From 2024 onwards, shipping companies are liable under the EU ETS and must surrender allowances in line with their verified and reported emissions.

The responsible entity will be the ‘shipping company’. This is defined as the shipowner or any other organisation or person, such as the manager or the bareboat charterer, that has assumed the responsibility for the operation of the ship from the shipowner and that, on assuming such responsibility, has agreed to take over all the duties and responsibilities imposed by the International Management Code for the Safe Operation of Ships and for Pollution Prevention, set out in Annex I to Regulation (EC) No. 336/2006 of the European Parliament and of the Council.*

However, since this entity is not always directly in charge of the operation and, thus, emission outputs of a ship, a specific clause was added to the Directive. Specifically, the shipping company will be entitled, under national law, to claim reimbursement for the costs arising from the surrender of allowances from the entity that is directly responsible for the decisions affecting the emissions of the ship. This will, however, serve to affect the compliance obligations of the shipping company and its liability for that towards the administering authority.

^{* As currently defined in the preliminary published EU ETS Directive: https://data.consilium.europa.eu/doc/document/PE-9-2023-INIT/en/pdf , pending formal publication in the EU’s Official Journal.}

Generally, CO² emissions from ships above 5,000 gross tonnage that carry cargo or passengers for commercial purposes will be within the scope of the EU ETS. This will be expanded to CH4 and N20 as of 2026. Large offshore ships will also be included as of 2027.

Certain exemptions exist to address specific national circumstances, such as for small islands or public service contracts.

There will be no free allocation of allowances to shipping companies. From the start, all allowances will be auctioned. However, to ensure a smooth inclusion of the sector in the EU ETS, the surrendering of allowances by shipping companies will be gradually increased with respect to verified emissions reported for the years 2024 and 2025. This means, shipping companies will be liable to surrender allowances for 40% of verified emissions for 2024. In 2025, this increases to 70%. As of 2026 and each year thereafter, shipping companies will have to surrender allowances reflecting 100% of their verified emissions.

Emissions which are in scope for the ETS are all emissions resulting from intra-EU voyages, all emissions occurring while the vessel is within an EU port, 50% of emissions resulting from voyages to the EU from a 3^rd country port and 50% of emissions resulting from outgoing voyages from an EU port to its next 3^rd country port.

There will are no specific ‘shipping’ allowances available and the addition of the sector is reflected in the overall EUA cap. It is correct that aviation allowances (EUAA), which have been dedicated to aircraft operators, still exist. However, since Phase 4 (2021) of the EU ETS, EUA and EUAA have been fully fungible, and they can be used by all types of operators.

Allowances in the EU ETS have no expiration date. They can be purchased now, kept for a certain period, and surrendered in later years. It is also common to hedge the respective demand and price for later years with the respective contracts on the futures market. At EEX, you can trade future expiries up to 9 years ahead.

Operators have to surrender allowances for a specific calendar year by 30 April of the following year. As of 2024, the allowances have to be surrendered by 30^th of September of the following year.

European Emission Allowances (EUAs) are purchased and traded in the compliance market and their use for surrendering by the covered companies is mandatory. The two are not interchangeable and voluntary carbon offsets cannot be used to fulfil a company’s obligations in the compliance market.

The EU ETS is a volume-based system with free price formation and without a price limit or floor.

However, within the system, there is the possibility of an increase in the supply of allowances in the event of extreme price fluctuations under Article 29a of the EU ETS Directive.

Operators have to surrender allowances for compliance from their operator holding account which is set up by their respective national authority. Shipping companies are expected to receive a dedicated type of operator holding account which will be detailed in the Registry Regulation. Each shipping company shall open one shipping operator holding account with their administering authority.  

Allowances can be bought on the EEX primary (spot auction) and secondary market (spot continuous and derivatives).

As the price for allowances is market-based and not fixed, operators may want to hedge their exposure to carbon price movements. Allowances can be bought and traded on a spot basis (auction and continuous trading) or on the futures market up to nine years ahead.

The primary market is set to a tradeable minimum of 500t and the secondary market to 1000t.

Data (e.g. price, volumes, OI) can be found on the EEX website: Spot, Futures.

Generally, there are no structural price differences between the primary and secondary markets. Price differences may occur, for instance, due to the different “time stamps” of trades or size.

Primary auction fees result from the auctioning regulation and tender procedures. The fees for the secondary market are based on commercial decisions.

The different membership options are outlined on the EEX website.

Also, certain EEX members provide indirect access to the primary auctions and the secondary markets: Indirect Access Secondary Market, Primary Auctions.

More information is available in the document Participation in Emissions Auctions*

^{*Please note that the auctions regulation is currently being revised and updated.}

In principle, EEX is a wholesale market. Whether direct membership or indirect market access is preferable depends on the individual situation and various other factors. Please contact sales@eex.com for details.

Members can add further contracts if desired. Indirect participants should contact their access providers for more information.

The nEHS membership is customised for the nEHS market only, please chose one of the options outlined on the EEX website.

A variety of Voluntary Carbon Contracts is offered at our EEX Group Exchange Nodal.

This is what the EU calls fleet optimisation. The EU does not consider this a large risk, as it is does not really constitute evasion. There are also expectations that this type of ‘carbon arbitrage’ would be short lived given the progressive global standards for ship designs, and the potential for emissions schemes in other jurisdictions.

For example, if a ship owner offers a voyage rate for a particular cargo, they may quote a ‘carbon-included’ price, similar to how bunker fuel is priced into the $/ton voyage charter rate. If a vessel is hired on a time-charter basis, the charterer is principally responsible for all operational costs of the vessel. Since the emissions report is finalised after the voyage is concluded, there may need to be provisions for either deposits or other payment agreements to be settled in favour of the ship owner, after the vessel has discharged its cargo. Alternatively, a charterer could arrange for their own emission allowances to be transferred to the ship owner after the voyage has concluded.

In general, it is expected that the costs of carbon allowances will be passed through to the delivered commodity price. However, the EU’s analysis shows low price impacts on industrial commodities overall, and only a minor negative change in demand due to carbon costs.