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Emission trading will increase freight costs in maritime traffic

From 2024 onwards, European Union’s Emission Trading System is being further expanded. It will now be applied – in several phases – even to emissions from ships and other maritime vessels. As has been the case on a number of previous occasions, EU’s new environmental regulations come with a price tag.

Climate actions in the maritime sector are continuously being pushed forward, both through the European Union’s Emissions Trading System (ETS) and by way of switching to cleaner marine fuels. Such means are deemed necessary if climate goals are to be achieved, even though there is a risk of hefty new costs for maritime traffic and freight transports.

In accordance with the EU’s ETS directive, maritime traffic will be incorporated into the Emissions Trading System gradually, in various phases. This process was started on 1st January, 2024.

ETS REQUIREMENTS ALREADY INCORPORATED INTO NATIONAL LAWS

In Finland, the ETS directive’s obligations have been introduced in the country’s new national Emissions Trading Act, approved in December 2023. It will repeal both the current Emissions Trading Act and the Act on Aviation Emissions Trading.

After the expansion of the Emissions Trading System’s coverage, the ETS will include emissions from large ships departing from and arriving to EU ports, regardless of the ships’ flags.

Maritime emissions trading will be applied to vessels having a gross tonnage of at least 5,000 and carrying freight and passengers for commercial purposes. Similar obligations will come to apply to offshore vessels – such as oil and gas exploration vessels or maritime construction vessels – with a gross tonnage of at least 5,000 starting on 1st January, 2027.

The Emissions Trading System is the considered to be the most significant EU-level action so far for achieving emission reduction goals.

NEW SHIP FUELS NEEDED

This year, emissions trading will apply to the carbon dioxide emissions of maritime transport, starting on 1 January 2024. Later on, the coverage will be expanded to methane and nitrous oxide (NOx) emissions, starting on 1st January of 2026.

In practice, shipping companies shall acquire emission allowances to 40 percent of verified emissions reported for 2024 and 70 percent of verified emissions reported for 2025. Starting from 2026, emission allowances are to be acquired in full.

In addition to emissions trading, the maritime traffic operated within the EU area will be required to utilise renewable and low-emission fuels. From the year 2025 onwards, the greenhouse-gas intensity of maritime fuels shall be reduced by 2 percent in comparison with the figures from year 2020. Further restrictions will be imposed at five-year intervals, with the aim of achieving a reduction of 75 percent by the year 2050.

It has been estimated that the maritime sector represents approximately 3 to 4 percent of the total of the European Union’s carbon dioxide (CO2) emissions.

EXEMPTIONS FOR REMOTE REGIONS

Geographically, the Emissions Trade Directive includes 100 percent of emissions from intra-EU voyages and 50 percent of emissions from extra-EU voyages.

To prevent transshipment activities and calls to ports outside the EU for the purpose of evading compliance, the scope of the Directive explicitly excludes certain stops at non-EU ports where the risk of evasion is deemed to be highest. The European Commission has compiled a list of these ports and will keep updating it.

The exclusion zone extends 300 nautical miles from a port under the jurisdiction of an EU Member State. This exclusion applies only to container ships in non-EU ports where transshipment of containers has been at least 65 percent of all container traffic during the preceding 12 months.

Islands having fewer than 200,000 inhabitants and lacking road or rail connections to the mainland are exempt from acquiring emission allowances until the year 2030. Further exemptions have been allowed to the nine outermost EU regions, i.e. regions that are most geographically distant from the European continent.

HUGE INCREASES EXPECTED IN MARITIME FREIGHT COSTS

In the Baltic Sea area, the new regulations will mean significant increases in traffic costs.

According to preliminary estimates, the cost effects may be in the order of 500 to 700 million euros annually by the year 2026. These figures take into account both the emission trading and the effects of switching to new maritime fuels.

Expanding the coverage of ETS regulations is part of the EU’s larger ”Fit for 55” regulation package, intended for achieving a 55 percent reduction in environmental emissions by the year 2030. Most of those requirements are already being incorporated into the national legislation of all EU member states, including Finland.

The CEO of the Finnish Freight Forwarding and Logistics Association, Mr. Petri Laitinen, noted in his social media posts in November 2023 that ETS-related cost increases may come as a surprise to many Finnish companies operating in the field of foreign exports and imports. However:

”Emission trading is an important and efficient tool for reducing environmental emissions in maritime traffic, even though it will mean cost increases during the transitional stage,” Mr. Laitinen concluded in his LinkedIn post.

by: ARI MONONEN
photos: PEXELS

LITERARY AND ONLINE SOURCES:

Carraro, Camilla – Osipova, Liudmila: The Maritime Sector in the European Union Emissions Trading System.International Council on Clean Transportation (ICCT), Dec. 2023.

Carraro, Camilla – Osipova, Liudmila: Shipping Emissions under the European Union Emissions Trading System.International Council on Clean Transportation (ICCT), Dec. 2023.

EU:n päästökauppa laajenee meriliikenteeseen vuonna 2024.EK online news, Helsinki 2023 (www.ek.fi).

Petri Laitinen’s Post on LinkedIn, Nov. 2023.

Traficom:Marine Transport Will Become Part of the Emissions Trading System.Helsinki 2024 (www.traficom.fi).