Shipping firms enter EU ETS at market trough; admin backlogs expected

New EU rules will provide shipping companies with more opportunities to buy greenhouse gas emissions allowances at a market trough via opening a holding account, but market players worry that their application process could be prolonged by administrative backlogs.

As part of Brussels’ regulation to extend the Emissions Trading System to cover shipping from this year, the European Commission on Jan. 31 allocated some 2,200 shipping companies each to an EU member state for registering a Maritime Operator Holding Account.

The announcement came as Europe’s compliance carbon market is mired in near-term bearishness, with lower emissions forecast from power plants, soft gas prices and the EU’s “front-loading” program to bring forward some allowance auction volumes to 2023-2026 from 2027-2030.

Platts — part of S&P Global Commodity Insights — assessed the December EUA contract at Eur56.52/mtCO2e ($60.67/mtCO2e) Feb. 14, close to it lowest since October 2021 and a far cry from an all-time high of Eur100.23/mtCo2e seen on Feb. 27, 2023.

“EUA prices currently reflect a discount compared to those observed in the past two years,” said Bernhard Schulte Shipmanagement’s emission compliance manager, Alexander Senteris. “Nonetheless, a purchasing strategy should account for future market expectations [among other factors].”

In their latest monthly market outlook, S&P Global analysts expect average EUA prices to fall from Eur85.3/mtCO2e in 2023 to Eur63.9/mtCO2e in 2024 before recovering to Eur82/mtCO2e in 2025.

“Prices are lower due to certain factors, one being the EU’s policy of front-loading,” shipbroker SSY’s carbon specialist James Ash said. “This is possibly a good time to buy EUAs for future compliance needs.”

Red tape

Irrespective of the MOHA rules, shipping companies have been allowed to set up trading accounts under the ETS if they can meet certain criteria, such as having a bank account in the EU, or complying with the Markets in Financial Instruments Directive when intending to profit from EUA transactions.

But market participants suggested many have struggled to opt for this route due to stringent documentation requirements and a long application process.
“Several countries have extensive delays when opening trading accounts” that could last three months, Albrecht Grell, managing director of maritime tech firm OceanScore said, citing Malta and Portugal as examples.

Establishing an MOHA requires fewer documents, but the EC requires shipping companies to file their applications within 40 working days from the Jan. 31 announcement — even though they only need to surrender EUAs for the first time in September 2025 for this year’s emissions.

“If before the problem was bureaucracy, now the problem is the number of companies jumping in the application all together at the same time collapsing the process of many registries,” said Mattia Ferracchiato, head of carbon markets at shipbroker BRS.

Senteris, whose company has subsidiaries required to register MOHAs in different countries, said: “Considering the considerable number of shipping companies that need to be registered under the member states, there’s a concern that significant administrative burden could lead to delays.”

Moreover, many non-EU shipping firms will have to set up the holding accounts as their ships trade in the bloc, and industry participants expect some teething pains.
“The 40 days deadline will be a challenge” for the industry and EU member states, Grell said. “We are talking about non-European addresses, unfamiliar processes.”

Spain in focus

Based on the EC announcement, 707 shipping companies — including Costamare and Maran Tankers Management — will register for their MOHAs in Greece, Europe’s top ship-owning nation. This is more than any other EU states.

Spain is No. 2 with 450 companies, including some large non-EU players like Abu Dhabi National Oil Co., Anglo Eastern Ship Management and Cosco Shipping Bulk, even though the country doesn’t hold top positions at ship-owning or seaborne cargo volumes.

“Out of companies with reporting obligations there, only 15 are Spanish,” Ferracchiato said. “The rest are mainly Turkish, Chinese or Singaporean.”

A non-EU firm is allocated based on the number of its port calls, according to EU regulations, and industry participants suggests the EC might have not distinguished commercial calls involving cargo operations from bunker calls. Spain is where Algeciras and Barcelona, some of Europe’s largest marine refueling hubs, are located.

While Spain could face administrative headaches for handling the applications from the large number of companies, the country would also be entitled to a larger share of EUA auction proceed, Grell said.

Shipping companies need to pay for 40% of their reported emissions in 2024, 70% in 2025 and 100% from 2026 onward under the ETS, and their exposure could reach 90 million mt/CO2e when the system is fully in place, according to the EU.

Brussels has agreed to allocate the revenues from selling 20 million mt/CO2e of EUAs to maritime decarbonization projects via the Innovation Fund, and the remainder of revenues from the shipping sector would be distributed to member states via various schemes.

“We would expect some disputes between national governments as the funds resulting from the ETS will to a large extend go to the countries where the EUAs are surrendered,” Grell said.
Source: Platts