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Nov 5, 2021
Lockton P.L. Ferrari

Newsletter 10-21

The European Union’s Emissions Trading System (EU ETS) was extended to cover emissions from shipping as of 1st January 2024.

The EU ETS is limited by a 'cap' on the number of emission allowances. Within the cap, companies receive or buy emission allowances, which they can trade as needed. The cap decreases every year, ensuring that total emissions fall.

Each allowance gives the holder the right to emit:

  • One tonne of carbon dioxide (CO2), or;
  • The equivalent amount of other powerful greenhouse gases, nitrous oxide (N2O) and perfluorocarbons (PFCs).
  • The price of one ton of CO2 allowance under the EU ETS has fluctuated between EUR 60 and almost EUR 100 in the past two years. The total cost of emissions will vary based on the cost of the allowance at the time of purchase, the vessel’s emissions profile and the total volume of voyages performed within the EU ETS area. The below is for illustration purposes:
  • ~A 30.000 GT passenger ship has total emissions of 20.000 tonnes in a reporting year, of which 9.000 are within the EU, 7.000 at berth within the EU and 4.000 are between the EU and an outside port. The average price of the allowance is EUR 75 per tonne. The total cost would be as follows:
  • ~~9.000 * EUR 75 = EUR 675.000
  • ~~7.000 * EUR 75 = EUR 525.000
  • ~~4.000 * EUR 75 * 50% = EUR 150.000
  • ~~Total = EUR 1.350.000 (of which 40% is payable in 2024)
  • For 2024, a 60% rebate is admitted to the vessels involved. However, this is reduced to 30% in 2025, before payment is due for 100% with effect from 2026.
  • Emissions reporting is done for each individual ship, where the ship submits their data to a verifier (such as a class society) which in turns allows the shipowner to issue a verified company emissions report. This report is then submitted to the administering authority, and it is this data that informs what emission allowances need to be surrendered to the authority.
  • The sanctions for non- compliance are severe, and in the case of a ship that has failed to comply with the monitoring and reporting obligations for two or more consecutive reporting periods, and where other enforcement measures have failed to ensure compliance, the competent authority of an EEA port of entry may issue an expulsion order. Where such a ship flies the flag of an EEA country and enters or is found in one of its ports, the country concerned will, after giving the opportunity to the company concerned to submit its observations, detain the ship until the company fulfils its monitoring and reporting obligations.
  • Per the EU’s Implementing Regulation, it is the Shipowner who remains ultimately responsible for complying with the EU ETS system.

There are a number of great resources on the regulatory and practical aspects of the system – none better than the EU’s own:

In response to the UN International Maritime organization’s legislation in 2020 to reduce the limit of sulfur in ship fuel from 3.5% to 0.5%, the EU has started to use remotely piloted aircraft to monitor ship emissions. Indeed, aerial ‘sniffer drones’ have been deployed in a new initiative to inspect ships transiting one the world’s busiest shipping lanes, the strait of Gibraltar. The project carried out by the Spanish General Directorate of Merchant Marine – under the direction of the Spanish Ministry of Transport, Mobility and Urban Agenda – is the first time sulfur emissions have been monitored by drones outside the special designation emission control areas (ECA) in Northern Europe. The European Maritime Safety Agency (EMSA) has inspected a total of 294 ships since July 12, 2021, 27 of which were in ‘possible breach’ of the sulfur content limits.

The drone, a CAMCOPTER®S100, under contract from the consortium of Nordic Unmanned Norce and UMS Skeldar, automatically measures and records the sulfur levels. If a high sulfur reading is recorded, it triggers an alert in the EMSA THETIS- EU database. These drones have flown twice a day from a base in Tarifa since mid-July 2021 and will continue until the end of October 2021. The aircraft has a flight endurance of over six hours and a range of more than 100km. Whilst this technology can not directly confirm non-compliance, the data can assist port authorities to target specific ships for inspection and further laboratory testing. With the potential for additional ECAs across the world, and greater focus on environmental sustainability, drone technology is likely to play an integral role in monitoring emission levels in the future.

Newsletter 10-21
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