European Emissions Trading System (EU ETS): impact and compliance in maritime shipping
Author: Jeroen Berger • Publication date:
Since January 1, 2024, seagoing ships of 5,000 GT or more that call at a port in the European Economic Area (EEA) fall under the European Union Emissions Trading System (EU ETS). As a result, greenhouse gas emissions from ships are explicitly priced within the existing system, which has applied since 2005 to electricity generation, heavy industry and aviation.
The extension to the maritime sector is set out in Directive (EU) 2023/959, which amends Directive 2003/87/EC, and is a core component of Fit for 55 with an economy wide reduction target of at least 55% in 2030 compared to 1990. The obligations apply regardless of flag or ownership, the decisive factor is operational presence in the EEA.
Shipping companies must monitor CO2 emissions, report annually, have these verified by a recognized and accredited body and then surrender sufficient emission allowances (EUAs). In 2024 this concerns CO2 only. Methane (CH4) and nitrous oxide (N2O) have been monitored since 2024 under the revised MRV framework and will count toward ETS settlement from 2026.
The system operates on a cap and trade principle. The European Union reduces the emissions cap annually by 4.3% through 2027 and by 4.4% from 2028, with an ETS objective of a 62% reduction in 2030 compared to 2005. No free allocation is provided for maritime shipping, all required allowances are auctioned and the price of EUAs follows supply and demand.
For shipping companies this means a structural shift. ETS costs are a direct, legally binding cost item per ship and make compliance a strategic core component of business operations. Choices about fuel mix, retrofit investments, emissions management and contract structures therefore have a direct impact on commercial performance.
At the same time there is a strong incentive to invest in energy efficient technology, alternative fuels and optimized operations. Those who align these measures with EEXI, CII, FuelEU Maritime and CSRD combine compliance with structural cost reduction and strengthen their market position.
This article explains how the EU ETS for maritime shipping works in practice, which reporting and verification obligations apply, what the financial impact is, how ETS costs can be allocated contractually, which strategies exist for price hedging and which technologies and legislative frameworks will guide a future proof maritime strategy toward 2050.
Operation of the EU ETS in the maritime sector
To understand the practical operation of the European Emissions Trading System for shipping, it is essential to state the legal and structural basis on which the EU ETS has applied to this sector since 2024. With the entry into force of the new rules, shipping companies and shipowners must purchase and surrender sufficient emission allowances annually to fully cover their verified CO2 emissions.
The number of available emission allowances declines structurally, by 4.3% per year through 2027 and by 4.4% from 2028. This phase down supports the ETS objective of a 62% reduction in total greenhouse gas emissions in 2030 compared to 2005.
All seagoing ships of 5,000 GT or more that sail from, to or between ports in the European Economic Area fall under the Emissions Trading System, regardless of flag or the nationality of the shipowner. The decisive factor is operational presence within the EEA. Legal responsibility rests with the shipping company as defined in Regulation (EU) 2015/757. In practice this is usually the holder of the Document of Compliance, even when the ship is chartered.
Implementation is phased. In 2025 shipping companies surrender emission allowances for 40% of emissions over 2024. In 2026 this increases to 70% of emissions over 2025. From 2027 full coverage applies and 100% of emissions over 2026 must be covered with emission allowances.
Annual emissions are determined per individual ship based on verified data. An independent verifier accredited within the European Union in accordance with ISO 14065 assesses both the monitoring plan and the emissions report. Only on the basis of approved reports may the associated emission allowances be surrendered under EU ETS compliance.
Scope differs by route. For voyages between ports within the European Economic Area full emissions coverage applies. For voyages between an EEA port and a port outside the EEA, 50% of emissions are subject to coverage. This division reflects the geographic limits of EU law while partially bringing international voyages into the system.
Emissions are calculated using established emission factors per fuel type and include all combustion activities on board, from main engines to auxiliary systems. In practice this currently concerns HFO, MGO, LNG and methanol, the fuel palette is expected to expand with synthetic and biofuels. Within the MRV framework shipping companies have also monitored methane (CH4) and nitrous oxide (N2O) since 2024. From 2026 these gases will count in the EU ETS and EUAs must therefore also be surrendered for CH4 and N2O, which is particularly relevant for LNG ships and similar engine concepts.
