EU agrees preliminary ETS deal for shipping

01 December 2022

The Commission, Parliament and Council of Ministers have reached a preliminary agreement on shipping's inclusion in the EU's emissions trading system. The decision is in line with the bill on maritime climate change for which Swedish EU parliamentarian Jörgen Warborn is responsible. The  arrangement has otherwise received sharp criticism from the Swedish shipowners association for being insufficient.

The EU's three legislative institutions have reached a preliminary agreement on how shipping is to be included in the EU ETS - the EU's system for trading emissions rights. And it will take time. In 2024, the ships must pay for 40 percent of their emissions, in 2025 for 70 percent and only in 2027 they must account for 100 percent of their emissions. Compared to the EU Commission's original proposal, an agreement was also reached to include not only carbon dioxide emissions in the trading system, but also emissions of methane and NOx.

So far so good. But according to the proposal, only ships over 5,000 gross tons are to be included in the EU ETS, which is in line with the draft law on maritime climate change, FuelEU Maritime, which the Swedish EU parliamentarian Jörgen Warborn was responsible for. Warborn has said during the legislative proposal work that "we should be ambitious, but not over-ambitious".

Why not be overambitious when it's in such a hurry?

“We must do what is required to reach the climate act, that is, emissions must be reduced by 55 percent by 2030 and by 2050 we must reach climate neutrality. By using 5,000 gross tons as a limit, we cover approximately 55 percent of all ships, but capture 90 percent of all emissions”, says Jörgen Warborn.

Almost half of all ships thus is not included - something that Sweden, the Netherlands and a number of industry players have been strongly critical of. Instead, they want to see that a ship's actual emissions and not its size should determine whether it is covered by the legislation. There is also a proposal for a limit of 400 gross tons.

“If we were to go down to 400 gross tons, we would reduce emissions by a further six percent. It will not be very cost-effective. The costs for the sector would increase by 90 billion Euro, something that would probably be passed on to landowners and finally to consumers. It would be more expensive products in the end.”

Research done within Lighthouse says the opposite. According to the preliminary study Costs for decarbonising shipping - An impact study for shipping companies and Swedish business, the transition to fossil-free shipping will of course be expensive, but not as expensive as you might think.

“The total transport cost will be 20-30 percent more expensive. It sounds like a lot, but will probably not significantly affect the final price of an item in the trade. You can compare with container prices, which have doubled in recent years without directly affecting trade”, said Karl Jivén, researcher at the IVL Swedish Environmental Institute, in October.

So €90 billion more expensive for the EU shipping sector, what does that do to the price of a pair of gym sneekers shipped from Asia?

“I don't really like that example”, says Jörgen Warborn. “Those who use it argue, of course, that it does almost nothing. But a household doesn't just live on a pair of gym shoes, it's not just what we consume every year. And more Fit for 55 legislation is added, which means that costs increase in other areas. So accumulated, it is clear that a cost increase in the form of more expensive fuel will hit the consumer eventually.”

But in several places within the shipping industry, it is agreed that tougher rules are required for a transition to really take place - and they must be the same for everyone. As the rules are now with a limit of 5,000 gross tons, an a and a b team is created, something that risks distorting the market, they say. A further risk is that shipping companies will in future build ships under 5,000 gross tons to escape the rules.

“To reduce climate emissions from the shipping sector, significant amounts of sustainable maritime fuels and technology development are required. To increase these fuels and technologies fast enough, there must be a demand for them. Smaller ships are often easier to convert to be able to use such fuels and technologies and can therefore play an important role in driving market demand”, said Fredrik Larsson, environment and climate officer at the Swedish Shipowners´ association in October in connection with writing an open letter in which, together with several other large organizations in European shipping, they asked the EU to rethink.

But so far it seems that the limit will be 5,000 gross tons. However, Jörgen Warborn says that it may change.

“Today, larger rather than smaller ships are built, and I find it difficult to see that this EU legislation would direct the rest of the world to build smaller ships. But if that were to happen then the commission has the opportunity to adjust the limit. Evaluations will be done every five years starting in 2027.”


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