The EU happens to be launching one of the first large-scale attempts at going ahead with charging the shipping sector for carbon emissions starting January 1, 2024.
Notably, shipping has gone on to join the EUs commission trading system on January 1, thereby forcing companies to purchase allowances so as to buy allowances in order to cover a percentage when it comes to voyages to and from the ports of Europe.
It is well to be noted that the plan happened to be originally announced in July 2021 as part of the Fit for 55 package of certain decarbonization steps that are designed to aid the EU in meeting its 55% emissions slash aim from the 1900’s levels by 2030 and happened to be confirmed in 2023.
The regulations go on to cover all the ships of more than 5000 GT in size trading across Europe, with those on voyages throughout the EU and non-EU ports only contributing 50% of the emissions that get generated on the voyage. Notably, the emissions get calculated by way of using the EU-MRV system as the base.
The system also happens to be phased in gradually, which means that the ships will go on to pay 40% of the cost that has been incurred in 2024, thereby surging to 70% in 2025 and thereafter to 100% in 2026.
The bill payment
The present cost of the European Union allowances happens to be around EUR77.60/mtCO2e which is equivalent to $85.67/mtCO2e. Having 3.114 mt of CO2 emissions that are produced per mt of heavy fuel oil that’s consumed, this will happen to give an EUA cost of around $106.71/mt for an intra-EU voyage in 2024; in 2025, it is going to be $186.74/mt; and in 2026, it will touch $266.78/mt.
It is well to be noted that the current cost for voyages in between EU ports as well as other parts of the world will be almost half of these amounts.
These EUAs across every year must be surrendered by September of the coming year, which means that September 30, 2025, is going to be the first deadline for the figures from 2024.
However, the fact is that much is going to depend on how the EU market goes on to respond to the new shipping demand. The amount of EUAs in existence happens to be fixed with a dip forced every year as part of the regulation, and the cost could go on to rise quite exponentially as shipping goes on to enter this market.
The effect of this regulation can indeed be very profound
Yara Marine Technologies, one of the engineering firms, has gone on to suggest that the EUA cost can as well end up at more than half the cost for bunkers on intra-EU voyages as soon as the regulation has been phased and thereafter the EUA prices surge.
Apparently, the most immediate effect is going to be to add to the push to invest in any kind of technology, which can go on to help lessen the consumption of bunkers.
Weather routing, wind-assisted propulsion, anti-fouling measures, voyage optimization software, air lubrication systems, as well as other same tech will all go on to become more cost-efficient as soon as EUA savings get added to the bunker savings that’s generated by them.
This, in turn, will go on to reduce the convention sales bunker with time, especially at the European ports or the ones that are located nearby.
In response, sales when it comes to biofuel bunker blends as well as green fuels are very well expected to rise with time. Both of these options are rated at zero CO2 emissions for the use of the EU-ETS.
The fact is that all this could lead to shipping activity beginning to emerge as organizations begin to find ways so as to avoid EU-ETS costs. It may as well happen that larger ships start calling at ports near the edge of the EU so as to transfer the cargo to ships that are smaller for smaller voyages for the final phase of the journey into the EU ports. This would save the majority of the entire voyage getting eligible when it comes to EU-ETS costs.
All this would lead to bringing benefits in terms of bunker sales to such ports that are on the outside of the EU, but at the expense of EU ports.