The European Union (EU) has proposed an Emissions Trading Scheme (ETS) including maritime emissions. The hope is to reduce maritime pollution from greenhouse gas emissions by forcing emitters to buy emission certificates. The current cost of the certificates is about 90 Euros; futures can be tracked here. The first monitoring year will be 2024, and will cover:
- all emissions from vessels above 5000 GT calling at EU ports for voyages within the EU
- 50% of emissions from voyages that start or end outside the EU
- all emissions when berthed at an EU location.
The rules will apply to smaller vessels in the following years. The basis for the requirement will be an EU Monitor, Report and Verify (MRV) analysis.
The emissions certificates are going to make ocean shipping more expensive. That’s exactly what is intended. The idea is to internalize the cost of pollution rather than have it be a factor exogenous (in economic terms) to the negotiated rates for shipping. Essentially shippers and carriers will no longer be able to ignore their emissions; they will need to pay enough to cover the cost of the certificates, or use clean ships.
Some carriers have already announced plans to pass the charges through to the shippers. Whatever happens, the emissions cost, measured by the certificate value, will be added to the cost of the product. This should influence shipping markets to reduce emissions. It’s an important stem, and one virtually all economists support.
One can argue whether the price is fair, or enough to completely cover the cost. And one can argue that passing through the cost to shippers stokes inflation. And there’s a question whether a charterer or owner should pay for the certificate, since the charterer has control of the factors on voyages that generate the emissions. But these are smaller points compared to getting action on reducing emissions. And now competition will be extended to reduce emissions for voyages, since ships that don’t pollute will be favored with lower costs.
The Managing Director of software company zero44 interviewed here, Frederike Hesse, says that the cost could well be substantial in the next few years. So shipowners had better prepare. Her company seems to be supplying software for charter planning. Emissions will play a definite role in charter planning and pricing for ships visiting the EU.
Friederike Hesse | Mar 02, 2023Up to €1.5m per year: understanding the implications of EU ETS