Asian ship owners navigating to and from Europe are expected to encounter emissions costs exceeding €1 billion under the fully implemented EU Emissions Trading System (EU ETS), with Chinese and Singaporean companies facing the highest burdens, according to OceanScore.
The firm estimates that Asia-based Document of Compliance (DoC) holders may need to surrender 15-16 million EU Allowances (EUAs) for emissions. EU ETS costs for Asian owners are projected to be around €500 million in 2024, escalating to 70% in 2025 and 100% in 2026.
The EU ETS, effective from January 1, 2024, will impact about 4000 Asian-flagged vessels owned or operated by 400 DoC holders, including major players like COSCO, Anglo Eastern Ship Management, and HMM.
These are owned or operated by 400 DoC holders, including major players like China’s COSCO, Hong Kong-based Anglo Eastern Ship Management and South Korean HMM, with around half of affected vessels operated by non-EU DoC holders.
EU ETS costs a moving target
The total €1 billion cost estimate for Asian shipping, based on the expected volume of EUAs set to be surrendered by regional DoC holders from 2026, is contingent on the volatile carbon price that is currently at a relatively low level of around €55 per tonne of CO2 after fluctuating between €80-100 last year.
The carbon price is dictated by supply and demand for EUAs, with the volume of allowances available for trading set to be gradually reduced over time under the cap-and-trade system to incentivise investments in measures to cut ship emissions.
OceanScore’s co-Managing Director Albrecht Grell says 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.
OceanScore forecasts that, at full phase-in, around 5.5 million EUAs will have to be surrendered by Chinese and Hong Kong-based entities and 5.4 million by Singaporean players, with the remainder coming from Japan (1.6 million), South Korea (1.2 million) and India (1.1 million). When other Asian countries such as Thailand and Malaysia are included, the total number of EUAs required rises to 20 million.
In a breakdown of costs exposure for individual companies, OceanScore has calculated that a company with 15 vessels would be required to surrender just over 300,000 EUAs, which would equate to a cost of €16.5 million based on the current carbon price.
Catching up with regulatory changes
Voyages into and out of Europe account for around 59% of emissions covered by the EU ETS, versus 41% for voyages and port calls within Europe, but will still have a lower cost burden than domestic European traffic due to the 50% liability factor.
Long-haul voyages into the EU can be broken up by stopping at transshipment ports to reduce emissions exposure, but Grell says “we don’t see many people seriously discussing this” due to the negative impact on fuel costs, waiting times, additional sailing distance and other inefficiencies.
Asian players represent around 25% of the overall 1700 DoC holders that now must relate to the regulation, which is in particular focusing the minds of European owners with an EU-centric deployment pattern for their vessels.
“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,” Grell says.
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.
… explained Albrecht Grell
As well as these administrative obstacles, he claims non-EU players have been put at a disadvantage by having to play catch up with the late finalization of Implementation Acts by the EU to avoid being wrongfooted when having to collect and later surrender EUAs. Among these measures, the shipowner has been assigned responsibility for reporting emissions and surrendering EUAs, though it can be transferred to the technical manager if an agreement along these lines is in place.
