Application of the EU Emissions Trading System (ETS) to the maritime sector
Given that the first surrendering deadline for shipping companies is imminent (it falls due in September 2025), it is worth recapping the key issues arising out of the application of the EU Emissions Trading System (ETS) to the maritime sector.
The EU Emissions Trading System (ETS) is a "cap and trade" system that sets a limit (cap) on the total greenhouse gas emissions allowed from covered sectors, like power plants, large industrial installations, and aviation. Companies receive or buy allowances, with one allowance equal to one tonne of CO2 equivalent. To comply, they must surrender an allowance for each tonne they emit, and they can trade these allowances to find the most cost-effective way to reduce emissions. The cap is reduced annually, ensuring overall emissions decrease, and the system has been expanded to include maritime transport since 2024.
The EU ETS applies in all EU Member States, the European Free Trade Association countries (Iceland, Liechtenstein and Norway) as well as Northern Ireland for electricity generation (under the Protocol of Ireland and Northern Ireland). It covers greenhouse gas emissions from around 10,000 installations in the energy sector and manufacturing industry as well as aircraft operators flying within the EU and departing to Switzerland and the United Kingdom.
From 2024, the EU ETS also covers emissions from maritime transport.
More specifically, since January 2024, the EU's Emissions Trading System (EU ETS) has been extended to cover CO2 emissions from all large ships (of 5.000 gross tonnage and above) entering EU ports, regardless of the flag they fly.
The system covers (as summarized by the EU Commission):
50% of emissions from voyages starting or ending outside of the EU (allowing the third country to decide on appropriate action for the remaining share of emissions);
100% of emissions that occur between two EU ports and when ships are within EU ports.
The EU ETS covers CO2 (carbon dioxide), CH4 (methane) and N2O (nitrous oxide) emissions, but the two latter only as from 2026.
Emissions from maritime transport are included in the overall ETS cap, which defines the maximum amount of greenhouse gases that can be emitted under the system. The cap is reduced over time to ensure that all ETS sectors contribute to the EU’s climate objectives. This will incentivise energy efficiency, low-carbon solutions, and reductions of the price difference between alternative fuels and traditional maritime fuels.
The system builds on the provisions in place for other EU ETS sectors, as well as the recently revised EU Monitoring, Reporting and Verification Regulation for maritime transport (‘MRV Maritime Regulation’).
In practice, shipping companies have to purchase and surrender (use) EU ETS emission allowances for each tonne of reported CO2 (or CO2 equivalent) emissions in the scope of the EU ETS system. It is the role of administering authorities of EU Member States to ensure compliance using similar rules as for the other ETS sectors.
To ensure a smooth transition, shipping companies only have to surrender allowances for a portion of their emissions during an initial phase-in period:
2025: for 40% of their emissions reported in 2024;
2026: for 70% of their emissions reported in 2025;
2027 onwards: for 100% of their reported emissions.
The first surrendering deadline falls due in September 2025 in all Member States, in respect of emissions reported as taking place from 1 January 2024 to 31 December 2024.
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