According to OceanScore, Asian vessel owners operating ships to and from Europe are anticipated to encounter emissions liabilities exceeding approximately €1 billion (US$1.1 billion) once the EU Emissions Trading System (EU ETS) is fully enforced.
According to the statement, the highest burden is expected to fall on companies registered in China and Singapore. Hamburg-based maritime technology firm OceanScore has projected that Asian-based Document of Compliance (DoC) holders will need to hand over between 15-16 million EU Allowances (EUAs), or carbon credits, for voyages to and from the European Union, accountable for 50% of emissions. Additionally, port calls and transits within the EU will be liable for 100% of emissions.
The estimated EU ETS costs for Asian owners are approximately €500 million (US$540 million) this year, with liabilities for 40% of emissions, increasing to 70% in 2025 and reaching 100% in 2026 during the three-year phase-in period of the regulation. It is anticipated that around 4,000 Asian-flagged vessels will be affected by the EU ETS, comprising approximately one-third of the total 12,500 cargo and passenger ships above 5000gt currently subject to the EU ETS.
Furthermore, these vessels are owned or operated by 400 DoC holders, including major players such as China’s COSCO, Anglo-Eastern Ship Management based in Hong Kong, and South Korea’s HMM, with about half of the affected vessels operated by non-EU DoC holders.
Also, the estimated €1 billion (US$1.1 billion) cost for Asian shipping is contingent upon the fluctuating carbon price, which currently stands at around €55 (US$60) per tonne of CO2. This price is determined by the supply and demand for EUAs.
“A total of nearly 80 million EUAs will have to be surrendered by the shipping industry once the EU ETS is fully phased in, of which 40% will come from non-EU companies, also including the UK, Norway and Turkey,” stated Albrecht Grell, co-managing director of OceanScore.
According to OceanScore’s forecast, Chinese and Hong Kong-based entities are expected to surrender approximately 5.5 million EUAs, while Singaporean players may surrender 5.4 million. Additional contributions are expected from Japan (1.6 million), South Korea (1.2 million), and India (1.1 million). When considering other Asian countries like Thailand and Malaysia, the total number of EUAs required rises to 20 million.
In terms of individual company cost exposure, OceanScore’s analysis reveals that a company operating 15 vessels would need to surrender just over 300,000 EUAs, amounting to a cost of approximately US$18 million based on the current carbon price.
Moreover, voyages to and from Europe contribute approximately 59% of emissions subject to the EU ETS, while 41% stem from voyages and port activities within Europe. Despite this, voyages to and from Europe will bear a lesser cost burden compared to domestic European traffic, mainly due to the 50% liability factor.
Breaking up long-haul voyages into the EU by making stops at transshipment ports is a strategy to mitigate emissions exposure. However, according to Grell, there is little serious discussion about this approach due to its adverse effects on fuel costs, extended waiting times, increased sailing distances, and other inefficiencies.
Asian players make up approximately 25% of the total 1700 Document of Compliance (DoC) holders affected by the regulation. This regulation particularly concerns European owners whose vessel deployment pattern predominantly focuses on the EU region.
Grell further added, “Consequently, we see that European owners generally have started to prepare earlier for compliance with the EU ETS as it is closer to home and is therefore perceived as having a more tangible financial impact on their operations. It is also typically easier for companies domiciled in the EU to set up Union Registry accounts required for handling EUAs, as well as gain access to trading platforms, which is more difficult for those based in non-EU countries given sometimes quite complex Know Your Customer (KYC) processes.”
In addition to encountering administrative obstacles, he argues that non-EU players have been placed in a disadvantageous position due to the delayed finalization of Implementation Acts by the EU. This delay risks catching them off guard when it comes to the collection and subsequent surrendering of EU Allowances (EUAs). One of the measures entails assigning the responsibility of reporting emissions and surrendering EUAs to the shipowner, though this obligation can be transferred to the technical manager if an agreement to that effect is established.
OceanScore is currently aiding shipping companies, both within and outside the EU, in establishing administrative frameworks to navigate the intricacies of the EU Emissions Trading System (ETS). This assistance is facilitated by its web-based ETS Manager, which offers a comprehensive solution to facilitate the management and trading of EU Allowances (EUAs).
The ETS Manager efficiently oversees the process of allocating, requesting, and collecting EUAs from charterers based on various charter agreements. It ensures complete transparency regarding all associated data flows. Additionally, the ETS Manager actively monitors Union Registry accounts for EUAs and decreases risks associated with open EUA positions by identifying any missing allowances that require collection.
“It is vitally important that non-EU actors engaged in trading vessels to and from the EU also become fully up to speed with the regulation and put systems in place to manage and mitigate their EUA liabilities,” explained Grell.
