Shipowners could be rewarded for using cleaner fuels

Ship operators can expect rewards in future for using more environmentally friendly fuels, as the EU Emissions Trading System (EU ETS) will allocate a number of free emission allowances to them. The European Commission is set to present a proposal to this effect this Friday as part of its reform proposal for the Emissions Trading Directive, said CDU MEP Peter Liese on Thursday during a discussion with journalists in Brussels.

Such an incentive mechanism currently exists only in the aviation sector. It is now to be introduced in the maritime sector as well. According to Liese, the Commission intends to propose an increase in the number of free CO₂ allowances that airlines can receive if they use SAF (Sustainable Aviation Fuels). To date, allowances covering emissions of up to 20million tonnes of carbon dioxide are available for the period 2024 to 2030. Their allocation is intended to compensate airlines for part of the additional costs they incur when purchasing SAF, which is more expensive than kerosene.

Aiming for better protection of EU ports against diversion of traffic

According to Liese, the aim is to improve the protection of European ports against traffic being diverted to non-European ports in order to reduce emissions trading costs. To prevent a loss of cargo handling to the ports of Port Said (Egypt) and Tanger Med (Morocco), these two are currently on a list of transhipment ports where a call does not count as a stop when the emissions trading rules are applied. “This protection is to be strengthened,” said Liese.

However, this should not be done by adding British ports to the list. Although they are currently also attractive for diversionary traffic, “the UK will no longer be an issue in a few weeks’ time, because the British will be participating in the ETS, including for their maritime transport,” predicted the CDU’s emissions trading expert. The EU and the UK are currently negotiating the linking of their emissions trading schemes. According to Liese, the link-up should have been finalised at the EU-UK summit scheduled for 22 July. However, the summit has been postponed due to the expected reshuffle of the British government under a new Prime Minister, Andy Burnham. A new date has not yet been set.

Extending the ETS to outbound flights would be a “recipe for a trade war”

The European Commission is also due to announce on Friday whether it intends to extend emissions trading in aviation beyond the current scope of the European Economic Area (EEA) from 2027. Under the current directive, it is obliged to take such action if it concludes that the Corsia climate protection instrument of the International Civil Aviation Organisation (ICAO) is not sufficiently ambitious to meet the climate protection targets set by the ICAO and the UN by 2050.

Liese is convinced that the College of Commissioners will not follow the recommendation of its Directorate-General for Climate Action to include all flights departing from the European Economic Area fully within the EU ETS, including flights to the US and China. “That would be a major risk for a trade conflict – and a particularly severe one at that,” warned Liese.

ETS costs could be based on routes within European airspace

However, his Christian Democratic-conservative European People’s Party (EPP) supports offsetting the competitive disadvantages that the current regulation imposes on European hubs and airlines. Hubs such as Istanbul or Dubai are becoming increasingly attractive to airlines and passengers as transit hubs because, for example, a flight from Stockholm to Beijing is completely exempt from the EU Emissions Trading Scheme when these hubs are used. If, on the other hand, a passenger changes flights in Frankfurt, the Stockholm–Frankfurt leg is subject to the ETS. The same applies to flights from Northern Europe to, for example, Seville. If, on the other hand, a flight continues just a few hundred kilometres further to Morocco, no ETS costs are incurred at all.

A sensible solution might be for ETS costs to be based in future on the distance travelled within EEA airspace, said Liese.

A slower reduction in emission allowances seems likely

It may be that, following the reform of the directive, the total volume of CO₂ emission allowances available under the EU ETS will decrease more slowly than currently envisaged. To ease the burden on the European economy, the Commission is considering, amongst other measures, not increasing the annual linear reduction factor from the current 4.3 per cent to 4.4 per cent in 2,028 as planned, but actually reducing it. In Liese’s view, even a reduction to 3.4 per cent would still be “very ambitious” and sufficient to achieve the goal of climate neutrality by 2050.

Under the reduction pathway currently envisaged, the EU would issue no new emission allowances after 2039. “That is completely unrealistic,” said Liese. Sectors such as aviation, which cannot avoid CO₂ emissions even through carbon capture and storage (CCS), would still need opportunities for CO₂ trading in 2040.

Discussions on the ETS reform also focus on crediting additional allowances for climate protection projects in third countries and increasing the number of allowances that can be released for trading from the market stability reserve. Such changes would slow down the shortage of emission allowances and the rise in prices. However, the principle that the number of allowances will continue to fall is unlikely to change.

Warning against an attack on CO₂ trading for road transport

Liese does not expect the Commission to include the separate emissions trading scheme for road transport and buildings (ETS 2), which is due to start in January 2028, in its reform proposal. A new debate on ETS 2 in the Council of Ministers and Parliament would be “very difficult”. The EPP Group’s spokesperson on environmental policy warned against a direct political attack on the road transport emissions trading scheme. “If we scrap ETS 2, we will never achieve any climate protection targets, because it regulates a very large volume of emissions.”