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EU's shipping carbon quotas may come into force as soon as January 2022

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Despite outspoken dissatisfaction from the shipping industry and suggestions of separate fees for the shipping industry, it looks like the EU will plough ahead with its plans to include the maritime industry in its Emissions Trading System, and it could even happen in just a years' time.

The legislation necessary to include the shipping industry in the EU ETS can come into force as soon as Jan. 1 2022 – all in the name of decarbonization. A draft legislation where emissions from ships are included has been approved by the European Parliament. Now, the EU Commission's ETS initiative is in the public consultation phase which closes on Feb. 5 2021.

British law firm Holman Fenwick Willan (HFW), set out to answer the main questions that might arise from the industry in the light of these news. ShippingWatch provides a summary of the Qs and As according to an announcement by the lawyers. For example:

How will the system work in practice?

"It may be possible to use The EU Monitoring, Reporting and Verification (MRV) Regulation CO reports and records of ports of call to designate a Member State for each responsible ship operator in the same way as is done for aircraft operators. A Member State would then be responsible for distributing ETS allowances to applicable companies based in the Member State, ships flying the flag of that Member State as well as any designated non-EU ship operators (for which a Member State has assumed responsibility for allocation of allowances). How UK-flagged vessels and/or UK-based ship operators would fit into any system that might be introduced, in light of Brexit, remains to be seen," the law firm states.

It also states that several other obligations that are currently imposed on power plant operators and airlines will be applied to ship operators such as annual monitoring of emissions, submitting a verified report of the company's annual emissions every year by the end of March, opening an account with the Union registry, among other things.

But which ships will be covered?

For this essential question, the proposal document from the European Parliament says that the ETS will apply to "greenhouse gas emissions from ships arriving at, within, or departing from ports under the jurisdiction of a Member State".

The law firm elaborates and adds that "this mirrors the MRV Regulation, and as drafted, it would theoretically be sufficient for a ship to call at one EU port once during the course of an entire year for the ETS to apply. This is regardless of that vessel’s flag or the domicile of the registered owner. To date, the EU has not set out any threshold requirements such as a minimum amount of visits to EU ports within a given year." Another essential question is:

Who will be the responsible party for the carbon footprint of a given ship under the ETS?

On this note, the law firm states that the wording of the briefing from the European Parliament is a little unclear in relation to the shipping industry. It refers to 'operators' and states that it applies to "any person who operates or controls an installation or (…) to whom decisive economic power over the technical functioning of the installation has been delegated". But this offers little guidance for the shipping industry where several different parties can have some form of economic power over a ship.

"The MRV regulation, proposes a new wording that states that the shipowner, the manager, the time charterer or the bareboat charterer "which has assumed the responsibility from the commercial operation of the ship from the shipowner and is responsible for paying for fuel consumed by the ship".

It is, however, unclear if this definition will be adopted in the ETS Directive. So, the law firm concludes that "many uncertainties remain as to which party will bear the possible responsibilities and/or opportunities that might be created under the ETS."

The MRV regulation was introduced as a tool to measure carbon emissions from ships. The first results from the MRV system were published in June last year after which the debate to include shipping in ETS took off.

Source ShippingWatch – 07.01.2021

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