On October 18, 2023, ClearBlue Markets, IFCHOR GALBRAITHS, and special guest ENEL hosted a webinar addressing the inclusion of shipping emissions in the EU ETS.
Q. What are your price expectations over the next 6 and 12 months?
A. In our most likely scenario, we expect EU ETS emissions in 2023 to be ~160.3Mt lower than in 2022. As a result, we raised our U price forecast to €80 by the end of 2023. Despite the new stricter cap and the shipping sector entering the market in 2024, we expect EUA prices to remain relatively flat until the end of 2023 for these reasons:
1. Supply increases due to REPowerEU auctioning 2. Industrial demand is down with no sign of a near-term recovery 3. Power emissions continue to decrease, depressing hedging demand 4. Political uncertainty will rise in the run-up to EU elections in the spring of 2024.
Q. Where do you see EUA prices going in the next 1 to 3 three years?
Q. Will shipping companies be offered free allowances for their baseline emissions?
A. No, they will not. They will have to surrender their emissions gradually: 40% in 2024, 70% in 2025 and 100% in 2026.
Q. Where will revenues from shipping go? Is shipping receiving any benefits?
A. 2.5% of the allowance auctioning revenue is earmarked for the Innovation Fund and will be used to promote low-carbon projects. Twenty million allowances from the Innovation Fund will support decarbonization projects in the maritime industry. Other auctioning revenue will go towards the budgets of the Member States using the following system: Until 31 December 2030, Member States will receive a share of allowances based on the 2020 ratio of shipping companies to population. This allocation is determined using data from 2018 to 2020 and is applicable if the ratio of shipping companies to population is above 15 shipping companies per million inhabitants. The quantity of allowances given using this method corresponds to 3.5% of the additional allowances due to the increased cap for maritime transport in a given year. Out of the remaining 96.5% of the 'shipping cap,' 50% of the total allowances will be distributed among the relevant Member States based on the share of shipping companies each Member State is responsible for. The other 50% will be distributed equally among all Member States. Member States must use 100% of the allowance auctioning revenues for one or more of the following climate-related purposes: GHG emission mitigation, climate change adaptation, research and development projects, renewable energy and low-carbon economy promotion, preventing deforestation and improving energy efficiency.
Q. If a vessel has completed loading in December and the discharge is in Europe in 2024 - will it be exempted from the new regulation? Also, If a voyage has started before 1/1/2024 outside the EU but ends after at an EU port, will it be required to surrender allowances?
A. For a voyage starting in 2023 (i.e., the calendar year when ETS regulation does NOT apply) and ending in 2024 (i.e., the start of ETS obligation), the emissions from the start date in 2023 until 31 December 2023 will NOT count. However, the emissions will be counted pro-rata from 1 January 2024 until the end of the voyage under the emissions data reporting for the calendar year 2024.
Q. If a vessel has completed loading in December and the discharge is in Europe in 2024 - will it be exempted from the new regulation?
A. For a voyage starting in 2023 (i.e., calendar year when ETS regulation does NOT apply) and ending in 2024 (i.e., the start of ETS obligation), the emissions from the start date in 2023 until 31 December 2023 will NOT count. However, the emissions will be counted pro-rata from 1 January 2024 until the end of the voyage under the emissions data reporting for the calendar year 2024.
Q. Can the shipping company purchase EUAs via the Compliance Account or only via the Trading Account?
A. It can do so by using any of the accounts.
Q. Are there any other directives/policies you are keeping track of to address shipping concerns
A. Yes, Fuel EU Maritime will require the shipping sector to decrease the greenhouse gas intensity of their fuels over time.
Q. How is the CO2 emission calculated if the vessel loaded outside the EU and then, on the same voyage, part of the cargo was discharged in a non-EU port, and then the remaining cargo was discharged in the EU port? Is there any pro rata on emissions calculation? (Example: 45K slabs Xingang/40K Diliskelesi + 5K Thessaloniki)
A. In this case, emissions will be counted sailing from the last port of call (i.e., the non-EU port where part of the cargo is discharged -- Diliskelesi); Xingang / Diliskelesi – 0%; Part discharge Turkey – 0%; Diliskelesi / Thessaloniki – 50%; Thessaloniki – 100% alongside in port.
Q. Gibraltar is a British overseas territory on the south coast of Spain. How will the ETS be applied to Gibraltar?
However, with regards to containerships, the Commission has classified East Port Said (Egypt) and Tanger Med (Morocco) ports as container transhipment ports that met the criteria laid out in the EU ETS Review: emissions of containerships sailing from a non-EU port to discharge cargo at an EU port via Tanger Med or East Port Said will count at 50% despite calling at a non-EU port (Tanger Med or East Port Said).
This way, the EU aims to limit the risk of carbon leakage as containership operators might relocate their transhipment activities to the ports outside the EU to reduce their ETS costs. If the Commission identifies other ports where leakage takes place, they will evaluate them and include them into the list, alongside East Port Said and Tanger Med
Q. What if the DOC is a management company and not the actual owner? How do they assign the allowances to each ship? Do they set up individual accounts for each ship? Can they use allowances credited to one ship for another?
