The UK Emissions Trading Scheme Authority, which consists of the UK Government, Scottish Government, Welsh Government and the Department of Agriculture, Environment and Rural Affairs for Northern Ireland, is consulting on plans to include emissions from the maritime sector in the UK Emissions Trading Scheme. The scheme was launched in 2021 and is a key component of the UK’s net zero ambitions. It aims to decarbonise aviation, electricity and industry by limiting emissions and introducing trading permits, creating a carbon price that encourages emissions reductions.
This article outlines the proposed plans, as set out on GOV.uk's website, and explores the potential impact they may have on the maritime sector.
Under the plans, from 2026, the UK Emissions Trading Scheme will capture emissions of carbon dioxide, methane and nitrous oxide from ships weighing 5,000 gross tonnes, including all emissions at berth at UK ports from ships travelling domestically, internationally, and or from Crown Dependencies and British Overseas Territories, regardless of the location of the next port of call. This is designed to incentivise investment in and planning for emissions reductions at port. It also aligns with both the definition of domestic emissions as used in the UK’s National Atmospheric Emissions Inventory, and the coverage of emissions at berth within the EU Emissions Trading Scheme. Government non-commercial maritime activity will be exempt from the scheme.
Certain obligations under the UK Emissions Trading Scheme will apply to operators, usually the registered owner of the ship except where responsibility is delegated to another party by contractual agreement responsible for a ship’s compliance with the International Safety Management Code. These obligations include the requirement to monitor and report emissions from qualifying journeys, buying and surrendering allowances covering those emissions.
It's likely that responsibility for UK Emissions Trading Scheme compliance and the allocation of legal liabilities under the scheme are going to be a significant commercial consideration for the maritime sector.
The UK Emissions Trading Scheme year will run from 1 January to 31 December, with reporting and surrender deadlines of 31 March and 30 April respectively. