The European Commission's Fit for 55 package aims to expand the EU Emissions Trading System (EU ETS) to include additional sectors such as shipping, road transport, and buildings. This move is driven by the need to address emissions from these sectors, which collectively contribute a significant share of greenhouse gas (GHG) emissions. However, challenges related to measuring emissions, administrative responsibilities, and high abatement costs pose complexities in implementing the EU ETS in the shipping sector.
The Growing Importance of Addressing Shipping Emissions:
Shipping currently accounts for approximately 2.5% of global GHG emissions and 13% of European transport-related emissions. Without significant interventions, emissions from the sector are projected to increase by 50-250% over the next four decades. Despite the International Maritime Organization's target to reduce emissions by 50% by 2050, the industry has not yet been subject to substantial climate commitments.
Inclusion of Shipping in the EU ETS:
The European Commission plans to include maritime emissions from intra-EU voyages, 50% of emissions from extra-EU voyages, and emissions occurring at berth in an EU port within the scope of the EU ETS. Starting in 2023, the sector will be gradually integrated into the EU ETS, with auctions covering 20% of emissions initially and rising to 100% by 2026.
Challenges in Measuring Emissions and Administrative Responsibility:
Measuring emissions per ship presents a challenge in the shipping sector, and discussions are ongoing regarding whether the administrative responsibility should fall on fuel suppliers, especially those located outside of Europe. This approach is currently favoured for the road transport and buildings sectors. The variability of shipping tonnage and emissions poses additional challenges, leading to calls for a carbon price stabilisation mechanism and the allocation of auction revenues to support climate-friendly investments in the sector.
Different Considerations for Road Transport and Buildings:
Road transport and buildings have already been subject to various national and provincial regulations, which may affect the effectiveness of their inclusion in the EU ETS. Unlike the building sector, where retrofitting is a complex task, vessel and vehicle turnover in the transport sectors occurs more frequently. For buildings, relying solely on fuel suppliers' participation in the EU ETS may lead to higher energy prices without significant energy efficiency improvements.
Carbon Pricing and Funding Climate-Friendly Measures:
A recent report by UMAS highlights that an average carbon price of $191 per ton would be required to achieve full shipping emissions reduction by 2050, compared to the International Maritime Organization's target of 50% reduction at $173 per ton. The proposed model starts with a low carbon price in 2025 and gradually increases to around $100 per ton early next decade. Some industry stakeholders now advocate for a carbon tax to ensure price stability and provide funding for climate-friendly measures in the shipping sector.
Extending the EU ETS to include shipping, road transport, and buildings presents both challenges and opportunities in addressing emissions from these sectors. Measuring emissions, determining administrative responsibilities, and addressing high abatement costs require careful consideration. However, with appropriate policy measures and a sufficient carbon price, the EU ETS can drive emissions reductions and incentivize investments in climate-friendly measures, contributing to the overall decarbonization goals of the European Union.
