An In-Depth Analysis of the EU Emissions Trading System (EU ETS) and Its Impact on the Maritime Sector

The European Union Emissions Trading System (EU ETS) is a cornerstone of the EU's policy to combat climate change and a key tool for reducing greenhouse gas (GHG) emissions cost-effectively.

- Capt Ramji S Krishnan

Introduction:

As the world's first major carbon market, the EU ETS operates in all EU countries plus Iceland, Liechtenstein, and Norway, and covers around 40% of the EU's greenhouse gas emissions. Recently, the EU has extended the ETS to include the maritime sector, a significant step towards achieving the EU's climate targets. This extension has substantial implications for EU shipowners, Greek shipowners, other EU-shipowners, nonEU shipowners and Indian shipowners, each facing unique challenges and financial burdens. Here we offer an insight (made by OceanScore) into the financial impact on Greek shipowners (in detail). We also offer a brief insight on the financial impact on other ship owners including Indian ship owners. We conclude with a short summary on A comprehensive Strategy for Compliance with EU Maritime Emissions Regulations. Readers short of time might prefer to peruse that section.

In a subsequent article we shall calculate the impact of FuelEU Maritime on a particular vessel.

Overview of the EU ETS

Objectives and Scope

The primary goal of the EU ETS is to reduce GHG emissions through a cap-and-trade system. This system sets a cap on the total amount of certain GHGs that can be emitted by installations covered by the system. The cap is reduced over time so that total emissions fall. Within the cap, companies receive or buy emission allowances which they can trade with one another as needed.

Each year, they must surrender enough allowances to cover all their emissions, otherwise, they face heavy fines. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or sell them to another company that is short of allowances.