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EU Emission Trading System – smooth sailing a half year into 2024?

Wednesday, 10 July 2024 | 00:00

Introduction

For the 2024 calendar year any shipping company having cargo or passenger ships of 5,000 gross tonnage (GT) or above calling a port located in the EEA (European Economic Area[1]) for commercial purposes must cover 40% of the total CO2 emissions reported for 2024 with EU emission allowances (“EUAs”) irrespective of the vessel’s flag or her owner’s nationality. One EUA covers the emission of one metric ton of CO2.

The number of EUAs due must cover all CO2 emissions produced for the whole 2024 calendar year for the “fleet” of vessels registered with the same competent EEA administering authority by the shipping company which has taken over the EU ETS responsibility by latest 30 September 2025.

Compliance

The default position under the EU ETS Directive[2] is that the responsibility for compliance with these rules lies with the registered shipowner. However, the registered shipowner can mandate an ISM company to fulfil these responsibilities in its place[3]. This mandate requires a specific contract which then also must be properly notified[4] with the competent administering authority.

As to the MRV Regulation[5] the responsibility for compliance can be either the registered shipowner or the ISM company. However, it is important that the party responsible for MRV compliance is the same party as the one responsible for the EU ETS compliance.

Shipping Company

“Shipping company” in this context is the party which conducts the obligations under the EU ETS and MRV, that can either be the registered shipowner or, if properly mandated, the ISM company of the vessel.

Maritime Operator Holding Account (“MOHA”)

EUAs can only be surrendered to the competent EEA administering authority from a Maritime Operator Holding Account (“MOHA”) which must be opened in the same EEA country in which their administering authority is based. For shipping companies that have their registered place of business in an EEA country the MOHA must be opened in that same country. When it comes to shipping companies outside the EEA, they must be assigned a competent EEA administering authority. The EU came out with a list for some of the shipping companies, but if a shipping company does not find itself on the list, the registered shipowner can either contract an ISM company which is already assigned a competent authority to take on the EU ETS responsibilities on behalf of the registered owner or alternatively the shipping company will be assigned a competent administering authority based on the first voyage within the scope of that EU ETS Directive and which is a voyage between ports under the jurisdiction of two Member States.

Obtaining EU emission allowances (EUAs)

EUAs can be obtained by auctions. Twenty-eight countries (25 EU Member States and 3 EEA countries) auction their assigned EUAs off, on the common auction platform of the European Energy Exchange (EEX) in Leipzig.

Aside from the auctions, there is also secondary market through which allowances can be bought bilaterally or through various derivatives provided by financial institutions or trading brokers. Any EUAs issued on or after 2013 do not expire, so they can be traded, sold on, or banked for future use.

Shipping companies can use their MOHA to trade EUAs, charterers however cannot open a MOHA, but instead they can open a trading account with the EEX to purchase EUAs via auctions or the secondary market and use that trading account to transfer EUAs to shipowners as per the obligations of the agreed charter for each vessel. So, whilst charterers can buy and trade EUAs as well as transfer them they cannot surrender them for and on behalf of the shipping companies or ship owners to the authorities.

Conclusion

Skuld sees a steady flow of questions from shipowners and charterers about how to obtain the EUAs and in general on how to deal with the obligations under the charterparty. Skuld encourages its members and assureds to familiarise themselves with the subject to ensure compliance when the EUAs will be due next year. Your local Skuld claims staff can provide advice and assist so please do not hesitate to reach out.
Source: Skuld

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