A. Management companies (DoC holders) have been reporting to the EU MRV since 2019; EU-ETS will rely on fuel oil data consumption from the EU MRV. Management companies have to open one registry account through which allowances are surrendered in accordance with each vessel's reported and verified emissions.
Q. How will emissions be accounted for voyages taking place during two reporting periods (for instance, starting in Dec 2024 and ending in January 2025)?
A. A reporting period is the period from 1 January until 31 December of any given calendar year. Hence, for voyages starting and ending in two different calendar years, the respective data must be accounted under each reporting period, pro rata. Following the example above, this means that the amount of emissions until 31 December 2024, as monitored by the shipping company, will be reported as part of the 2024 emissions report, while the amount of emissions corresponding to the part of the voyage as of 1 January 2025 will be accounted for in the 2025 emissions report.
Q. We know shipping is on the demand side for CO2, but how is the supply of allowances being created/decided?
Q. Are there any other directives/policies you are keeping track of to address shipping concerns?
A. FuelEU Maritime will require the shipping sector to decrease the greenhouse gas intensity of its fuels over time.
Q. Can you include EU-ETS gas prices in your weekly reports as an indication?
Q. What if our company is not set up by 1 January, we do not have carbon allowances, and we have a ship proceeding to the EU to discharge?
A. Your company can open a compliance account (MOHA) in the Union Registry starting in January 2024 after EC publishes the list of attribution of shipping companies to determine the emissions administering authority. To be able to trade EUAs before 2024, shipping companies may open trading accounts in the Union Registry as long as the entity is registered in the Chamber of Commerce of the EU Member State of the corresponding national administrator. IFCHOR GALBRAITHS and ClearBlue Markets can buy, hold, sell, collect and transfer EUAs on behalf of our clients.
Q. For a non-EU company, do you suggest opening a holding account now or waiting for the list of assigned countries to be released?
A. The shipping company must be registered in the Chamber of Commerce of the EU Member State of the corresponding national administrator to open a trading account. A non-EU company is not allowed to open the same. Meanwhile, IFCHOR GALBRAITHS and ClearBlue Markets can buy, hold, sell, collect, warehouse and transfer EUAs on behalf of our clients.
Q. Concerning forecasting prices and predicting the market, if EU regulations can change the situation considerably on the supply side, how can you reasonably make any price forecast?
A. The supply of the EU ETS is determined by the cap and legislated by the EU Commission, with the approval of the Parliament and the Member States. Until 2030, the regulation is set in stone, and the cap is adjusted to reduce EU ETS emissions by 62% by 2030 vs 2005. The only way to change this would be for someone to challenge the law through legislative procedure, which would take nearly two years. There could be some supply shocks, however, like the REPowerEU announcement on front-loading auctions, but that happens only on an exceptional basis.
Q. Is there a minimum allowance to trade or hedge?
A. No, there is no minimum allowance specified. However, the low volume comes with higher trading fees.
Q. How will non-European ship owners open an account?
A. By 1 February 2024, the Commission will publish a list attributing each company to the administration of one EU Member State. For shipping companies not registered in an EU Member State, it will be the Member State with the greatest estimated number of port calls from voyages performed by that shipping company in the last four monitoring years.
Q. If my vessel carries coal from Australia to Rotterdam, from which point will the ETS be considered?
A. After completion of loading/sailing from Australia (laden leg at 50% emissions + 100% when in Rotterdam / alongside berth).
Q. We are a management company registered in Malta. However, we also have a branch office in Greece. Should we open an allowance account in Malta? If yes, should we wait for the EU to publish the companies that should be registered, or can we approach Malta to register in advance?
A. A management company registered in Malta may open a trading account in Malta to trade EUAs before 2024. Compliance accounts may be opened in the Union Registry from Jan 2024 after EC publishes a list of attribution of shipping companies to determine the emissions administering authority (Expected from 1 February 2024).
Q. How do we treat Ballast legs for, for example, a ship ballasting from the EU, loading in Turkey and discharging in America?
A. Ballast leg counting at 50% emissions: outbound liability from the last port of call (i.e., sailing from the EU port) after completion of the previous voyage.
Q. How is the distance calculated - from the first port of origin to the EU port of call or from the last port where the ship docked to the EU port of call?
A. Stops for the sole purpose of going into dry-dock or making repairs are not a port of call. Hence, liability will start from DOP's last port of call.
Q. Who is responsible for surrendering allowances, the owner, or in the case of a TC vessel, the disponent owner?
A. The responsible entity for surrendering allowances to the EU is the shipping company, defined as the party which has assumed the responsibility for the vessel's operation under the ISM Code for the safe operation of ships and pollution prevention ("DoC" holder). The "shipping company" always remains the responsible entity for surrendering allowances and holding sufficient allowances for EU/EEA voyages (or the "Registered Owner" through an established agreement, pending final decision).