Unlike sectors with free allocation, the maritime sector receives no free emission allowances. All required allowances are purchased via auctions on the European Energy Exchange (EEX) or on the secondary market. The price of EUAs follows supply and demand.
The supervisory structure has two layers. The administering authority, the competent national authority assigned per company, is allocated to a Member State. In the Netherlands the Netherlands Emissions Authority (NEa) oversees compliance and enforcement. Accreditation of verifiers takes place through national accreditation bodies, the NEa does not accredit. In cases of serious or repeated default, in addition to financial penalties, operational measures may follow, including denial of access to EU ports.
Although integrating maritime shipping into the EU ETS was made possible through the existing MRV framework, the nature of the obligation has fundamentally changed. Where previously only reporting applied, there is now a direct financial and legal obligation. As a result, shipping companies must manage technical processes, legal procedures and financial planning in an integrated way. EU ETS compliance is no longer a side condition, it is a strategic and operational core element of modern maritime management.
Reporting and verification obligations
To comply effectively with the European Emissions Trading System for shipping, shipping companies must not only understand how the EU ETS operates, but also manage the legal and technical processes around reporting and verification. Since linking the EU ETS to the existing MRV system through Regulation (EU) 2015/757, this framework no longer functions only as a transparency instrument. It is now a legally enforceable basis for compliance, where errors have direct financial and operational consequences.
The first step is a current monitoring plan per ship. This document sets out measurement methods, fuel consumption, the emission factors applied and the relevant voyage routes. An independent verifier accredited within the European Union in accordance with ISO 14065 assesses the plan. After a positive assessment the plan is submitted via the European MRV portal and accepted by the competent administering authority. Only then is the monitoring plan executable and legally valid within the maritime ETS framework.
No later than March 31 of each year, the shipping company submits a verified emissions report for each ship covering CO2 emissions over the previous calendar year. Since 2024 methane and nitrous oxide must also be monitored and reported under the revised MRV framework. From 2026 CH4 and N2O will be settled within the EU ETS, which has particular implications for LNG ships and similar engine concepts.
In addition to per ship reporting, the formally registered entity in the Union Registry submits a verified total overview of the emissions of the entire fleet no later than March 31. Based on these data the associated emission allowances are surrendered no later than September 30. Only fully verified reports qualify as evidence of compliance.
Penalties apply in cases of late or incorrect reporting and surrender. For each ton of CO2 for which no emission allowance has been surrendered, a fine of 100 euros applies, on top of the obligation to deliver the missing allowances. In cases of repeated or intentional default, the competent authority may impose additional measures, including a ban on calling at EU ports until obligations have been met.
Enforcement lies with the administering authority that is assigned at company level to a Member State. In the Netherlands the Netherlands Emissions Authority performs this role for shipping companies under its jurisdiction. Accreditation of verifiers takes place through national accreditation bodies in accordance with ISO 14065 and the EU accreditation framework, the NEa therefore does not accredit, but supervises and imposes sanctions.
These reporting and verification obligations require close alignment of technical, legal and financial processes. Measurement data must be processed consistently and reliably from ship to back office in automated systems. Only then can audit trails be guaranteed and emissions reports be validated effectively toward regulators, financiers and other stakeholders.
At the same time this framework offers strategic opportunities. Benchmarking at ship and fleet level creates insights for maintenance strategies, retrofit planning and investment decisions. Consistent, transparent emissions overviews also strengthen the confidence of shippers, charter parties and investors in the sustainability position of the enterprise.
Financial impact: scenario analysis 2024 to 2050
Since the inclusion of the maritime sector in the EU ETS, emission allowances have become a fixed and predictable cost item in operations. No free allocations are provided for shipping, EUAs are sold primarily via auctions on the EEX, while shipping companies can also purchase on the secondary market. The price follows market dynamics and moves with economic cycles, energy prices and policy expectations. In 2024 the average auction price was around 64.74 euros per ton of CO2 and the average secondary market price around 65.23 euros per ton, for comparison, in February 2023 the spot price briefly exceeded 100 euros per ton.
