EU ETS’ initial decarbonisation effects for shipping in doubt

The EU’s proposed inclusion of the maritime sector is yet to be agreed at trilogue (to be completed in September or October) although there is no firm deadline.

Industry experts estimate that over 2,000 vessel operators would need to acquire EUAs for compliance when trading at EU ports.

Mattia Ferracchiato, head of carbon markets at shipbroker BRS, has said that just three shipping firms have set up trading accounts for carbon allowances despite the approaching potential 2023 inclusion date. “Some have a person or department dedicated to carbon regulations and ETS but not trading yet…The reality is that most of the companies are not aware about the consequence of the ETS,”

Vessels generally use oil-based marine gasoil but industry participants expect that the ETS will do little to encourage fuel switching to lower emitting fuels such as LNG due to the cost of gas. Ship operators are likely to then increase freight rates to cover EUA costs.

The savings of lower cost of CO2 by burning LNG are modest…whilst the ‘commodity’ itself costs considerably more,” Gibson Shipbrokers’ senior market analyst Svetlana Lobaciova said.

“Taking into account the current geopolitical situation, it is highly unlikely that the price of LNG will fall dramatically in the next few years in order to encourage the switch to LNG.”

Adapted from an article in S&P Global