Latest on emission regulation from EU: EU ETS and EU MRV

On 29th of November, in a trilogue between the European Commission, European Parliament and EU member states the details on shipping’s inclusion into the EU Emissions Trading System (EU ETS) were agreed. The agreed text proposes changes in terms of monitoring and trading of nitrous oxide and methane emissions, additionally it points out changes for EU Monitoring, Reporting and Verification regulation.

But How does the EU ETS work?

EU ETS is a “cap and trade” system where the goal is cost-effective pollution control. In this system the emissions are capped for all participants, then EU ETS legislation creates allowances - rights to emit GHG emissions. The cap level then determines the total number of allowances in the system. Each participant can buy or sell surplus/deficit allowances on the market. In terms of EU ETS, the cap is set to decrease annually already from 2013. Currently we are in the 4th Phase of EU ETS (2021-2030), which is also the reason for the revision of the trading system, and maritime industry has appeared on the agenda.

Key points in terms of EU ETS

In addition to CO2 emissions, methane and nitrous oxide emissions will be included into the emission trading scheme, starting from 2026

From 2025, shipowners will have to buy emission allowances for 40% of verified emissions reported in 2024. In 2026 this proportion will rise to 70%, but from 2027 onwards there will be no free allowances

After the end of the free allowance period, industry specific emissions are expected to fall underneath the carbon border adjustment mechanism (CBAM)

Liability for emissions is set to charterers and operators for employed ships

Scope of emission trading was untouched: 100% of emissions for intra-EU voyages, and 50% for voyages that start or end at one of the EU/EEA ports

Key points for changes in EU MRV

Companies will have to start reporting nitrous oxide and methane emissions from 2024, the EU Commission's working documents indicate that the data collection for companies would start from 1 January 2024 and the companies shall submit the updated monitoring plan by 1 April 2024, which needs to be assessed by verifiers

General cargo ships and offshore vessels in the range of 400 to 5'000 GT will be also subject to EU MRV regulation from 1 January 2025. By the 31 December 2026, EU Commission has to decide whether to include these vessels in the EU ETS, that will be based on a report on the results from the collected data

But is it only an additional expense for the industry?

The short answer to this is – No. Since another long awaited point was finalized during the talks: creation of an earmarked fund for R&D and innovation. This Innovation Fund would be financed by the revenues from allowance auctioning, and it will generate a significant amount of resources that will be spent directly on industry’s needs for further research on decarbonization efforts and investments in infrastructure.

The finalization of the EU ETS regulations has been long awaited by the industry players. The measures that were agreed on 29 November are still subject to confirmation in Decemberand still we need to see the final document. The approval and widening of these regulations will have a significant impact on the way of doing business. In terms of reporting and verification, the need for automation is there since the scope is increasing for all of the information that shipping companies have to report and be in control of.

Here at Nortech we like to be on top of the latest developments in the regulatory environment, but more importantly we can be a trusted partner for shipowners when it comes to digitalization and further enhancement of decarbonization efforts. Our aim is to facilitate operational excellence that is based on data driven decision making.

Latest on emission regulation from EU - Emission Trading&Shipping