EU ETS – on a mission to reduce carbon emissions

We only have one home. We can’t let go of any opportunity to safeguard it for future generations.

With the effects of climate change being felt more strongly than ever, businesses, industries, governments, and international bodies alike are taking steps to act now. The European Union Emission trading system (EU ETS) which came into effect on January 1^st 2024 for the logistics sector is one such measure that will enable the sector to move towards greener supply chains.

Essentially, ETS places a price on carbon emissions with the aim of averting adverse climate change calamities.  It was introduced in 2005 and is the world’s first international emissions trading system.

A systematic, measurable, and accountable approach

The ETS works as per the cap and trade principle, wherein a limit (a cap) is placed on the amount of greenhouse gases that can be emitted per year. As per which, with one emission allowance, an entity can emit one tonne of CO2eq (carbon dioxide equivalent). Companies must account for their carbon emissions by surrendering enough allowances, else they may face heavy penalties.

However, it is not rigid and recognizes the diverse needs of different players. Therefore, while some allowances are free, they can be bought on the EU carbon market, as well as traded with other companies, and for those who have reduced their emissions, the unused allowances can be retained for future use or can be sold.

To achieve its climate goals, the EU has been reducing the cap each year, resulting in a significant 37% reduction in emissions from power and industrial plants since 2005.

The EU ETS is applicable in all EU countries along with Iceland, Liechtenstein and Norway,

ETS in the maritime sector

While the ETS covers emissions from around 10,000 installations in the energy sector and manufacturing industry, as well as aircraft operators flying within the EU and departing to Switzerland and the United Kingdom – which accounts for around 40% of the EU’s emissions, from January 1, 2024, it was also made applicable to the maritime transport sector.

Consequently, ship operators have to monitor and report their emissions and surrender allowances for every ton of CO2e emitted. It is noteworthy that carbon pricing is determined basis vessels and not cargo.

Further, to ensure the success of the ETS, it is also applicable to vessels sailing to non-EU ports from the EU, wherein half the emissions will be subjected to the ETS. For ships sailing between EU ports or docked at an EU port, allowances will have to be purchased for 100% of the emissions.

ECU Worldwide, the world’s largest LCL consolidator, has recently announced its compliance to the EU ETS. Such a move is also in alignment with ECU Worldwide’s ESG goal of becoming carbon neutral by 2040. The surcharge will be used to buy biofuel, sustainability certificates, and/or support sustainability projects.

In keeping with the increasing demand for greener supply chains, the need to reduce carbon emissions has become a key priority for businesses across the globe, and legislative proposals such as EU ETS will go a long way in helping to protect our planet.