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Emissions trading – difficult for shipping

26 September 2023

After 2040, no emission rights will be issued. This means that everyone who is part of the EU ETS is no longer allowed to emit any carbon dioxide. For shipping, it will be difficult to cope, writes IVL in a new report that analyzes three different ways of dealing with the problem.

Next year, shipping will enter the EU Emissions Trading System, the EU ETS, which has been significantly strengthened through the EU's Fit for 55 package. The emissions cap will now decrease by 4.4 % per year and may go towards zero in 2039. According to Lars Zetterberg, researcher in emissions trading at IVL and program manager for Mistra Carbon Exit, this represents a major challenge.

“As we approach the year of zero allocation, there are likely to be residual emissions, for example in aviation, shipping and leakage from CCS facilities, and for these sectors the reduction could be very technically difficult and very expensive.”

Within the framework of Mistra Carbon Exit, Lars Zetterberg has written a report together with Milan Elkerbout at CEPS, Center for European Policy Studies, which analyzes three possible ways to deal with this problem. An alternative is to replace the EU-ETS with a carbon tax. However, experience shows that taxes are challenging to introduce in the EU and it would most likely be difficult to reach agreement on an appropriate tax level.

The other alternative is to lower the level of ambition and continue to issue a smaller volume of emission allowances after 2040. But here too there are difficulties. What is a suitable a suitable size of the roof? And how should it be updated when new technology is established that reduces emissions?

“The problem is also that we don't get down to zero emissions and that has to be compensated elsewhere outside the emissions trading system.”

In the third alternative, the allocation of emission rights ceases as intended, but with the possibility of limited purchases of other companies' minus emissions, which is not allowed today. Negative emissions can be achieved, for example, by capturing and storing carbon dioxide from biofuel-fired power plants, sequestering carbon dioxide in growing forests and wood products, or capturing carbon dioxide directly from the air (DACS).

Such a system must also be treated with caution, according to Lars Zetterberg.

“This must not lead to companies buying credits instead of reducing their emissions, but it is important that all emission reductions that are technically possible are actually implemented and that compensation is only used when there are no other alternatives.”

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