applicable to the maritime sector and to take into account relevant developments in the International Maritime Organisation (IMO).
These rules were adopted on 16 May 2023 and came into effect on 5 June 2023 (see: https://eur-lex.europa.eu/eli/reg/2023/957 ; https://eur-lex.europa.eu/eli/dir/2023/959).
The expansion of the EU ETS to cover maritime transport implies amendments to long term charter agreements in order to regulate between the parties to those agreements the duties and liabilities associated with the operation of the EU ETS with respect to e.g. settlement of the emission trading allowances or the information, data and calculations about the ship’s emissions provided by the owner for the charterer’s review. At the same time, charterers who conclude new charters should pay close attention to the wording of the clauses dealing with the EU ETS proposed by the owners.
This text is provided solely for informational purposes and should not be construed as legal advice or any form of professional consultation. For further information or to consult with our team, please contact us via email at: t.nadratowski@mar-law.pl.
Tomasz Nadratowski
Partner
+ 48 698 354 538
- https://climate.ec.europa.eu/eu-action/transport/reducing-emissions-shipping-sector_en ↑
- https://icapcarbonaction.com/en/news/eu-extends-its-ets-maritime-sector ↑
