EU Emissions Trading System

ICS is working intensively with other industry associations to encourage IMO to adopt an ambitious strategy for CO2 emissions reduction by the international shipping sector, following its decision in October 2016 to develop a Road Map, with an initial strategy to be agreed in 2018. Unfortunately these efforts to reach a global agreement continue to be frustrated by developments in Europe. 

In February 2017, the European Parliament voted to propose that international shipping, including non-EU flag ships, should be incorporated into the EU Emissions Trading System from 2023 (with the possible option of ships instead being able to pay a levy into an EU fund). As a ‘compromise’, however, the Parliament has proposed that this regional measure might only be implemented should IMO fail to agree an ‘acceptable’ package of alternative measures by 2021. In other words, the proposal is being presented as a threat.
Emissions trading, which has been developed primarily for industries such as power generation, coal mining, and cement and steel production, is completely inappropriate for international shipping which mostly comprises SMEs typically operating less than ten ships. Moreover, its unilateral application to global shipping would create serious market distortion, as many ships would divert to non-EU ports (including potentially a post-Brexit United Kingdom) in order to minimise exposure to the EU system. Moreover, the unilateral application of the ETS to shipping could generate trade disputes with China and other Asian nations, as happened several years ago when the EU tried unsuccessfully to impose its ETS on international aviation.

But ICS is particularly concerned that this vote for a unilateral, regional measure simply risks polarising debate among IMO Member States which have already agreed to develop a strategy for reducing shipping’s CO2 emissions in line with the goals of the Paris Agreement on climate change. 

During the course of 2017, the Parliament’s proposal will have to be considered by the EU Member States and the European Commission via the so called ‘trilogue’ process. Reducing CO2 from shipping is a global problem which can only be addressed successfully at global level by IMO. EU Member States, which are also members of IMO, therefore have a duty to reject these unhelpful proposals, as they are taken forward as part of a wholesale attempt to reform the EU Emissions Trading System. Trying to include thousands of small shipping companies – including thousands of companies not based in the EU – is only going to complicate this attempt at reform. 

However, while the possible incorporation of shipping into the EU ETS is a great concern to shipping, it is only a small part of a major EU regulatory package to reform the EU ETS (which has done little to help reduce the EU’s CO2 emissions because of the oversupply of allowances). The final result could therefore involve considerable ‘horse trading’. 

In practice, the European Commission will have a very influential role in what is ultimately decided because if it rejects the Parliament’s proposal on shipping this can only be overturned by a unanimous vote by all 28 EU Member States. 

Encouragingly, the European Commission has made it clear in public that it would greatly prefer a global solution to be developed at IMO. However, in order to reject the Parliament’s recommendations, the Commission will need to be able to justify its decision with evidence that IMO is indeed making real progress. The agreement by IMO to develop a Road Map is not considered sufficient to impress the European Parliament, but a Road Map populated with CO2 reduction objectives could be.
In co-operation with the European Community Shipowners’ Associations (ECSA), ICS will therefore be working hard throughout 2017 to convince the Commission and EU Member States that IMO will indeed be able to develop some suitably ambitious CO2 reduction objectives, for the sector as whole, by 2018, together with a plan for the development of measures by 2023 to help ensure delivery of these objectives – 2023 being the date which IMO Member States have agreed for the finalisation of the global Road Map. 

  • International Chamber of Shipping
  • 38 St Mary Axe, London
  • EC3A 8BH