This guide explores the impact of the European Union Emission Trading System (EU ETS) on the maritime shipping industry. It focuses on the challenge of balancing environmental responsibility and cost-effectiveness for shipping companies. Here, AI is examined as an innovative technology solution for meeting regulatory requirements and remaining competitive.

Download the Full EU ETS Guide Here

The European Union’s determined strides to mitigate maritime emissions are marked by the introduction of the EU Emissions Trading System (ETS). Described as a cornerstone of the EU's policy to combat climate change: It represents the world's first and most extensive system for trading emission allowances.

It significantly limits greenhouse gas emissions from more than 11,000 heavy energy-using installations and airlines operating between the European Economic Area (EEA) countries. The EEA includes EU countries and also Iceland, Liechtenstein and Norway.

Covers all vessels, irrespective of flags, and applies to voyages to, from, and between EU ports. Includes emissions from ships at berth or moving within an EU port.

According to a study from the International Maritime Organization (IMO), including maritime transport emissions in the EU ETS could reduce the EU's total emissions by more than 180 million tonnes by 2030.

The European Union's Emission Trading System (EU ETS) will include maritime shipping, effective January 1, 2024. This alteration also brought revisions to the EU MRV regulation, which deals with the monitoring, reporting, and verification requirements to support the EU ETS.

Identifying Your Administering Authority (AA) and Meeting Compliance Duties There are three strategic routes shipping companies may take to fulfill the obligations relating to the EU MRV (Monitoring, Reporting, and Verification) and EU ETS:

1. The ship's registered owner accepts MRV and ETS compliance responsibilities and formulates their unique monitoring mechanism

The owner's organization must provide a list of ships to their Administering Authority (AA), indicating their accountability for meeting MRV and ETS standards. Also, they must develop a Monitoring Plan, get it inspected by a verifier, and present it to the AA before April 1, 2024.

2. The ship's registered owner accepts MRV and ETS compliance responsibilities but delegates the actual monitoring to the ISM company

The owner's organization supplies a ship list to their AA, accepting responsibility for MRV and ETS obligations. The ISM company continues with existing monitoring and reporting measures; however, the Monitoring Plan must be modified to present the owner as the responsible entity. The ISM company then follows the Monitoring Plan and provides emissions reports for the ship owner. It remains under discussion whether the ISM company will be allowed to submit plans and reports on behalf of the owner through Thetis MRV.

3. The ship's registered owner assigns MRV and ETS compliance duties to the ISM manager

A contractual agreement must exist between the registered owner's organization and the ISM company, indicating the ISM company's assignment to comply with MRV and ETS regulations. The ISM company may have multiple owner organizations but is responsible for the combined fleet under MRV and ETS. The current Monitoring Plan can continue if the updated document template's additional elements are incorporated.

Your Administering Authority (AA)

Every company, whether the registered owner or ISM company, will be allocated an AA from an EU/EEA member state. For companies registered in the EU/EEA, their AA will be from their registered country. For companies registered outside the EU/EEA, their AA will be from the country where their vessels made the most port calls over the previous four years. The EC will release a list of companies and their corresponding AA by February 1, 2024.

Any shipping company controlling one or more ships under ETS must create a Maritime Operator Holding Account with its AA within 40 days after the EC publishes the list. The AA is required to set up the account within an additional 40 working days. The specifics related to this will differ among different AAs.

The documentation required to open an account is consistent for all AAs and includes:

• Information about the legal entity (e.g., name, address, contact person)
• If the company is the registered owner: a list of ships the company controls
• If the account holder is part of a group: a document clearly defining the group structure (certified true copy needed).

Further documentation may be requested by the AA, such as:

• Proof of the legal entity's registration, its bank account details, and confirmation of VAT registration
• Details of the legal entity’s beneficial owner, including name, date of birth, nationality, and ownership or control details
• Copies of the legal documents establishing the legal entity
• Copy of the annual report or latest audited financial statements. If no audited financial statements are available, a copy of the financial statements is stamped by the tax office or the financial director.

For more resources on determining your Administering Authority, visit EU MRV & ETS Guidelines and the European Commission’s Maritime Emissions Portal for comprehensive information and guidance.

Guidelines for Company Change and Monitoring Plan Updates

A. Adjustment due to Company Change and Required Emissions Reports

For cases where there is a shift in the company (i.e. either the registered owner or the ISM company), MRV regulation mandates the verification and submission of a partial emissions report.

