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:
General discount of 5% on the agreed Estimated Total Call (ETC).
Premium will be increased: Individual Members’ rates will be adjusted to reflecttheir risk profile and claims record and Members should expect an increase of between 5-7% with an acceptable record.
At the recent Board meeting, the Club has considered its financial position and decidedthe renewal requirements as above. In addition, the Club circular sets out the mainhighlights:
Despite the financial and economic uncertainty, the Club’s financial rating remainswith an A+ (stable outlook) rating by Standard and Poor’s.
A loss after tax of USD 49 million on an Estimated Total Call (ETC) basis
A technical profit of USD 68 million on an ETC basis.
A Combined Ratio Net (CRN) of 85% on an ETC basis, including a CRN for M&E of 68%.
A non-technical result of USD -117 million.
Equity (free reserve) of USD 1,218 million on an Actual Call basis.
For the 2023 policy year, the Board has agreed a 5% Owners’ General Discount.
Premium adjustment is necessary to reflect the inflation.
This Newsletter, and our information archive, can also be accessed at www.plferrari.com
P.L. FERRARI & CO S.r.l.
P.L.Ferrari – A Member of the Lockton Group of Companies This newsletter is intended solely as an overview of the marine market and does not constitute any form of advice. It is based on sources believed to be accurate at the time of printing andwe cannot be held liable for the omission of any information within the newsletter.
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