European Union’s Emissions Trading Systems

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WHAT IS EU ETS?


The European Union Emissions Trading System (EU ETS) is a carbon market designed to reduce greenhouse gas emissions through economic mechanisms. It operates on a “cap-and-trade” model, where total emissions are limited and allowances can be traded. Introduced in 2005, it is the world’s first large-scale emissions trading system and remains one of the EU’s key instruments in achieving its goal of becoming a climate-neutral continent by 2050.

KEY CHALLENGES FOR EU ETS COMPLIANCE

🔢 ACCURATELY CALCULATING EMISSIONS COSTS

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Calculating costs under the EU ETS goes far beyond measuring CO₂ by the ton. Factors such as route deviations, fuel type differences, engine efficiency, EUA prices, and exchange rates all need to be taken into account. This complex structure requires integrated digital solutions rather than basic estimation tools.


🔗 ENSURING CARBON VISIBILITY ACROSS STAKEHOLDERS

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Maritime operations involve multiple stakeholders, making it essential to share carbon emissions data in a transparent, reliable, and real-time manner. However, varying data standards, shifting operational realities, and limited digital infrastructure make consistent visibility a major challenge.


📉 MANAGING CARBON RISK

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Carbon has become not only an environmental factor but also a financial risk element. The volatility of EUA prices, the need to manage carbon contracts, and the dynamics of the spot market all require a new approach to risk management. This shift also calls for enhanced financial literacy in the maritime industry.


📄 MEETING REPORTING AND DOCUMENTATION REQUIREMENTS

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In EU ETS compliance, accuracy in reporting is just as important as emissions reduction. MRV reporting, verification documentation, accounting for carbon in financial statements, and aligning with multiple global regulations all contribute to a growing documentation burden for shipping companies.

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HOW DOES EU ETS WORK?

The EU Emissions Trading System (EU ETS) operates as a “cap and trade” carbon market. Each year, the European Union sets a total emissions cap for sectors covered by the system. This cap is divided into digital rights called emission allowances (EUAs). Each EUA grants the right to emit 1 ton of carbon dioxide (CO₂).


What this means for the maritime sector:

When a vessel enters a European Union port and emits CO₂ during its voyage, it must acquire and surrender a sufficient number of EUAs to cover those emissions. The total emission volume is calculated based on factors such as fuel type, voyage duration, and vessel characteristics.

Ships that emit less than their allocated allowances can sell the surplus, while others may need to purchase additional EUAs from the market. In this way, carbon becomes a cost factor, encouraging shipowners and operators to adopt lower-emission strategies and invest in cleaner technologies.

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WHO IS COVERED?

Although the EU ETS was originally designed for the energy and heavy industry sectors, the maritime sector has been included as of 2024. Vessels and operations subject to the system are categorized based on specific criteria:

  • Cargo and passenger ships of 5,000 gross tonnage (GT) or more,

  • Vessels sailing between ports within the European Union,

  • Ships on international voyages departing from or arriving at an EU port,

  • Activities causing emissions within EU territorial waters.

Even if a ship is not EU-flagged, it is still subject to the system if it calls at or departs from an EU port.

The scope of the EU ETS is expected to expand in the coming years. Segments such as offshore vessels and special-purpose ships may be included in future phases.


Vessel Type Coverage Table

Vessel TypeCovered?
Cargo ship over 5,000 GT✔️
Container ship departing from an EU port✔️
Fishing vessel operating outside the EU
Ro-Ro ship calling at an EU port✔️
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