An example calculation makes the impact concrete. Consider a Panamax container ship of approximately 60,000 GT with annual emissions of 55,000 tons of CO2 and a stable sailing schedule. In 2025, allowances must be surrendered for 40% of 2024 emissions. At a price level comparable to the 2024 average, this results in approximately 1.42 million euros in ETS costs, at 100 euros per ton this amounts to approximately 2.20 million euros. In 2026, when 70% of 2025 emissions are subject to coverage, costs rise with the same parameters to approximately 2.49 million euros, or 3.85 million euros at 100 euros per ton. From 2027 full coverage applies to 2026 emissions, then this increases, at unchanged emissions, to approximately 3.56 million euros, or 5.50 million euros at 100 euros per ton. These amounts are indicative and vary with fuel consumption, route profile, load factor and the current EUA price.
Annual costs are also determined by trade type and contract structure. Intra EEA trade has full emissions coverage per voyage, while for voyages between an EEA port and a port outside the EEA, 50% of emissions are subject to coverage. The allocation of costs between shipowner and charterer differs by contract form, in time charters the charterer generally controls consumption, while the shipping company remains legally responsible for surrender. As a result, commercial arrangements on data access, settlement prices and surrender timing influence the actual cost position as much as technical efficiency.
Technological choices can ease margin pressure. Investments in hydrodynamic optimization, wind assisted propulsion and shore power reduce fuel consumption, thereby lowering financial ETS exposure. Fuel switches to hydrogen or ammonia reduce CO2 intensity on board, take into account MRV and ETS counting of CH4 and N2O from 2026 and N2O emissions with ammonia. Companies that couple these measures with real time monitoring and consistent MRV data also create better conditions for financing and tenders, because cost control and sustainability go hand in hand.
Finally it is relevant to clarify the relationship with ETS 2. ETS 2 for buildings, road transport and small industry starts in 2027 as a separate trading system with its own cap and its own allowances. It therefore does not directly increase demand for EUAs in the current ETS, although indirect macro effects through energy prices and economic activity can influence the EUA price. For scenario analysis through 2050 it is therefore preferable to apply EUA price bands that include both policy and market dynamics, and to link these to sailing schedules, fleet composition and investment plans.
Robust scenario analyses are useful not only internally, but also toward banks and investors. Financial institutions value risk management around emissions and price volatility, especially when supported by verified data and clear hedging strategies. In this way, EU ETS compliance evolves from a legal obligation into a strategic instrument that connects emissions reduction, cost stability and competitiveness.
With hedging, shipping companies lock in EUA prices for the future or dampen price fluctuations. This can be done via EEX futures, standardized futures contracts on the European Energy Exchange that fix a price today for delivery in a specific period, via forwards, bilateral tailor made forward contracts with more flexibility but also counterparty risk, or via option structures. With a collar you define a bandwidth by simultaneously buying a call, the upper bound, and selling a put, the lower bound, so the premium remains limited. An alternative is phased purchasing in tranches that align with the ETS surrender cycle up to September 30.
Contractual models for allocating ETS costs
With the inclusion of the maritime sector in the EU ETS, emissions costs are no longer a hidden part of operations, but an explicit and legally enforceable obligation. Whereas these charges were previously often embedded in bunker prices or environmental surcharges, they are now determined per ship. Legal responsibility lies with the shipping company, usually the holder of the Document of Compliance, even when operational execution is outsourced to a third party. This structure requires contracts to specify exactly who bears which obligations.
In voyage charters, fuel use and operational control remain with the shipowner, which often means emissions costs are passed on through the freight rate. A watertight contractual provision is indispensable. That provision sets out how costs are calculated, for example based on actual fuel consumption, the route sailed and the applicable coverage level within the Emissions Trading System. Without clear agreements, uncertainty arises about settlement and legal enforceability is reduced.
In time charters the situation is more complex. The charterer determines fuel consumption, but the legal obligation to comply with the EU ETS remains with the shipowner. A solid contract clause therefore not only establishes the charterer’s obligation to deliver the required emission allowances, but also includes arrangements on data access, verification procedures, liability in the event of errors or delays and the moment of surrender. In practice technical systems are often connected, so MRV data are shared directly from the ship with the charterer’s systems. This ensures transparency and consistency in reporting.
