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by Lindsay Steves
Lindsay Steves

4 min read

Embracing Change: Navigating The Impact Of The EU's Emissions Trading System On Maritime Shipping And Heavy-Duty Vehicles

November 29, 2023

Lindsay Steves
by Lindsay Steves

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As we approach a new era of sustainable development and environmental responsibility, one of the most significant developments set to shape the landscape of the transportation sector, specifically maritime shipping, is the European Union's Emissions Trading System (EU ETS) slated to go into effect on January 1, 2024.

ETS, a cornerstone of the EU's policy to combat climate change, is a cap-and-trade system that limits the overall emission of carbon dioxide. Each year, a certain number of allowances are made available through auction or free allocation. At the end of the year, companies must provide the number of allowances that correspond to their CO2 emissions output. Companies can buy emissions allowances which they can trade with one another as needed, however, the most effective approach is curtailing emissions.

What's the EU ETS?

As the EU ETS comes into effect, it is imperative that shippers stay informed and understand how it will impact their business operations. In the maritime sector, the EU ETS will gradually include emissions based on ship size and type. By 2024, 40% of maritime emissions will be covered, increasing to 70% in 2025, and reaching 100% by 2026.

Looking ahead, there is a forthcoming segment of the EU ETS, known as EU ETS II, which is anticipated to be implemented in 2027. This second phase of the EU ETS will encompass fuel distribution and fuel suppliers for road transport, buildings, and additional industrial sectors. This expansion of the EU ETS framework demonstrates the commitment to effectively address emissions across various sectors and promote sustainable practices in line with the EU's climate goals.

Reduce Emissions and Reliance on Allowances

As the EU ETS affects maritime shipping starting on January 1, 2024 and heavy-duty vehicles as early as 2027, shippers are left with a choice: buy allowances or reduce their carbon emissions. While the former may seem like an easier solution in the short term, investing in emission reduction is ultimately a better investment for the future of the industry.

Investing in fuel-efficient vessels and vehicles, exploring alternative modes of transportation, and using cleaner fuels are just a few ways shippers can reduce emissions. On top of lower emissions, adopting these measures can result in significant cost savings over time.

It's also important for shippers to work closely with suppliers and carriers to ensure they are also taking steps towards sustainability. By collaborating with their partners, more effective solutions can be developed and implemented.

A Brief Overview of EU ETS Allowances

Yet, some shippers may still need to invest in allowances. Each allowance carries a market price, transforming carbon dioxide into a quantifiable and cost-bearing entity. Nonetheless, it's important to view allowances as a pass-through expense, maintaining a focus on emissions reduction. Furthermore, companies that successfully reduce their emissions below their allocated allowances can profit by selling excess allowances.

In the future, the EU plans to aggressively reduce the number of allowances within the ETS. As the number of allowances decreases, the price is expected to rise, underscoring the urgency to reduce emissions. With potential cost implications, it is crucial for shippers to assess their current emission levels and develop a plan to reduce them before they submit their total allowances to the EU.

Ensure Your Transportation Network is Prepared for the EU ETS

The EU ETS is sure to have a profound effect on the maritime shipping sector and heavy-duty vehicles moving forward. For shippers, complying with the EU ETS can be daunting and it is essential to keep informed and up to date with these new regulations. Automation, analytics, and technology represent viable solutions for reducing emissions and complying with the EU ETS. Investing in emission reduction strategies now will position your company to remain compliant in the years to come.

Contact us today, and we will provide expert guidance to navigate these intricate changes, ensuring you and your team are fully prepared for the EU ETS on January 1, 2024.

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