EU has reached a preliminary agreement on ETS
Danish Shipping is pleased with the deal that was agreed on Tuesday night making shipping part of the EU Emission Trading System (ETS)
After countless meetings, discussions, and papers about shipping’s inclusion in the EU’s CO2 emissions trading system a preliminary agreement was reached Tuesday night.
Representatives from the European Commission, the European Parliament and the European Council reached a tentative agreement on a the text which implies that shipping will be included in the Emissions Trading Systems from 2024 with a 3 year phase-in period. A final agreement is expected on 16 – 17 December when the last negotiations will take place.
“It’s a historical moment where years of political discussions on how to regulate shipping is close to be materialised in an agreement. In my opinion, it’s ambitious and will undoubtedly push the industry in a greener direction, and eventually lead to absolute reductions of greenhouse gasses,” says Maria Skipper Schwenn, Executive Director of Climate, Environment and Security at Danish Shipping.
In the initial proposal, shipping was to be included in the ETS as early as 2023.
It has now been agreed that shipping companies account for their emissions from 2024 and surrender the necessary allowances the preceding year. In 2024 they will account for 40 percent of their emissions, increasing to 70 percent in 2025 and eventually 100 percent in 2026.
It has been of paramount importance for Danish Shipping that the regulation from the very start creates incentives to use new green fuels such as e-methanol and e-ammonia as they are climate neutral looking at their total climate footprint.
Therefore, it has been necessary to account for fuels’ emissions from extraction at the source to combustion onboard the vessel – a so-called life cycle assessment (LCA).
In the agreed text, however, LCA is not included from the outset, but is deferred to the revision of the ETS directive planned for 2026.
“It’s positive that LCA is included in the agreement text, since it is a complete new element that was not part of the original proposal. We have fought hard to get it on the agenda and know that this has also been a priority for the Danish Government.
However, by postponing LCA to 2026 we are losing incentives given that we need climate-neutral vessels on the water within this decade in order to reach the target of zero emissions in 2050. We are not being fair towards the climate when we do not look at the entire climate footprint that the fuel leaves behind, and we create obstacles in the promotion of green fuels of the future,” says Maria Skipper Schwenn.
In the meantime, Danish Shipping is pleased that it has been possible to include all greenhouse gases in the regulation and not just CO2, as initially proposed. At the same time, it has been important for Danish Shipping that the operators are not forced by law to automatically pay the costs of allowances, but that this is to be negotiated between the parties.
“It would be impossible to enforce a regulation where the operators were responsible for paying the costs of allowances. You would simply end up with a useless system with changing operators. In addition, both owners and operators should pull in the same green direction. At present, the shipping companies are entitled to state in the contract that the operator pays but this is not mandatory, and the freedom of contract is thus preserved,” says Maria Skipper Schwenn.
Now we await final round of negotiations which is expectedly going to be next week where a final agreement will be reached. Following, a long formal procedure begins where both the European Parliament and the European Council will finally approve the ETS agreement. This procedure is expected to be finalized in the beginning of 2023.
- Shipping is included in the ETS as from 2024, meaning that emissions from 2024 will be paid for in 2025. 70% of emissions in 2025 will be paid for in 2026, and 100% of the emissions in 2026 will be paid for in 2027.
- As from 2024, all greenhouse gases must be reported via MRV and as from 2026, the GHGs are covered by the ETS.
- The funds from 20 million allowances corresponding to 1.5 billion EUR are dedicated via the Innovation Fund to restructure the shipping industry.
- Offshore vessels over 5000BT must report to the MRV system as from 2025 and will be incorporated into the ETS as from 2027.
- Offshore and cargo vessels of 400BT to 5000BT must report to MRV as from 2025 and will, when the ETS legislation is revised in 2026, be covered by the ETS.
- The shipowners are entitled to compensation for the ETS cost from the charterer but are not legally obliged to pass on the cost.