Red tape and emissions trading: ETS hits non-EU shipowners hard

Source: The Loadstar
Date: 22nd February 2024

Asian shipowners are likely to be hit the hardest by the cost of the EU ETS, with companies registered in China and Singapore bearing the highest burden.

ETS management platform OceanScore estimated that, once the EU Emissions Trading System was fully implemented, in 2026, shipowners operating voyages to Europe would face emissions liabilities of over €1bn.

The EU ETS came into effect on 1 January, requiring vessel owners to buy EU allowances (EUAs) that correspond with the per-tonne carbon emissions of their ships that call at EU ports. The EUAs act as ‘carbon credit’.

The penalty for non-compliance is €100 per missing EUA, plus the purchase of the missing EUAs at the market price on the date of surrender.

The EUA price is dictated by supply and demand for them. OceanScore’s total €1bn cost estimate for Asian shipping is based on a fluctuating EUA price that is currently at a relatively low-level – around €55 per tonne of CO2.

OceanScore’s co-MD said: “A total of nearly 80 million EUAs will have to be surrendered by the shipping industry once the EU ETS is fully phased in and around 5.5m of these will have to be surrendered by Chinese and Hong Kong-based entities and 5.4m by Singaporean players.

“When other Asian countries, such as Japan, South Korea, India, Thailand and Malaysia are included, the total number of EUAs required rises to 20m.”

OceanScore calculated that a company routing Asia to Europe with 15 vessels would be required to surrender just over 300,000 EUAs, which would equate to a cost of €16.5m, based on their current price.

And, as well as bearing the brunt of the cost, shipowners outside the EU also face the most administrative obstacles. It is typically easier for companies domiciled in the EU to set up the Union Registry accounts required for handling EUAs, as well as gain access to EUA trading platforms.

“It is vitally important that non-EU actors engaged in trading vessels to and from the EU also become fully up to speed with the regulation and put systems in place to manage and mitigate their EUA liabilities,” said OceanScore.

It was recommended to contact a proficient carbon trader and develop a trading strategy because how many EUAs you need and when, depends a lot on your business model – whom you have contracts with, whether you are the party who needs to buy, whether your charterers send you EUAs, and so on.

“The biggest challenge currently is really that people want to account for ETS and EUAs and the according cash for each month and each voyage and that is just difficult to do.

“If you have a bigger fleet, it gets very messy very soon. So, data quality and making sure you have the data is a challenge; communication between stakeholders is a challenge; and then matching EUAs with charter voyages and vessels is a challenge – and all of that needs to happen at the same time now.”

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