The European Union (EU) has decided to include shipping into its Emissions Trading System (ETS). To comply with the ETS, shipping companies need to surrender EU carbon allowances (EUAs) for every ton of CO2 emitted from 2024, with 40% of MRV-verified emissions required to be surrendered in 2024, 70% in 2025, and 100% from 2026 onwards. Eventually, the cost of EUAs will be born by the consumers. But it’s a long way until then…
The final wording of the regulation clarifies that operators / charterers are commercially responsible but that DOC holders / managers will have to report and surrender the EUAs. Given that manager margins do not allow to get stuck with the need to surrender EUAs that they are not reimbursed for by either charterer or owner of their vessel, their solution chosen must safeguard several factors:
1. The need to surrender EUAs arises from journeys to and from as well as from within the EU. This need for EUAs must be properly tracked and fully allocated to the responsible partner (charterer or owner).
2. The process to request, transfer and receive EUAs or monetary compensation must be foolproof and reliable
3. Monitoring of EUA balances must be gapless and transparent
4. High degrees of automation keep the extra work at bay and reduce the risk of human error.
We believe, that these procedural requirements are actually much more relevant to managers than the trade per se. But when it comes to picking the right trading partner, we recommend to check the following:
1. Pick a leading, large player. That assures liquidity and the ability to trade even in potentially challenging markets
2. Check prices and terms for the EUAs. Besides potential fixed costs per trade (ideally none!), a low bid-ask-spread is critical and a good indicator of commercial attractiveness
3. Make sure that you can trade EUAs with flexible delivery dates. This will allow you to hedge the risk of future transactions (for example if prices are low now but the EUAs are only needed for a repositioning in a few months)
4. Seek a partner where you can buy and sell. It might be a sound trading strategy to bank EUAs before you actually need them, but if you are stuck with EUAs beyond final surrender needs, that’s doesn’t help either
5. Look for a solution where you can trade small volumes, down to single EUAs without serious penalties. Proper allocation mechanisms will sometimes generate the need to procure small amounts of EUAs for example for short offhire periods. No need to then be stuck with the obligation to procure 1.000 EUAs (or more) in a single trade.
We believe it takes a solid combination of shipping background and trading experience to build the solution you can trust. Needless to say – that is, what OceanScore is offering. Through our platform and in cooperation with RWE, one of Europe’s leading EUA traders.