Some contracting parties opt for a shared cost model, where ETS costs are allocated based on objective parameters such as charter duration, distance sailed or a fixed price per ton of CO2. A reference price can be used, for example the average of recent ETS auctions. This approach contributes to predictable operating costs in a market with strong price swings.
The legal end responsibility, however, always remains with the registered shipping company. If the charterer fails to meet agreements, for example by not delivering emission allowances or by providing incorrect data, the shipowner remains liable for penalties or fines. Including security, such as a security deposit, a blocked account or a bank guarantee, can limit these risks. Contracts must also clearly specify who corrects in case of errors, how deviations are handled and which price mechanisms apply for long or complex voyages.
The need to adapt contracts extends beyond charter parties. Terms of carriage, slot charters and framework agreements with shippers also require revision, especially now that transparency on climate impact is becoming more important. The Corporate Sustainability Reporting Directive obliges companies to report accurately on their sustainability impact, including scope 3 emissions. This includes transport outside their own operations. To comply with these requirements, emissions per cargo unit must be recorded precisely, including the associated chain costs. This level of transparency is now a basic condition for access to sustainable logistics chains.
In summary, allocating ETS costs is not only a commercial consideration, it is a strategic and legal anchor point within maritime operations. Without clear contractual provisions, shipping companies and shipowners face significant risks, ranging from financial penalties to loss of market access in increasingly regulated transport chains.
Price hedging for emission allowances
Since the inclusion of maritime shipping in the EU ETS, emission allowances, the so called EU Allowances (EUAs), have become a fixed and structural cost item within maritime operations. One EUA is a tradable right that equals 1 ton of CO2 equivalent within the EU ETS (for maritime shipping through 2025 CO2 only). The administering authority is the competent national authority assigned to a shipping company that coordinates compliance and enforcement.
Like fuel and insurance, EUAs are part of the operating base. The distinction is that EUAs, without free allocation, are traded exclusively via auctions on the European Energy Exchange (EEX) and via the secondary market, which means the price is determined directly by supply and demand in the ETS market. Demand comes not only from maritime shipping, but also from electricity generation, aviation and heavy industry, which creates a broad and dynamic market.
For emission intensive ships, price fluctuations can have significant financial consequences. Volatility is driven by structural factors such as the annual decline in the emissions cap, geopolitical tensions and economic cycles. Note ETS 2 from 2027, this is a separate trading system with its own emissions cap and its own allowances. It therefore does not directly increase demand for EUAs, although energy prices and macroeconomic dynamics can indirectly influence the EUA price.
To manage this price risk, shipping companies apply hedging, they lock in future EUA prices or reduce volatility. One route is via EEX futures, standardized futures contracts on the EEX that fix a price today for a specific delivery period. This creates budget certainty and aligns with internal planning.
A second route is the use of forwards, bilateral tailor made forward contracts. These offer flexibility in volumes and maturities, but introduce counterparty risk and therefore require strict treasury guidelines and collateral.
Option structures form a third pillar. With a collar you define a bandwidth by simultaneously buying a call, the upper bound, and selling a put, the lower bound, so the net premium remains limited. This is useful where price protection is desired without fully giving up upside.
In addition to financial instruments, phased purchasing in tranches reduces timing risk. By buying periodically toward the ETS surrender deadline of September 30, a natural spread over the market cycle is created and purchases align with monitored emissions.
For smaller shipping companies, collective purchasing via industry associations or consortia can provide scale benefits, better price access and lower transaction costs. In commercial contracts with shippers and charterers, transparent pass through formulas or reference prices, similar to bunker adjustments, act as a stabilizer with varying emissions profiles.
An internal CO2 shadow price, for example 100 euros per ton, supports investment planning for retrofits and fuel switches and makes budgets more robust against market and policy shocks. Link this shadow price to scenarios with different sailing schedules and coverage percentages to make decisions more objective.
For listed companies and companies that fall under the EU Taxonomy and CSRD, a clear price hedging policy adds strategic value. It shows that emissions risks are actively managed and facilitates access to financing, especially for projects with longer payback periods.
