EU ETS FAQs: Shipping Emissions Trading System Questions Answered

The entity responsible for EU ETS compliance is the 'shipping company' as defined in the EU ETS legislation — specifically, the owner of the ship, or another organisation or person who has assumed responsibility for the operation of the ship from the owner and who, on assuming such responsibility, has agreed to take over all the duties and responsibilities imposed by the ISM Code. This is typically the Document of Compliance (DOC) holder under the ISM Code.

The EU ETS covers: (a) all CO2 emissions from voyages between two EU/EEA ports; (b) 50% of CO2 emissions from voyages between an EU/EEA port and a non-EU/EEA port; and (c) CO2 emitted while ships are at berth in EU/EEA ports. From 2024, 40% of the total covered emissions must be surrendered, rising to 70% in 2025 and 100% from 2026 onwards.

An EU Allowance (EUA) is a permit to emit one tonne of CO2 equivalent. EUAs for shipping are obtained through the EU ETS auction system or on secondary markets (exchange-traded or over-the-counter). Unlike some other ETS participants, shipping companies do not currently receive free EUAs. All required allowances must be purchased. EUAs are held in accounts in the EU Union Registry and surrendered by the 30 September deadline each year.

EUAs must be surrendered annually by 30 September for the preceding calendar year's verified emissions. For example, verified 2024 emissions must be covered by EUAs surrendered by 30 September 2025. The verified annual Emissions Report from EU MRV is the basis for calculating the surrender obligation. Late or insufficient surrender of EUAs results in financial penalties and public disclosure of non-compliance.

Shipping companies that fail to surrender sufficient EUAs face an excess emissions penalty of €100 per tonne of CO2 equivalent for which allowances are not surrendered. This penalty is in addition to the obligation to surrender the outstanding allowances in the following year. Persistently non-compliant companies can be expelled from EU ports — a consequence with severe commercial implications for operators who depend on European trade.

EUA prices have ranged from under €10 to over €100 per tonne of CO2 in recent years, making ETS costs a significant variable in voyage economics. A Panamax bulk carrier burning 25 tonnes of HFO per day on an EU voyage generates approximately 78 tonnes of CO2 per day. At a 100% obligation level, this translates to €7,800–€10,000 per day in ETS costs at mid-range EUA prices — a material proportion of daily operating costs.

ETS cost allocation between owners and charterers is governed by the charter party. The industry has developed various standard ETS clause addenda (including BIMCO's ETS clause) that specify how ETS costs are calculated and passed through between parties. Ecosail's EU ETS module can generate voyage-level ETS cost calculations that are used as the basis for ETS billing between commercial counterparties, supporting transparent and dispute-free cost allocation.

Initially, the EU ETS for shipping covers CO2 emissions only. However, from 2026, methane (CH4) and nitrous oxide (N2O) emissions from cruise ships and LNG-powered vessels will be added to the scope. These additional GHGs will be converted to CO2 equivalents using their global warming potential values. The expanded scope will increase the ETS obligation for vessels using LNG as fuel, as methane slip from LNG engines will attract an ETS cost.

No. The EU ETS for shipping requires surrender of EU Allowances (EUAs) or EU Aviation Allowances (EUAAs) only. International carbon credits — such as those from the voluntary carbon market or the IMO's future market-based mechanism — cannot be used to satisfy EU ETS obligations. Only allowances from the EU Union Registry are accepted for surrender against EU ETS obligations. Contact Ecosail to learn how our EU ETS module can help you plan your EUA procurement strategy and manage your compliance position.