The implementation of EU ETS system in International Maritime Transport Challenges & Prospects

The goal of reducing sulfur dioxide emissions from marine fuels is part of the overall effort to combat climate change internationally and is framed by the United Nations Convention and the subsequent Kyoto Protocol. The Kyoto Protocol, which entered into force in 2005, commits the 141 signatory countries to reduce greenhouse gas emissions from 2008 to 2012 at a cost-effective rate, as compared with related emissions in the 1990s.

In this context, the Emissions Trading System (ETS) is one of the flexible mechanisms implemented by Kyoto Protocol and concerns the process of buying and selling emissions rights between stakeholders. This procedure is taken place through a relevant market, the so-called “Pollutant Exchange”. This market is based on the logic that countries that pollute less than the allowable limit have the right to sell their margin, for a high price, to others who exceed it. The latter have the opportunity, instead of a fine, to buy from the Stock Exchange rights to emit pollutants. Prices are determined by the principle of demand & supply.

The European Community has strongly supported the above referred marketing system by incorporating the Kyoto Protocol into EU legislation through Directives 2003/87/ EC and 2004/10/ EC, which established 2005-2007 as the first period of European ETS implementation. Every 5 years, each Member State prepares a national allocation plan which clarifies the total amount of allowances, the activity and facility allocation, the new entrants, the allocation methodology and the list of required installations. A fixed quantity is the market currency and is set by each Member State. In the European ETS each right is equivalent to one ton of carbon.

The maritime sector is the only one that is not subject to European emission commitments. However, it is restricted by the measures adopted by the International Maritime Organization worldwide. The first regulations implemented by the International Maritime Organization, as regards to the goal of reducing Sox emissions from ships, are listed in Chapter VI of the International Convention for the Prevention of Pollution from Ships, which entered into force in 2005. From 1 January 2020 the International Maritime Organization has set a limit of 0.5% on the sulfur content of marine fuels outside the Emission Control Zones (ECAS), compared to the 3.5%, which was in force up to that date. Respectively, this percentage was 0.10% within the ECAS (Baltic Sea Area, North Sea Area, North American Area, United States – Caribbean Sea Area), compared to 1% in the previous period.

The European Parliament had initially proposed the inclusion of shipping in the ETS in 2023, provided that International Maritime Organization’s measures to regulate global reductions in Greenhouse Gas Emissions from ships had not been successful. European Commission representatives have recently brought the issue of shipping to the EU ETS back to the forefront, due to dissatisfaction with the progress made by the International Maritime Organization in the related issue. In this context, on Wednesday 16/09/2020, the European Parliament voted to include ship carbon dioxide emissions in the EU Emissions Trading System, adopting the EU Commission proposal, by 520 votes to 94, with 77 abstentions. Ships with a total tonnage of at least 5,000 GT should be included in the EU Emissions Trading System (ETS). This limit was chosen after a comprehensive analysis of the size-emission ratio of ships entering and leaving European ports. According to its results, ships over 5,000 GT comprise 55% of all vessels arriving in Union ports and represent about 90% of total emissions.

Additional to shipping’s inclusion in the EU ETS, two other points compose all the requirements of the European Parliament. Shipping companies are called for a reduction in annual average carbon dioxide emissions per unit, for all their ships, by 40% by 2030. European Parliament is simultaneously focusing on setting up an “Ocean Fund” for 2022 – 2030, which revenues will come from an auction of shipping rights under the ETS, in order to improve the energy efficiency of ships and make it possible to invest in innovative technologies, such as alternative fuels, and infrastructure, such as “green” ports. It is noteworthy that MEPs refer to the need of harmonizing European rules as regards to annual reporting, with those of the International Maritime Organization, as they find it imperative to secure a global agreement to reduce sulfur dioxide emissions from shipping. According to phase III of the EU ETS, which is valid until 31 December 2020, stakeholders must submit an annual report on GHG emissions, which must be verified by an accredited body by 31 March of the following year. After verification, the corresponding number of rights is assigned to them until April 30 of the same year.

In contrast to the EP resolution on the inclusion of global shipping and maritime transport in the EU ETS Directive, the European Maritime Associations, including the Union of Greek Ship-owners, are strongly opposed to this perspective, as it is a regional money – driven policy, which is based on the logic “whoever has the ability to pay, also acquires the ability to pollute”. It is therefore a market – based measure (MBM), which is not considered as a sustainable measure in the long run by the shipping industry, in the context of achieving decarbonization in maritime transport.

Any measure to reduce pollution from ships should be taken through the International Maritime Organization. The shipping industry argues that the reduction target can be achieved through the adoption of alternative innovative measures and policies and through investment in research and development. The shipping industry through the International Maritime Organization has led the effort to create a fund of 5 billion. Dollars during the period 2020 – 2030, which will be invested in finding new fuels with zero carbon emissions, always in combination with the obligation undertaken by IMO member states to reduce carbon dioxide emissions by half in the next thirty years.

INTERCARGO has made an insightful statement, according to which, the decarbonisation of marine fuels is a global challenge, which can be successful for this reason through IMO actions, which totally ensure a level playing field worldwide. To the contrary, European regional policies do not achieve the above reduction target but conversely are characterized by an economic nature, aiming to raise money. It is therefore understood that there is a gap between the European and Global dimension of the related issue and it remains to be seen if this gap will be bridged in the near future, as part of the common goal to protect the environment from the use of carbon-rich fuels in maritime transport.

By Xanthi Tzourouni MSc in Maritime Economics, University of Piraeus Operations Assistant at Seaway Shipping & Tourist Services