How to prepare for the EU Emissions Trading System and save money

If you’re a ship owner or operator sailing into, out of or within EU waters, the EU Emissions Trading System (ETS) is something you need to know about now. What is the EU ETS and what will it mean for your business? How can good preparation save you money? Here are four top tips.

The maritime industry is about to join the EU ETS – the world’s biggest carbon market. The potential savings you could make as a ship owner or operator will depend heavily on how well prepared you are for this change. This article covers the basics of the ETS and then explains why proper preparation will save you a lot of money:

• Money-saving tip 1 – Study the ETS and avoid financial penalties
• Money-saving tip 2 – Make your ships and voyages as efficient as possible
• Money-saving tip 3 – Make data work for your business
• Money-saving tip 4 – If you’re using LNG, take care of methane slip

Want to start with the basics? In the next section you can learn what the ETS is – and how it works. If you’re already familiar with the ETS, click here to jump to the first money-saving tip.

Knowledge is power, and understanding the ETS properly will help you save money – and could even make you money! The EU ETS operates on a ‘cap and trade’ system. The cap is the limit on the total greenhouse gases that can be emitted by the operators covered by the system and is reduced every year.

From January 2024 the EU ETS will be extended to cover emissions from all ships of 5,000 gross tonnage and above that enter EU ports. The system covers all emissions from intra-EU voyages and 50% of the emissions for voyages to or from non-EU ports.

To cover the emissions from your ships you’ll need to buy European Emission Allowances (EUAs), which you can trade on the market. Each EUA covers one tonne of CO2 emissions per year.

For example:

• If you emit 10,000 tonnes of CO2, you’ll need 10,000 EUAs to cover those emissions.
• If you only have 9,000 EUAs you have to pay a EUR 100 penalty for every excess tonne.
• On top of that, you need to buy the 1,000 EUAs to make up the shortfall.

But if you emit less then 10,000 tonnes of CO2 and have 10,000 EUAs, you could theoretically sell your excess allowance on the market for a profit if the current market price exceeds what you paid for them. In practice, the most likely scenario is that you will hold onto any excess allowance to count towards your emissions in the following year.

What does an EUA cost?

The price of EUAs is expected to increase over time as the cap – the limit on the total greenhouse gases that can be emitted – decreases. While in February 2023 the price of an EUA hit a high of €100.34, the price is expected to rise to around €160 by 2030.

Money-saving tip 1 – Study the ETS and avoid financial penalties

The bottom line to saving money? Know how much you’re going to emit and buy your EUAs accordingly. As a ship owner, you’re responsible for monitoring and reporting the emissions from your vessels annually as part of the monitoring, reporting and verification (MRV) procedure.

Now more than ever, it’s important that you are on top of your emissions data. You need to think about what kind of emissions levels you will have in the future based on your fleet and have a system in place to control the costs of and compliance with the ETS. Without this, you could be surprised by heavy financial penalties for exceeding your allowance.

Money-saving tip 2 – Make your ships and voyages as efficient as possible

Minimising the impact of the ETS on your shipping operations essentially comes down to better voyage planning and making your vessels as efficient as possible. Both approaches will save fuel and minimise the emissions your ships generate – saving you money in the process.

Energy saving technologies (ESTs) can help you improve the efficiency of your ship and reduce emissions, but it can be difficult to choose the right combination of solutions without expert advice.

The bottom line to saving money? Clear, data-led advice from an experienced partner. See how Wärtsilä Decarbonisation Services can help you choose the right decarbonisation solutions for your vessel and business in our Insights article: 3 simple steps to a low-carb vessel diet.

Decarbonisation Services can help you sort through all the options open to you to determine the optimal combination. These options include:

• ESTs – you can get all the facts and numbers you need about ESTs from this white paper: Ensure a good CII rating and stay competitive
• Engine upgrades – Learn about Wärtsilä engine upgrades to reduce greenhouse gas emissions
• Adopting good maintenance practices – Find out how good maintenance practices can benefit your business in this Insights article: Want to cut costs and extend CII compliance? The top 4 ways good maintenance practices can help
• Choosing a hybrid system – Get up to date on the hot trends in hybrid systems in this Insights article: Seven fascinating hybrid ship trends that everyone needs to know about
• Fuel conversion – See how you can switch to an alternative fuel and invest in fuel flexibility for emissions reduction with Wärtsilä fuel conversions
• Fleet optimisation and operational support – Wärtsilä‘s Fleet Optimisation Solution offers voyage planning and fleet performance management to help you unlock efficiencies.

Money-saving tip 3 – Make data work for your business

Ship owners and operators are increasingly finding that data is the key to optimising routes, improving transparency and identifying ways to make vessels less costly to run. Current estimates suggest that the ETS could add in the region of EUR 9 billion in extra costs for the shipping by 2026 (83 million tonnes of ETS-applicable emissions at an EUA price of €110 per tonne). Could data hold the key to offsetting part of this extra cost?

The bottom line to saving money? Gathering, monitoring and managing data properly will help you comply with emission-related regulations, avoiding penalties. Data-enabled decision-making holds the key to finding cost savings and optimising every voyage, helping you to improve efficiency. These cost savings also free up money to invest in energy-saving devices that will further improve vessel performance.

If you want to learn more about how to use emissions and other data to benefit your business, this Insights article – Expert advice: 7 benefits of data in improving vessel performance – has plenty of great tips.

Money-saving tip 4 – If you’re using LNG, take care of methane slip

Ship owners also need to remember that although the ETS only initially covers CO2 emissions, in 2026 to will be extended to cover methane and nitrous oxide emissions. If any of the ships in your fleet use liquid natural gas (LNG) as fuel, methane slip is something you need to know about and take care of.

Methane slip refers to the small amount of the fuel that doesn’t burn in your ship’s engine and escapes with the exhaust gases instead. It’s a challenge that engine manufacturers like Wärtsilä have been working on reducing for years.

If you fail to address the issue of methane slip, then the ETS could hit your business harder than it needs to.

The bottom line to saving money? Learn more about methane slip, why reducing it is essential and what smart solutions can help you. This Insights article tells you everything you need to know: How to be smarter about methane slip – right now.

When you want to minimise the impact of the EU Emissions Trading System on your shipping operations, make sure that your vessels are as efficient as possible. An easy next step is to look at energy saving technologies. Download this white paper: “How to ensure a good CII rating while staying competitive – A quick guide to energy saving technologies”
Source: Wärtsilä