The Growing Call for Shipping Emissions to be Included in the EU ETS
International shipping is a significant contributor to carbon dioxide emissions, estimated to release 810 million tonnes of CO2 into the atmosphere. The International Maritime Organization (IMO) projects this number to increase to 2.8 billion tonnes by 2050, making it one of the fastest-growing sources of emissions globally. Following the failure of the IMO to agree on reduction targets for the shipping sector, there have been calls for shipping emissions to be included in the EU ETS.
In response, the EU has made it mandatory for the sector to monitor, verify, and report (MVR) their carbon emissions, starting from 2018. The current regulations on shipping MVR apply to ships over 5,000 tonnes entering EU ports, requiring monitoring and reporting of emissions and fuel efficiency. Currently, no allowances need to be surrendered for verified emissions, as shipping is not yet part of the EU ETS. However, proactive companies are already considering the potential financial impact when shipping is eventually included, likely in Phase IV of the EU ETS.
A shipping emissions trading scheme could be implemented similarly to the aviation emissions scheme within the EU ETS, with its own sector-specific allowances. Implementing such a scheme would be relatively straightforward since the framework of a transport ETS already exists and has been tested. However, like aviation, global resistance is anticipated for such a move.
The inclusion of aviation in the EU ETS resulted in countries and companies refusing to comply with the regulations. To address this resistance, the "Stop the Clock" legislation was introduced to allow the rest of the world to catch up through a global regulatory system implemented by the International Civil Aviation Organization (ICAO). Considering the political capital expended on aviation's inclusion in the EU ETS, it is unlikely that EU lawmakers would want to follow a similar path with shipping, making international agreement necessary.
Given the IMO's failure to take decisive action on shipping emissions, the path to inclusion in the EU ETS is expected to be lengthy and challenging. However, it's worth noting that the proactive approaches of the US and China on aviation emissions ahead of the Paris 2015 conference may accelerate events and force the IMO to account for the sector's carbon emissions sooner than expected.
As carbon prices continue to rise, it is crucial for companies to explore measures to mitigate the costs and risks associated with shipping's future inclusion in the EU ETS. For more information on what your company can do, please contact us.
