The European Commission recently unveiled its strategy for addressing maritime emissions by including them in the EU Emissions Trading System (ETS). The ETS is a cap and trade system that sets a Union-wide cap on total emissions that is lowered over time while allowing companies to trade carbon allowances on an open market. Beginning in 2024, maritime emissions will be phased into the ETS. The press release from the European Commission states that:
“To ensure a smooth transition, shipping companies only have to surrender allowances for a portion of their emissions during an initial phase-in period:
– 2025: for 40% of their emissions reported in 2024;
– 2026: for 70% of their emissions reported in 2025;
– 2027 onwards: for 100% of their reported emissions.”
Shipping emissions are growing and presently account for 2.9% of global emissions. The ETS will apply to ships sailing under any flag, not just those registered under the EU. Additionally, only 50% of emissions from voyages starting or ending in the EU will be covered by the ETS leaving the remaining 50% to be managed by the jurisdiction the voyage departs to or arrives from. 100% of emissions will be covered by the ETS if the voyages travel between EU ports.
The inclusion of shipping in the ETS is being done through implementing and delegated acts, meaning that no major legislation needs to pass for their inclusion. This constitutes another large step forward for the EU ETS, which was designed to eventually encompass all major economic activity of the EU. With sectors like shipping being covered by the ETS and mechanisms like the Carbon Border Adjustment Mechanism applying ETS mechanisms to imports, even those companies operating outside the EU need to make sure they are familiar with the ETS system.
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