Briefings

EU Emissions Trading System: Current status and key issues

The planned inclusion of maritime transport in the EU Emissions Trading System is moving forward rapidly, and the legislative text could be finalised in Q4 of 2022. As part of the legislative process, both the European Parliament and the European Council have very recently proposed their own respective amendments to the proposals originally put forward by the European Commission back in 2021. In our factsheet, we set out the key issues arising that have the potential to impact all the parties in the physical transport chain, and which could give rise to risks and disputes in the future.

As readers will know, on 14 July 2021 the European Commission (the Commission) published proposals to include CO2 emissions from maritime transport in the EU Emissions Trading System (EU ETS), as part of the EU’s broader ‘Fit for 55’ package. ¹ For a brief summary of how the EU ETS currently applies to existing regulated industries, see our previous briefing from December 2020 here, and for our analysis of the issues under the Commission’s proposals, please see our December 2021 briefing here. However, matters have moved on significantly since the Commission’s initial proposals.

The relevant EU legislation underpinning the inclusion of maritime transport could be finalised as early as September this year, pending the outcome of discussions between the Commission, the European Parliament (the Parliament) and the European Council (the Council), often referred to as the ‘trialogue’, although it could very well take longer. Preceding this:

1. On 22 June 2022, the Parliament published various proposed amendments to the Commission’s initial proposals which, if adopted, would materially alter the way the EU ETS would apply and impact the maritime sector.²
2. Shortly after, on 28 June 2022, the Council published its own “general approach” on the EU ETS which, whilst more similar to the Commission’s original proposals, also differed in some respects from both the Commission’s and the Parliament’s respective proposals.³

Whilst it remains to be seen which of the proposed amendments end up in the finalised legislation following the trialogue, the scope could be very significant for the maritime sector. The amendments, if adopted, have the potential to impact trade, routes, activities, and the type and size of vessels covered, as well as the type of emissions to be regulated, access to the emissions market and, more generally, how and when the EU ETS will apply to the maritime sector.

In light of these developments, we have prepared a factsheet summarising the positions adopted by the various EU institutions on the key issues ⁴ likely to impact maritime transport, and how these might impact parties in the physical transport chain.

The factsheet covers the following:

• Scope
  • Date and extent of application to the maritime sector
  • Regulated vessels
  • Regulated voyages and ports of call
  • Regulated emissions
• Responsible party for and/or cost of compliance
• Market access

However, as the regulatory landscape remains uncertain, it is advisable to keep a watchful eye on the EU position as it could very well change. As we await the outcome of the trialogue, interested parties would do well to use the time to review their contracts and consider including provisions that adequately allocate responsibility under the EU ETS.

Parties should also remain mindful of the FuelEU Maritime initiative. ⁵ This has attracted far less industry and media attention to date, but it has a very important part to play in the ‘Fit for 55’ package and could potentially have significant commercial and contractual implications (the Commission’s initial proposal is discussed in our December 2021 briefing here).

In addition, it is vital that the parties do not lose sight of the fact that important international emission regulations – in the form of MARPOL’s EEXI and CII – will be coming into force from 1 January 2023. The compliance steps required are very different to the EU ETS, requiring improvements to vessel energy efficiency and the ongoing reduction of carbon intensity on an annual basis. This raises different considerations, and parties are again advised to prepare for these regulations and review their contracts in order to mitigate compliance and risk going forward. To learn more, please see HFW’s previous briefings from April 2021 ( here) and December 2021 (here).

Research undertaken by Shamsheer Singh, Master Mariner, and Sophie Dent, Trainee Solicitor.

Please click below to view our EU ETS factsheet, alongside the accompanying map. Alternatively, you can view the briefing and factsheet as a PDF by clicking the button at the bottom of this page.

EU Emissions Trading System Factsheet

Footnotes:

1. https://www.consilium.europa.eu/en/policies/green-deal/fit-for-55-the-eu-plan-for-a-green-transition/#:~:text=Fit%20for%2055%20refers%20to,line%20with%20the%202030%20goal.
2. https://www.europarl.europa.eu/legislative-train/package-fit-for-55/file-revision-of-the-eu-emission-trading-system-(ets); https://www.europarl.europa.eu/doceo/document/TA-9-2022-0246_EN.pdf
3. https://www.consilium.europa.eu/en/press/press-releases/2022/06/29/fit-for-55-council-reaches-general-approaches-relating-to-emissions-reductions-and-removals-and-their-social-impacts/; https://data.consilium.europa.eu/doc/document/ST-10796-2022-INIT/x/pdf
4. Save that issues relating to the allocation of income generated by the inclusion of maritime transport in the EU ETS (e.g. the establishment of the "Ocean Fund") is outside the scope of this briefing.
5. https://ec.europa.eu/info/sites/default/files/fueleu_maritime_-_green_european_maritime_space.pdf

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