How to design an EU emissions trading system for maritime transport?

The new study by the Oeko-Institut and Transport&Environment commissioned by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety shows how an extension of the EU emissions trading system to maritime transport in the "Fit for 55" package could be designed. How such a regulation would relate to potential measures by the International Maritime Organization (IMO) is explained by researcher Nora Wissner.

The expansion of the EU emissions trading system (ETS) is part of a package of measures to steer previously unregulated maritime transport onto the path of decarbonization. The same goal is pursued by the "FuelEU Maritime" initiative, which is supposed to stimulate the reduction of ships' energy consumption by means of limits on emissions intensity.

Both are part of the so-called "Fit for 55" package. In mid-July, the EU Commission will publish a series of legislative proposals to achieve the new EU climate target. The target envisages a greenhouse gas reduction of at least 55 percent by 2030 compared to 1990. The adaptation of existing directives and regulations as well as the proposal of new legislative initiatives by the EU Commission are eagerly awaited.

Maritime transport is not left out this time either. As the main driver of global trade, maritime transport contributes around two to three percent of global greenhouse gas emissions. Shipping accounts for three percent of the EU's CO2 emissions, with over 140 million tons in 2019, and the EU plans to advance climate protection in this sector with a series of measures. An important contribution to climate protection will be made by the planned extension of the EU ETS to maritime transport. Currently, the EU ETS covers the stationary sector and intra-European air traffic.

Biggest impact: inclusion of all routes involving an EU port

A recent study by the Öko-Institut looked at the design of an ETS for maritime transport. The environmental effectiveness/impact and the extent to which this interacts with future measures at the global level are the focus of the study. The effectiveness is influenced, among other things, by the emissions included, for example only CO2 but also other greenhouse gases such as methane and nitrous oxide, as well as the geographical scope.

This involves, for example, which ship types and routes are covered by the regulation. A maritime ERS can build on the EU's existing monitoring regulation ("EU MRV"), which has required ship operators to report their CO2 emissions on routes within the EU, from incoming voyages to an EU port, or from voyages from an EU port to a third country port since 2018.

If only routes between EU states were included in the ETS, only a small portion of emissions would be covered. The greatest impact would come from including all routes involving an EU port (the full scope) - which is consistent with the scope of the EU MRV. In addition, the study discusses other issues, such as the allocation of emission allowances (free allocation vs. auctioning) and the use of potential auction revenues. Since the risk of so-called "carbon leakage," i.e., the relocation of (CO2-intensive) production abroad, is low in shipping compared to other sectors, full auctioning of emission allowances in shipping would be appropriate. Sustainable, alternative fuels are the biggest lever for the maritime sector to mitigate emissions. These fuels are still very expensive today. To reduce the price gap between these fuels and fossil fuels, part of the auction revenues should be returned to the sector to enable investments.

Regional vs. global regulation

If the EU were to price maritime emissions, it would lead the way internationally. That's because the United Nations' International Maritime Organization, or IMO, has yet to introduce comparable instruments. IMO member states have only just begun to discuss potential CO2 pricing mechanisms at the global level. In principle, an EU regulation and a global CO2 pricing policy could be reconciled and aligned as long as basic building blocks, such as target and data basis, are compatible. However, what kind of CO2 pricing policy could be adopted at the global level - whether an ETS, a levy or something else - is still unclear as of today.

Study "Integration of maritime transport in the EU Emissions Trading System" by Oeko-Institut

Nora Wissner is an expert on climate change mitigation in shipping and works in the "Energy & Climate Protection" department at the Berlin office.

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