Shipping Firms Enter EU ETS Amidst Market Trough; Administrative Challenges Loom

• Shipping companies are entering the European Union Emissions Trading System (EU ETS) during a market trough, with over 2,200 firms allocated to member states for holding accounts.
• Despite the potential for purchasing greenhouse gas emissions allowances at a market low, concerns arise about administrative backlogs impacting the application process.
• The EU’s regulation extension of the ETS to cover shipping provides opportunities for buying allowances, but complexities in documentation requirements and a surge in applications could lead to delays.

The European Commission allocated more than 2,200 shipping companies to EU member states for registering a Maritime Operator Holding Account (MOHA) as part of the extension of the Emissions Trading System to cover shipping from this year. The move allows shipping firms to open holding accounts, providing opportunities to purchase greenhouse gas emissions allowances during a bearish market period.

Market Trough and EUA Prices

The allocation comes amidst a near-term bearishness in Europe’s compliance carbon market, reflected in European Union Allowance (EUA) prices close to their lowest since October 2021. The December EUA contract was assessed at Eur56.52/mtCO2e ($60.67/mtCO2e) on February 14. Despite the current market conditions, concerns arise about the application process and potential administrative delays faced by shipping companies entering the EU ETS.

Purchasing Opportunities and Market Strategy

The current market conditions provide a favorable time for shipping companies to buy EUAs for future compliance needs. However, market players emphasize the importance of considering future market expectations and potential price fluctuations. Industry participants suggest that despite the market trough, administrative complexities and a surge in applications could pose challenges to shipping companies seeking to establish MOHAs.

Application Challenges and Administrative Backlogs

Shipping companies opting for MOHAs encounter fewer document requirements compared to alternative routes under the ETS. However, concerns arise about the application process, with shipping companies required to file their applications within 40 working days from the January 31 announcement. Industry participants highlight potential administrative burdens and delays, with several countries experiencing extensive delays in opening trading accounts, adding complexity to the process.

EU Member States and Allocation Challenges

The allocation of shipping companies to EU member states reveals that Greece and Spain have the highest number of registered companies for MOHAs. Spain, despite not holding top positions in ship-owning or cargo volumes, has 450 registered companies, including large non-EU players. Administrative challenges and unfamiliar processes could pose hurdles, especially for non-European addresses, impacting the timely completion of applications.

Revenue Allocation and Decarbonization Projects

Shipping companies entering the EU ETS need to pay for a percentage of their reported emissions, reaching 100% from 2026 onward. Revenues from selling EUAs will contribute to maritime decarbonization projects via the Innovation Fund, with the remainder distributed to member states. Anticipated disputes between national governments may arise as funds resulting from the ETS will largely go to countries where EUAs are surrendered, further adding complexity to the process.

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Source SP Global

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