Transportation is a vital component of modern life, enabling the movement of people and goods across the European Union (EU) and contributing significantly to the region’s economic growth. However, the environmental costs associated with transportation, particularly greenhouse gas (GHG) emissions, have become increasingly evident.
To combat climate change and reduce emissions from the transportation sector, the EU has implemented the Emission Trading System (ETS), a comprehensive market-based mechanism aimed at curbing emissions and promoting sustainability.
From January 1st 2024 all shipping lines will have to pay annual emissions allowance under the EU Emissions Trading System (ETS) which will in turn effect cross channel trade.
So what exactly is the ETS?
The EU ETS is the world’s first and largest cap-and-trade system for greenhouse gas emissions. It covers a wide range of sectors, including energy production, industry, and, notably, transportation. The system was first launched in 2005 and has undergone several revisions to strengthen its effectiveness over the years.
CAP and Trade
The transportation sector within the EU ETS includes aviation and maritime emissions. It functions on the principle of setting an emissions cap for each sector, and companies are allocated allowances (carbon permits) based on their historical emissions or other criteria. These allowances are tradable, allowing companies to buy and sell them in a competitive market.
The EU sets a declining cap on emissions, meaning that over time, the total number of allowances available decreases, encouraging emission reductions. Companies that reduce their emissions below their allocated allowances can sell their excess allowances to those exceeding their caps. This incentivizes emission reductions and provides a financial incentive for companies to adopt cleaner technologies and practices. It’s a complex formula which will need more than we can talk about here but hopefully you get the idea.
Inclusion of Aviation and Maritime Sectors
The EU extended the ETS to aviation in 2012, requiring airlines to account for their emissions on flights within the EU. This move sparked international controversy and was later modified to only cover emissions during flights within European Economic Area (EEA) airspace. Meanwhile, the maritime sector was included in the ETS in 2018, imposing emissions caps on ships operating within EEA ports.
The EU ETS encourages the development and adoption of cleaner transportation technologies. Companies can invest in emission-reducing projects in non-ETS sectors and use the resulting carbon credits to comply with their obligations.
When will this be applicable for shipping?
From the 1st. of January 2024. But it will not be implemented in full straight away. This will be done in a three-year phase-in period:
40% as from 1 January 2024
70% as from 1 January 2025
100% as from 1 January 2026
As the UK is not part of the EU there is only partial application made (Westbound) for EU transports. However the UK is developing its own ETS which is expected to be launched in the near future.
Note – Ireland will be applicable in both directions.
Many hauliers will be implementing surcharges in line with these costs and businesses can expect haulage costs to fluctuate on a monthly basis. Shipping companies are known to make costs very complex which is often a drawback for businesses, but so far we have estimated surcharges of between €8,–. to €30,–. on transports to the UK.
We here at Jordon greatly understand the need to reduce emissions and support all opportunities to do this. Our own sustainability project incorporates the ETS as a key beneficial component in our industry. However, it is not our policy to pass on the surcharges as we remain committed to delivering the best bespoke options for our clients with a clear and simple price structure for business stability.
By working in partnership with our suppliers we are able to achieve this benefit for our customers resulting in pricing peace of mind.
Find out more about ETS here https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets_en