Insights from the European Climate Summit 2024 – Sailing through the Maritime ETS

At IETA’s European Climate Summit 2024, our co-Head of Sustainability discussed the maritime industry’s adaptation to the EU-ETS, highlighting the challenges and strategic responses essential for complying with upcoming regulatory milestones and facilitating the global shift towards decarbonisation.

European Climate Summit 2024

In April 2024, our co-Head of Sustainability, Trifon Tsentides, participated in an engaging panel discussion at the European Climate Summit in Florence, Italy. The panel, hosted by IETA, and moderated by Reuters’ Kate Abnett, addressed a suite of topical questions around the shipping sector’s journey inside the EU’s flagship carbon policy.

As most ‘Document of Compliance’ holders have just dealt with the first deadline towards ETS maritime compliance, having submitted documentation to their respective administering authorities to set up ‘Maritime Operating Holding Accounts’, the sector is already witnessing significant shifts. The logistics of opening Union Registry accounts for emissions trading, warehousing, and surrendering pose a learning curve for many in the industry, from in-house maritime legal counsels to the European Maritime Safety Agency. In response, in close collaboration with ClearBlue Markets (CBM), we have been pivotal in offering informed trading and advisory services to streamline this process for shipping players.

The panel also discussed the financial implications of ETS costs within the industry. What we are seeing so far, is a preference for shipowners to request the transfer of physical EUAs rather than a monetary payment, to better lock in the cost. Theoretically this makes sense, however in practice, the willing parties need to also have mechanisms in place to be able to handle allowances, which at this early stage is not always the case. As Nicolas Girod, Chief Technology Officer of CBM highlighted in conversation, EUAs have been trading for much of this year at lower levels compared to last year, alongside gas and power, mainly due to slow industrial recovery, strong renewables output and limited power demand from mild weather above historical averages. Looking ahead, market participants should consider hedging strategies to guard against price volatility, as the scheme’s coverage expands at least until 2030. This entails that involved parties need to set up strong contractual arrangements and so far, we have 4 BIMCO clauses, which have further resulted in numerous private wordings & amendments thereof.

The discussion also turned to global dynamics, requiring agile responses from the shipping sector, such as the ongoing Red Sea crisis, which has inadvertently increased shipping emissions due to longer routings avoiding conflict zones. Further complicating the energy supply outlook, are recent missile attacks on Ukrainian energy infrastructures, exacerbating concerns over European energy security, and influencing EUA prices through heightened market volatility.

The panel highlighted the importance of preparedness for potentially stricter regulations, should the IMO not establish an emissions pricing mechanism by 2028. Companies are advised to anticipate comprehensive coverage under the EU ETS, affecting an even greater portion of their international voyages. The interaction between compliance markets and VCMs was a point of interest. As regulatory frameworks strengthen, the reliance on voluntary offsets is decreasing, making compliance markets more central to corporate decarbonisation strategies. Nevertheless, while the EU-ETS has thus far avoided reintroducing offsets because of concerns over their quality, we see other established compliance programs around the world to expand and appear more lenient on same, such as the promising cap-and-invest scheme in New York State starting in 2025.

The European Climate Summit 2024 has underscored the complexities and opportunities for the maritime industry within the EU-ETS. As we continue to navigate these waters, the blend of strategic foresight and collaborative innovation remains our guiding compass.

For more detailed information and continuous updates, market participants are encouraged to engage with the IG Sustainability Team.