This process should be completed via the Thetis MRV system within three months after the change. This precautionary measure allows both the preceding and succeeding companies to submit a company-level emissions report that covers the emissions they were each accountable for under the ETS in the given reporting period. The responsible company determines whether the registered owner or the ISM company needs a partial emissions report.

For comprehensive insights into MRV and ETS regulations and their application to company transitions, refer to the European Commission's Emission Trading System User Manual.

B. Update on the Monitoring Plan

A Monitoring Plan, verified to comply, must be submitted to the AA by April 1, 2024. Monitoring Plans and emissions reports are submitted through Thetis MRV, irrespective of the allocated AA. The Monitoring Plan now includes additional obligations in line with the MRV and ETS.

The revised template includes the following elements:

• Emission factors for CH4, N2O, and CO2
• Methods for determining the emission factors for biofuels, RFNBOs, and RCFs
• Emission source class and slippage coefficient values for LNG-fuelled ships
• Detailed information about the shipping company
• Information on the application of carbon capture and storage technologies
• Processes related to data flow activities and risk assessment.

For an in-depth understanding of developing a Monitoring Plan in alignment with the new MRV and ETS regulations, visit the European Commission’s Maritime Emissions Portal.

Emissions Limitations Under the EU ETS

The European Union's Emission Trading Scheme (EU ETS) has set forth stringent limitations on emissions from maritime shipping vessels. The goal of these regulations is to reduce greenhouse gas emissions and mitigate the impact of climate change.

• Carbon Dioxide (CO2): The EU ETS mandates regular monitoring and reporting of CO2 emissions. CO2 is the primary greenhouse gas emitted through human activities, and burning fossil fuels for electricity, heat, and transportation is the largest source of these emissions. The EU ETS sets forth specific limitations and guidelines for CO2 emissions from shipping vessels.
• Methane (CH4) and Nitrous Oxide (N2O): The updated Monitoring Plan now includes emission factors for CH4 and N2O. Methane is emitted while producing and transporting coal, oil, and natural gas. Methane's lifetime in the atmosphere is much shorter than carbon dioxide's. Still, methane is more efficient at trapping radiation, making its impact over 20 years more than 25 times greater than carbon dioxide. Nitrous oxide is released during agricultural and industrial activities and the combustion of fossil fuels and solid waste.
• Biofuels, RFNBOs, and RCFs: The EU ETS also includes procedures for determining the emission factors for biofuels, renewable fuels of non-biological origin (RFNBOs), and recycled carbon fuels (RCFs). These fuels can provide a more sustainable alternative to fossil fuels, thus reducing overall emissions.
• LNG-fuelled Ships: The Monitoring Plan includes the emission source class and slippage coefficient values for LNG-fuelled ships. Liquefied natural gas (LNG) is acknowledged for its lower sulfur emissions than conventional ship fuels, but it can release methane – a potent greenhouse gas.

The emission limits are defined based on vessel type and propulsion system, with the most stringent rules being applied to large vessels with diesel engines. In addition to GHG emissions, ships must comply with reporting requirements and verification procedures monitored by the European Maritime Safety Agency (EMSA). By placing these limits and regularly revising them, the EU ETS aims to incentivize shipping companies to adopt greener fuels and technologies, thus contributing to the larger goal of environmental conservation and sustainable development. For more details on these regulations, please refer to the European Commission's Emission Trading System User Manual and the European Commission’s Maritime Emissions Portal.

Learn more about how the EU ETS is poised to affect Maritime in our complete Comprehensive Guide to EU ETS for the Maritime Sector.

About Bearing AI Research

Leveraging a unique blend of data science, naval architectural knowledge, and deep expertise in the global maritime industry, Bearing AI has introduced an innovative initiative: Bearing AI Research.

This initiative is supported by an expansive and untapped global maritime vessel dataset, providing deep insights and fueling change and growth within the industry. It is a critical resource for shipping organizations, policy experts, investors, academic researchers, and media outlets.

Bearing AI Research is an instrumental guide for maritime organizations striving to comply with environmental regulations and adopt sustainable practices. Learn more about how Bearing AI is spearheading the shift to a greener shipping industry, helping you chart through the noise in your data to optimize commercial and operational decision-making at bearing.ai.