DIGITALISATION
IS THE SHIPPPING INDUSTRY READY FOR EUROPE’S CAP AND TRADE RULE? Is the roll out of the carbon cap-and-trade scheme to the sector an important component in the fight to curtail carbon emissions or just another financial hit, Patrik Wheater wonders Following the formal approval of the EU’s ETS by the European Parliament in April, shipowners are now mandated to submit verified emissions data for all voyages that start or end at an EU port from 2024. As the European Parliament this week ushered in sweeping reforms to the EU’s emissions trading scheme (EU ETS), shipowners are now mandated to submit verified emissions data for all voyages that start or end at an EU port from 2024. But is the roll out of the carbon cap-and-trade scheme to the sector an important component in the fight to curtail carbon emissions or just another financial hit? To ensure the accuracy and integrity of a ship’s emissions data, the EU ETS now requires shipowners to submit emissions data at least five days before the deadline for submitting CO2 permits/allowances, with the data verified by an accredited body, such as a Classification Society. The five-day rule is likely to have a significant impact on shipowners' operations, as it requires operators to gather and verify emissions data in a shorter timeframe than was previously required. They will also need to budget for the cost of compliance, which may include the purchasing of emissions monitoring equipment and sensors, hiring accredited verifiers, the cost of submitting emissions data, and the cost of buying carbon credits, if required. Yet, while the exact cost of compliance is going to be dependent on a range of factors, including the size and type of the vessel, the complexity of the emissions monitoring system, and the number of voyages that the vessel undertakes each year, shipowners are concerned. Speaking under the cloak of anonymity, one major cruise line with operations in Europe, told The Motorship: “Looking at it from a financial perspective we would have thought it would negatively impact the smaller operators and favour larger operators due to the increased administrative burden and financial planning. However, in the shipping sector there appears to be general support for the development of MBMs [market-based measures] as part of the basket of initiatives that allow us to meet our 2050 aspirations. But these would be best done at a global level via the IMO.” The cruise operator, which currently uses a combination of bunker delivery notes, tank soundings and fuel flow meters to monitor, calculate and reconcile emissions data, says it is investigating direct measurement options. “The emissions reporting to EU MRV is already in place and verified by Class, but we will be looking into increasing the accuracy of reporting now that there is a financial impact,” said the cruise line. The owner, which runs a number of LNG fuelled cruiseships and is currently trialling various biofuels, uses a variety of tools, including NAPA software, and solutions developed by Class and in-house, to collect and analyse emissions data. However, despite efforts to reduce CO2 emissions by up to 80%, the company still anticipates having to “purchase EU ETS credits (EUAs) to be compliant, but it’s not clear how many. The cost of compliance is not clear yet, but it could be substantial,” said the shipowner in an email exchange.
48 | MAY 2023
Nevertheless, despite the additional OPEX, the cruise line does not believe cost factors will slow the drive towards emissions targets. “In fact, the regulatory drive towards netzero by 2050 is incentivising the development rather than slowing things down,” the company said. Indeed, the industry-wide adoption of technologies and alternative fuels is indicative in the investments shipowners are already making to lower emissions comply with the ETS regulations. For despite the potential costs and challenges, failure to comply is expected to be much more costly, in terms of fines, vessel downtime and reputational damage. Classification Society DNV, which announced the introduction of its emissions data verification platform, Emissions Connect, on the same day the European Parliament rubber stamped the reforms, said the EU ETS will expose Document of Compliance holders (typically shipmanagers) “to significant financial risk”, as emission costs will be factored into contracts between stakeholders to ensure fair distribution. The Society furthered that the Carbon Intensity Indicator (CII) is becoming a factor in charter terms, creating balance sheet risk and impacting shareholder value, access to capital, and commercial attractiveness. “In this context, the collecting, managing, and sharing of accurate and reliable data will be crucial.” “Reducing emissions and reporting on progress is becoming increasingly important for the maritime industry and is set to have an impact on business that goes beyond regulatory compliance,” said Knut Ørbeck-Nilssen, CEO, DNV Maritime. “Through providing real-time verified emissions data that the entire maritime value chain can share, trust and act on, Emissions Connect can serve as an important enabler to help the industry achieve its decarbonisation goal,” he said. The EU ETS is due to be phased in from 2024 and will require shipmanagers to surrender EU Allowances (EUAs) based on the annual level of emissions. The reforms, extending the EU ETS to the maritime industry for the first time, increases significantly the original ambition of the scheme, as GHG emissions in the ETS sectors must be cut by 62% by 2030 compared to 2005-levels. It also phases out free allowances to companies from 2026 until 2034 and creates a separate new ETS II for fuel for road transport and buildings that will put a price on GHG emissions from these sectors in 2027.
■ The European Parliament has approved the extension of the ETS to cover shipping from 2024
For the latest news and analysis go to www.motorship.com