International Shipping to be included in EU GHG Emission Allowance Trading

The EU Parliament adopted a Resolution on 16 September 2020 to include international maritime transport in the EU greenhouse gas (GHG) Emission Allowance Trading (EAT). Why does the EU take this unilateral action and what does this decision mean for the maritime industry?

Regulation from 1 January 2022

Maritime transport is international, and does not start or stop at EU waters. The International Maritime Organisation (IMO) is the global UN organisation which sets global rules. The IMO adopted a Resolution on 13 April 2018 to decrease GHG emissions with 70% by 2050 compared to 2008. However, the EU Parliament is of the opinion that the progress made by IMO is “slow and insufficient” and therefore decided to speed things up for the EU.

The Regulation is to apply from 1 January 2022, and will include all intra-Union voyages, all incoming voyages from the last non-Union port to the first Union port of call and all outgoing voyages from an Union port to the next non-Union port of call, irrespective of the flag of the vessel. The scope of the Regulation initially is to apply to seagoing vessels of 5,000 grt and above, but a review to be made by 31 December 2022 shall also consider the extension of the scope of this Regulation to include ships between 400 and 5,000 grt. 

International competitiveness

By applying the system to all vessels, the international competitiveness of EU-flagged vessels is said not be harmed. Critics however say that this is only partly true because introducing this for one part of the world only will increase the costs and bureaucracy and thus creates an uneven playing field. It may also result in a shift in production to certain non-EU countries, so called “carbon leakage”. Perhaps EU measures to reimburse price differences caused by such carbon leakage by providing free emission rights, may also be applied for shipping. Although there is much opposition, the EU is determined to introduce the EAT for the maritime industry.

What will the costs for ship owners be? Generally, the GHG EAT system works as follows: certain “entities” (power stations, factories etc., but soon also shipping companies) have the right to certain “allowances”: to emit a certain quantity of tons of carbon dioxide-equivalent. Generally, allowances are allocated on the basis of earlier production levels and benchmarks and historic data for the carbon dioxide efficiency of the “production process”. Improvements in the process and the possibility of further reduction are being taken into account. When more than the allowed quantity is being emitted, extra rights must be acquired, through auction or private sales. At what level allowances will be set for which types of vessels is still to be determined. And thus it still is uncertain what the financial impact on the industry will be; but that the maritime industry will have to play its part and that that will have a serious impact is clear.