EU ETS IS HERE: WHAT NOW? 

The European Union’s Emissions Trading System (EU ETS) directive took effect on January 1, 2024. Part of the Fit for 55 package, EU ETS will contribute to the EU’s goal of reaching a 55% reduction in greenhouse gas (GHG) emissions by 2030 and net-zero by 2050 compared to a 1990 baseline. 

Read on for Bureau Veritas’ summary of what you can expect in this initial stage – and what will come next. 

What is EU ETS? 

EU ETS is a cap-and-trade policy tool designed to combat climate change by limiting GHG emissions. 

Under this system, a fixed amount of CO2 allowances – called EU Allowances or EUAs – are dispensed annually for companies to buy and sell. By gradually limiting the number of EUAs available, the EU aims to incentivize energy efficiency and the use of low-carbon fuels, both in shipping and across all other sectors.

What are EU Allowances and how do they work? 

EUAs are a means of setting the amount of CO2 a shipping company is allowed to emit over the period of one year.

A limited allocation of EUAs are released each year, and the total in circulation will steadily be reduced over time. EUAs can be bought at a fixed price at auction, traded between companies, or banked for use in future. For each EUA, a given company has the right to emit a GHG equivalent to the global warming potential of one metric ton of CO2. 

Vessels are already required to monitor and report GHG emissions each year within the EU Monitoring, Reporting and Verification (EU MRV) Regulation, and this reporting determines how many allowances they should surrender annually. 

What changed on January 1st? 

EU ETS has already been in effect for several industries and as of January 1, 2024, the policy applies to shipping. For now, regulations pertain to cargo and passenger ships of 5,000 gross tonnage (GT) or more. These vessels must update their MRV Emissions Report within the first three months of 2024 and submit it for verification by April 1, 2024.

All ships will also have to begin monitoring and reporting other GHG emissions under EU MRV, in preparation for these to be included in the scope of EU ETS from 2026 onward. EU ETS currently only concerns 40% of CO2 emissions for the maritime industry, but the scope will gradually expand to include methane (CH4) and nitrous oxide (N2O).

What are some key benchmarks in the future evolution of EU ETS? 

The timeline for the evolving scope of EU ETS is as follows;

• 2024: Cargo and passenger ships of 5000 or more GT at 40% of CO2 emissions 
• 2025: Cargo and passenger ships of 5000 or more GT at 70% of CO2 emissions
• 2026: Cargo and passenger ships of 5000 or more GT at 100% of CO2, CH4 and N2O emissions
• 2027: Cargo, passenger and offshore ships of 5000 or more GT at 100% of CO2, CH4 and N2O emissions

What types of shipping routes are affected? 

All trade routes connecting two ports within the EU or the European Economic Area (EEA) are subject to the EU ETS laws. However, regulations apply only to 50% of routes that either originate from or end at a port outside the EU/EEA. 

Additionally, ships making stops at transhipment ports located less than 300 nautical miles outside an EU/EEA port are also covered by these regulations. As a result, 50% of emissions from these voyages will be subject to regulation. 

Guidance for your decarbonization journey

As regulatory pressure builds, ship owners will have to make critical decisions on how best to decarbonize their fleet. At Bureau Veritas, we know that these choices are impacted by a plethora of factors and that every company’s journey will be unique. With a suite of dedicated Rules and notations, specialized software and expert insight, we are ready to support ship owners in identifying the right path at the right time.