Hedging does not in itself reduce emissions, but it safeguards financial stability within a climate aware regulatory framework. By treating emission allowances as strategic assets and underpinning hedges with consistent MRV data, shipping companies and shipowners create the certainty and credibility needed for robust compliance with the EU ETS in a volatile market.
Technological roadmap to 2050
The obligation to surrender emission allowances annually within the EU ETS, combined with phased expansion and fluctuating market prices, makes structural emissions reduction essential for shipping companies that want to remain future proof. A forward looking technological roadmap is essential. This roadmap connects technological innovation with legal conditions and economic feasibility, so sustainable shipping is not only technically sound, but also legally and financially robust.
Through 2025 many shipping companies focus on measures with immediate financial returns. Hydrodynamic optimizations, such as Energy Saving Devices (ESDs) including pre-swirl stators, more efficient propeller designs and optimized nozzles and rudders, reduce fuel consumption without major vessel modifications. In addition, regular hull cleaning, CFD driven design analyses and environmentally friendly marine coatings further increase efficiency with relatively limited investments. Where performance claims are communicated, measurements should follow according to ISO 19030 or, for sea trials, in accordance with ISO 15016, preferably around 75% MCR and under representative conditions.
Between 2025 and 2030 the focus shifts to technologies with longer implementation times and payback periods. Air lubrication, rotor or suction sails that harness wind power, waste heat recovery via an organic Rankine cycle (ORC) and electric assistance during port maneuvers reduce CO2 emissions on a structural basis. At the same time digital systems become standard, emissions driven route optimization, real time emissions reporting and direct linkage with MRV and ETS processes increase both operational efficiency and compliance. These measures align with EEXI and CII and reduce ETS exposure through lower consumption and lower operational intensity.
From 2030 the core shifts to low carbon and carbon free energy. Alternative fuels such as methanol, ammonia, hydrogen and advanced biofuels are assessed together on bunkering infrastructure, safety regime and engine certification. Dual-fuel systems and fuel cells often require extensive modifications in the engine room, such as cryogenic or pressure storage, ventilation and gas detection. Shore power at berth becomes the norm and requires high voltage connections on board with appropriate protection and testing procedures. Fuel choice requires attention to greenhouse gas intensity and the emissions profile, CH4 and N2O emissions have been monitored since 2024 and will count toward ETS compliance from 2026, which is relevant for LNG concepts among others.
In the period 2040 to 2050 the emphasis shifts to energy neutrality. Combinations of wind assistance, large scale battery storage and solar panels at ship level form the core of the energy supply, supplemented by efficient waste heat recovery and smart energy management on board. Full emissions neutrality also requires circular maintenance concepts, zero emission logistics resupply and supply chain collaboration for residual emissions. FuelEU Maritime sets the direction by gradually lowering the greenhouse gas intensity of energy used on board, 2% in 2025, 14.5% in 2035 and 80% in 2050 compared to 2020. This makes fuel and energy choice a legal and economic pivot.
Independent validation is necessary in all phases. Performance improvements must be substantiated with measurement data and conditions, for example measured in accordance with ISO 19030 or sea trials in accordance with ISO 15016 at approximately 75% MCR, validated by a recognized classification society. This assessment links technical results to legal defensibility and bankability.
This roadmap is more than an innovation plan. It forms the foundation of an integrated strategy in which EU ETS, EEXI, CII, FuelEU Maritime and CSRD converge. Every investment must deliver returns legally, ecologically and economically. Financiers and investors value a technically supported and verifiable roadmap as evidence of careful risk management and strategic insight. A transparent, well supported approach increases the chance of favorable financing conditions and positions shipping companies and shipowners as leaders in the maritime climate transition.
Compliance integration with other regulation
The inclusion of maritime shipping in the EU ETS overlaps in content and in operations with other European and international rules. For shipping companies this means investments must fit within multiple legal frameworks. Technological choices therefore require a strategy that is forward looking and cost efficient.
The IMO instruments EEXI and CII in MARPOL Annex VI form the technical and operational starting point. The Energy Efficiency Existing Ship Index sets a lower bound on the design and installation efficiency of existing ships. The Carbon Intensity Indicator assesses CO2 intensity annually based on operational performance and leads to corrective plans and operational limitations if scores are structurally low. Measures such as air lubrication, streamlined hull forms and optimized route planning not only reduce emissions, but also improve the CII score, preserving operational flexibility and lowering ETS costs.
