From 1 January 2024, shipping will be included in the EU Emissions Trading System (ETS). Based on current emissions, Hecla Emissions Management has calculated what the ETS bill will look like for shipping, beginning at well over EUR 3 billion in 2024.
The European Union’s Monitoring, Reporting and Verification (EU MRV) dataset for shipping’s European CO2 emissions for the year 2022 has just been published, with the data highlighting some significant year-on-year changes from 2021 despite the shipping industry as a whole showing a modest reduction in emissions.
The EU MRV regulation requires all ships exceeding 5000 gross tonnes to collect and report data on CO2 emissions released to and from EU and EEA ports and will serve as the basis for shipping’s inclusion in the EU Emissions Trading System (ETS) from 1 January 2024.
Also read: EU plans to earmark ETS revenues for shipping’s decarbonisation
ETS price tag from 2024-2025
Total ETS-applicable emissions for the maritime industry amounted to 83.4 million metric tonnes of CO2 equivalent (tCO2e) in 2022, a modest decrease of 0.22 per cent from 2021. At the current market value of EUR 90 per emissions allowance (EUA), shipping emissions carried a total worth of EUR 7.5 billion for the year.
Taking into account the ETS phase-in period covering forty per cent of emissions in 2024, seventy per cent in 2025 and 100 per cent in 2026, and utilising the forward curve in EUAs, Hecla Emissions Management’s estimates indicate that the shipping industry could be liable for EUR 3.1 billion in 2024, EUR 5.7 billion in 2025 and EUR 8.4 billion in 2026.
Notable segment decreases and increases
The data showed emissions decreases across multiple shipping segments, including tankers, container ships, general cargo ships, reefers, Ro-Ros and chemical tankers. The container sector showed the largest reduction, falling by 8.95 per cent equating to 2.3 million metric tonnes of CO2 equivalent (tCO2e) saved.
However, passenger ships and LNG carriers logged substantial increases. The former scored highest, with a staggering 118 per cent year-on-year rise equating to 2.8 million (tCO2e), the latter recording a 63 per cent increase equating to 2.1 million tCO2e.
Also read: EU carbon pricing brings new pressures and new plays
Shift in trading patterns
It is important to note that the changes in emissions levels are less reflective of improved environmental operations as they are of altered European trade patterns.
Container shipping, for example, experienced a bumper year in 2021 versus a noticeably cooler market in 2022, while LNG carriers saw a dramatic trading shift away from Asia towards Europe as Europe reduced its reliance on pipeline gas in the wake of Russia’s invasion of Ukraine, importing significantly more LNG by sea.
Financial implications
‘The projected liabilities emphasise the importance of shipping companies preparing for their entry into the ETS,’ says Hugo Wilson, Director of Hecla Emissions Management. ‘We have been onboarding customers from across shipping’s value chain in order to have them fully prepared by the start of next year. We encourage more shipping companies to do the same.’
Hecla Emissions Management was established by Wilhelmsen Ship Management (WSM) and Affinity Shipping LLP in 2022 to assist shipping clients with each of the compliance obligations associated with EU ETS participation. This ranges from setting up relevant accounts to management and administration of registry requirements and instant access to buy and sell EUAs. The joint venture has offices in Oslo and London.
Also read: ECSA: Shipping ETS revenues should be used to bridge price gap between new and conventional fuels
