EU ETS – Emissions Trading System

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Surrender of allowances

The shipping company is responsible for surrendering EUAs to achieve compliance with the EU ETS and thus bears the cost of these allowances. This is defined as the company that has assumed from the shipowner operational duties and responsibilities for the ship as specified in the ISM Code. This company is referred to as the Document of Compliance (DoC) holder, and is the same company that currently is responsible for reporting emissions through EU MRV.

Starting in 2025, the shipping company must submit a verified company emissions report to the administering authority by 31 March each year based on MRV ship emissions reports for the previous year, in line with a revised MRV monitoring plan required from 1 January 2024. This in practice means the ship emissions report needs to be verified and submitted a month earlier than under the current MRV system.

The necessary emission allowances are required to be surrendered to the administering authority by 30 September each year. Failure to surrender allowances within the deadline for a single ship can affect compliance for an entire fleet.

Companies that fail to surrender allowances are liable to an excess emissions penalty of 100 Euros per tonne of CO2, and are still liable for surrender of the required allowances. Failure to comply for two or more consecutive periods may result in the ships of the company being banned from trading in the EU.

Cost and settlement of allowances

Coverage for the cost of allowances borne by the shipping company will likely be included in the terms of commercial contracts between stakeholders in the value chain. 

BIMCO has proposed a contract clause with standard terms for settlement of transactions related to the cost of allowances. This is intended to protect shipowners from the consequences of GHG emissions incurred by charterers in vessel operations.

According to this clause, the owner and charterer shall co-operate and exchange all relevant data and information in a timely manner throughout the year to facilitate compliance and enable the parties to calculate the amount of emission allowances in respect of the vessel that must be surrendered to the authorities for the period of the charter party. 

These data will need to be verified so they can be used as a basis for defining commercial obligations. The shipowner’s requirements for verification of data at the voyage level may include sampling of reported cargo, RoBs and bunkerings.

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In the case of a time charter, the owner must first notify the charterer of the volume of emissions for which allowances need to be purchased so the charterer can make an initial transfer to the owner’s nominated account. Prior to redelivery of the vessel, the shipowner must provide an estimate of the remaining quantity of EUAs to the charterer so the final settlement can be made, either in EUAs or cash paid by the charterer.

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Related links

Podcast: On which decarbonization path did MEPC 79 and EU ETS negotiations put shipping?

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EU ETS: Preliminary agreement to include shipping in the EU’s Emission Trading System from 2024

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