Implications of the EU's Inclusion of Maritime Transport in the Emissions Trading System for Shipping Companies

Maritime transport is the backbone of international trade. The amount of total international maritime trade in million tonnes loaded was 8408 in 2012 and had increased to 11.076 by 2019, for an average annual increase of 3.12%. In early 2020, the world fleet contained 98.140 ships of 100 gross tonnes and above with 2.06 million dead weight tonnage of capacity. The greenhouse gas (GHG) emissions from shipping activities are not negligible. According to the fourth GHG study commissioned by the International Maritime Organization (IMO), in 2018, global shipping emitted a total of 1056 million tonnes of carbon dioxide (CO₂), accounting for around 2.89% of global anthropogenic CO₂ emissions. Due to the international nature of shipping, efforts to control CO₂ emissions from ships are absent from the Kyoto Protocol and the Paris Agreement. In an attempt to phase out carbon emissions from shipping entirely, the IMO formulated a strategy to cut the total annual GHG emissions from shipping by at least 50% from their 2008 levels by 2050; however, no mandatory rules have been promulgated since the release of this strategy.

Given the insufficient progress made by the IMO, the European Union (EU) decided to take a leading role in promoting the reduction of CO2 emissions from maritime transport. In 2015, the EU issued regulations on the monitoring, reporting, and verification (MRV) of CO₂ emissions from ships with a gross tonnage above 5000 arriving at, within, or departing from ports under the jurisdiction of an EU member state, to come into force at the beginning of 2018. It should be noted that, under the MRV regime, even if only one port on a voyage is within the European Economic Area (EEA) and the other is not (e.g., a voyage from Rotterdam directly to Singapore), the ship must still report the total CO₂ emissions of the whole voyage, rather than just the emissions of the part of the voyage within EU waters.

The MRV regime has been in operation for over two years, and the CO₂ emissions data for the 2018 and 2019 reporting periods have already been published. Based on the data collected, on 16 September 2020, the European Parliament took the bold step of voting for the inclusion of maritime transport in the EU Emissions Trading System (ETS). This is a market-based system that uses economic tools such as a levy on bunker fuels and an emission trading system to provide monetary incentives for polluters to reduce emissions. The European Commission is conducting an impact assessment of the ETS, the results of which are expected in 2021. At this time, it is unclear how the inclusion of shipping into the EU ETS will work. There are two possibilities. The first is that only intra-EU voyages will be included; that is, only voyages from one EEA port to another EEA port will have to pay CO₂ emission costs. The second is that both intra-EU voyages and voyages between an EEA port and a non-EEA port will have to pay CO₂ emission costs, with the cost of a voyage between an EEA port and a non-EEA port being based on the CO₂ emissions over the whole voyage, rather than the part of the voyage within EU waters. As the second possibility also covers the first possibility, we examine the implications of both possibilities but focus more on the second.