Navigating the EU Emission Trading System (ETS): A Comprehensive Guide for Shippers

In recent years, there has been an urgent shift toward more sustainable business practices—especially in supply chains. In fact, the European Union (EU) has adopted an action plan to achieve carbon neutrality by 2050, with an interim target of cutting emissions by 55% by 2030.

A key initiative of this effort is the European Union Emission Trading System (ETS). Initiated in 2005, the ETS combats climate change by encouraging entities, including shippers and customers, to reduce greenhouse gas emissions. Beginning January 1, 2024, the EU ETS regulations includes shipping. This means new carbon taxes for all shipping customers involved in transporting goods to, from, and within the EU/EEA.

This comprehensive guide will walk you through what companies are affected, the potential impact on your business, how to navigate the changes, and strategies to succeed.

What is the ETS

The EU ETS is a cornerstone of the EU's policy to combat climate change. It is the world's first—and largest—cap-and-trade system for greenhouse gas emissions. It covers approximately 45% of the EU's total emissions, including emissions from power generation, industrial installations, and aviation.

How the ETS works

The EU ETS places a cap on the total amount of greenhouse gases that certain sectors, including transportation and logistics, emit. Under ETS, shipping companies engaged in operations to or from EU or EEA ports must purchase allowances corresponding to their emissions (1 ton of CO₂ = 1 ETS allowance) or face heavy fines. Once purchased, companies must submit and surrender these allowances to the authorities annually.

Compliance also involves the obligatory monitoring, reporting, and verification of greenhouse gas emissions in accordance with the EU MRV regulation. The data obtained from these processes will be instrumental in determining the allowances required. The allowances companies submit will increase over three years:

• 2024: 40% of verified emissions
• 2025:70% of verified emissions
• 2026 and on: 100% of verified emissions

What countries are impacted

The regulations include shipment transport in both EU and non-EU countries, specifically:

EU Countries

• Belgium
• Bulgaria
• Croatia
• Cyprus
• Denmark
• Estonia
• Finland
• France
• Germany
• Greece
• Hungary
• Ireland
• Italy
• Latvia
• Lithuania
• Malta
• Netherlands
• Poland
• Portugal
• Romania
• Slovenia
• Spain
• Sweden

Non-EU Countries

• Albania
• Azerbaijan
• Egypt
• Faroe Islands
• Georgia
• Iceland
• Lebanon
• Moldova
• Montenegro
• Norway
• Syrian Arab Republic
• Turkey
• Ukraine
• United Kingdom

Timing expectations

The graphic below depicts the annual compliance cycle and high-level timing expectations.

How the EU ETS impacts supply chains

Effective January 1, 2024, the scope of the EU ETS includes ocean freight. The regulations calculate carbon pricing based on vessels rather than cargo. Ship operators for vessels—both cargo and passenger—with a gross tonnage equal to or greater than 5,000 must report their emissions and allocate allowances for each ton of CO₂ generated. The carbon taxes apply beyond the EU, impacting a substantial portion of the global shipping fleet. Shippers operating in EU waters, regardless of their origin, will be subject to the requirements of the ETS.

• Voyages departing from EU ports to non-EU ports (50%)
• Voyages between EU ports (100%)
• Ships docked at EU ports (100%)

To deter any attempts at evasion, container ships making stops at transshipment ports beyond the EU/EEA but within 300 nautical miles of an EU/EEA port must account for 50% of the emissions for the entire voyage to that port, not just the brief segment from the transshipment port. The EU will furnish a roster of transshipment ports.

Understanding the future cost implications of the ETS

At the time of this guide’s publication, ocean carriers have implemented an ETS surcharge to cover the CO₂ tax of shipping in the EU. Calculations per TEU will be based on the Clean Cargo methodology for CO₂ multiplied by the market price for EUAs from the ICEDEU3 Index, updated quarterly.

A closer look at the EU ETS rollout schedule

As the EU ETS expands to include ocean transportation, there will be a gradual implementation period spanning three years. The regulations regarding emissions allowances for cargo and passenger vessels escalate in scale—growing from 40% to 100% during that time. Offshore ships exceeding 5,000 GT will come under EU ETS purview starting in 2027.

In the table above, cargo ship refers to typical container ships used for full container load (FCL) and (less than container load) shipments. Offshore ships are tankers and similar types of vessels. General cargo ships are breakbulk/bulk/roll-on/roll-off (RORO) vessels.

Initially focused on carbon dioxide emissions, the EU ETS will expand its coverage to encompass methane and nitrous oxide starting in 2026. Furthermore, reporting of emissions will be mandatory for offshore ships and general cargo vessels ranging from 400 to 5,000 GT, with the possibility of their inclusion in the EU ETS at a later juncture.

Seize supply chain sustainability opportunities

Adopting sustainable practices not only reduces your company’s emissions, which is good for our planet, but it can also position your company as a leader in environmental stewardship. Be sure to regularly monitor updates and changes to ETS regulations to ensure ongoing compliance.

Contact our team of experts today to discuss how C.H. Robinson can help you navigate the EU ETS implications and achieve sustainable success in the shipping industry. Let's embark on this journey towards a greener future together.