UNDERSTANDING THE EU ETS COMPLIANCE: A Comprehensive Guide
Although the shipping industry is vital to global trade, it also contributes heavily to greenhouse gas emissions. The European Union (EU) has taken a significant step towards a greener future by including the maritime industry in its European Union Emissions Trading System (EU ETS).
This extension demonstrates the EU's commitment to lowering carbon emissions and supporting sustainable practices in one of the world's greatest contributors to greenhouse gas emissions. And, as the shipping industry's demands become more regulated, they require a specialized Vessel Reporting System to gather, organize, and analyze their data.
WHAT IS EU ETS?
The European Union Emissions Trading System, or EU ETS, is a cornerstone of the European Union's attempt to battle climate change and reduce greenhouse gas emissions.
With the EU ETS, the European Union has built a market system that assigns a price to CO2 and generates incentives to cut emissions in the most cost-effective way possible. The goal is to reduce emissions in the shipping industry by a specific percentage each year.
It is the world's largest international carbon trading system and a critical tool in helping the EU meet its emission reduction commitments.
THE IMPACT ON THE SHIPPING INDUSTRY
The EU ETS uses a 'cap-and-trade' model, in which the EU sets a limit on how much CO2 can be emitted, which lowers each year, and shipping companies must obtain a European Emission Allowance (EUA) for every tonne of CO2 emitted in a calendar year. These permits are given to them or purchased by them, and they can be traded. They surrender enough credits each year to cover their whole emissions.
The approach seeks to incentivize emission reduction efforts by penalizing enterprises
that exceed their allotted allowances and rewarding those that do not.
Companies subject to the EU ETS are expected to monitor and report their emissions on an annual basis. If a corporation generates more greenhouse gases than its authorized allowances, it must purchase additional allowances from the market to cover the excess emissions. If a corporation emits fewer greenhouse gases than its allowances, it can sell the excess allowances to other enterprises.
Under EU ETS, the "cap" on emissions for the shipping sector is zero. This means, Companies will be accountable for surrendering allowances and paying to the corresponding administering authority.
WHAT ARE EU ALLOWANCES (EUAs)?
EU Allowances (EUAs) represent a form of carbon allowance permitting companies within the EU ETS framework to release a specific quantity of CO2e. These EUAs are tradable commodities in the market, and their fluctuating market value mirrors the expenses associated with emission reduction.
Points to keep in mind while acquiring EUAs:
- Before purchasing EUAs, assess how many GHG emissions your organization will be liable for in the future year and how many allowances would be required to offset those emissions.
- It is critical to become acquainted with the current market price for EUAs as well as the various purchasing possibilities. This will assist you in determining the best method for obtaining the necessary allowances.
- EUAs for shipping can be obtained in a variety of ways, including auctions in the primary market or trading in the secondary market. Choose the technique that best matches your demands and budget.
HOW DO YOU GET EUAS?
- The number of EUAs issued annually decreases by a factor of more than 4% per year. The EUAs are made available on the market through weekly auctions and free distribution to specific industries. Shipping has been allowed a phase-in approach rather than free allocations.
- EUAs can be purchased at a fixed price at auctions held on behalf of the EU by the European Energy Exchange (EEX) several times a year. To participate in these auctions, companies must register with the European Commission.
- EUAs can be purchased and sold on the secondary market through brokers or online trading platforms. These can be traded on multiple exchanges and over-the-counter (OTC) markets, and the price varies according to supply and demand.
- EUAs can be saved for future usage. This can be handy if you anticipate increased emissions in the future and want to guarantee you have enough allowances to offset such emissions. EUAs issued on or after January 1, 2013, remain valid for meeting future surrender obligations, and EUAs issued on or after this date do not expire unless they are surrendered.
OUR COMPREHENSIVE EU ETS SOLUTION
We are a globally trusted independent verifier accredited by COFRAC under ISO 17029 for maritime greenhouse gas emissions. We assist shipping companies under the EU ETS directive by:
- As an initial step for the EU-ETS, Verifavia will assess and approve the Monitoring Plan, which will include all necessary changes as per new regulation [REGULATION (EU) 2023/ OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of … amending Regulation (EU) 2015/75].
- Our dashboard will verify the Emission Reports for each vessel and provide the overall performance report (overall fleet emission report). There will be an automated quality feedback loop to enable you to resolve data-quality issues easily.
- Assisting in registering with administering authority and surrendering allowances.
- Verifavia, with its EU ETS dashboard will display the CO2 emissions breakdown, CO2 to surrender, price, and allowances.
- The EU ETS Calculator which is a feature of the EU ETS Dashboard, will help in predictions, simulations, and voyage planning with respect to the price of Unit Ton of CO2.
- Another feature of the dashboard displays the historical verified data of vessels to analyze the performance.
- Verifavia’s Shipping Emission and Performance team, with highly dynamic and extremely qualified Auditors, will be assigned to each client to identify issues, gaps, and solutions during the whole process.
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