From 2025 the FuelEU Maritime regulation also applies. This does not impose a volume mandate for specific fuels, but gradually lowers the greenhouse gas intensity of energy used on board compared to 2020, 2% in 2025, 6% in 2030, 14.5% in 2035, 31% in 2040, 62% in 2045 and 80% in 2050. Investments in, for example, methanol, LNG or hydrogen must therefore contribute both to reducing ETS costs and to meeting FuelEU limits. By planning these frameworks in one approach, double investments are avoided and a more efficient path to broad compliance emerges.
The Carbon Border Adjustment Mechanism affects the maritime chain indirectly. CBAM places obligations mainly on EU importers of CO2 intensive goods such as steel and cement. Transport emissions do not fall under the embedded emissions to be reported in CBAM. In practice, data requests toward shipping companies may arise to substantiate shipments and emissions profiles. A data architecture that generates reliable emissions information per cargo unit therefore also delivers value here.
The Corporate Sustainability Reporting Directive obliges large enterprises in phases to provide extensive sustainability reporting, including relevant scope 3 emissions linked to transport. For shippers this means they need emissions and cost data at shipment level, shipping companies that can deliver clear, verified data per cargo strengthen their position in tenders and strategic partnerships.
The interconnectedness of these regulations requires an integrated compliance framework. A specialized fleet risk team or an integrated management structure, on board and ashore, connects technical investments with financial planning, reporting processes and contractual arrangements. This makes choices more consistent, audit trails more robust and claims more legally defensible.
This approach increases efficiency, reduces administrative burdens and strengthens the legal basis of sustainability claims. A methanol retrofit, for example, reduces ETS costs, helps meet FuelEU limits, improves the CII score and delivers valuable data for scope 3 reporting. A single investment can therefore provide multiple compliance benefits.
In summary, compliance integration is not a side condition, it is a strategic instrument that increases the effectiveness of sustainability goals, reduces legal and financial risks and strengthens competitiveness. Shipping companies and shipowners that apply this approach position themselves as future proof leaders in an increasingly regulated maritime arena.
Toward a future proof maritime strategy
The extension of the EU ETS to maritime shipping marks a structural shift in the maritime arena. Emissions costs are no longer an additional burden, they are a fixed strategic factor. As a result, shipping companies are evolving from carriers to energy and risk managers, with a central role for technological renewal and legally robust contracts. Against this background, consistency between technology, finance and legal safeguards is crucial.
To remain future proof within the EU ETS, an integrated plan through 2050 is indispensable. That plan links the internal emissions pathway to scenarios for ETS costs, takes into account fluctuations in the price of emission allowances and ties these to investment moments. By combining these scenarios with price hedging via auctions and financial instruments, more stability and predictability in cash flow arise.
That stability starts with clear arrangements on allocating ETS costs. Without watertight contracts, shipping companies risk fines and unexpected charges. Legally defensible data and methods are essential here, emissions data underpinned by sea trials in accordance with ISO 15016 or performance measured in accordance with ISO 19030 and validated by a recognized classification society stand up in audits and financing processes.
Because EEXI, CII, FuelEU Maritime, CBAM and CSRD overlap in content, an integrated approach yields double returns. Investments are deployed more efficiently while compliance efforts reinforce each other. A methanol or ammonia program can lower ETS costs, improve the CII score and at the same time contribute to FuelEU limits, while detailed emissions data support CSRD reporting.
The financial impact of the EU ETS can reach millions of euros per ship per year. Working with a CO2 shadow price, scenario analyses and robust reporting systems is therefore not a luxury, but a basic requirement. In that context, legally watertight contracts form the backbone of effective risk management, both toward charterers and toward financiers and shippers.
The path to 2050 requires more than isolated measures. It demands a clear course in which investments in dual-fuel engines, shore power and wind assistance not only reduce emissions, but also show leadership toward customers, regulators and investors. In this way, the EU ETS changes from a cost item into a lever for competitiveness. Shipping companies that now focus on legal certainty, financial planning and technological innovation are building a fleet that is ready for the future and stands out in climate neutrality.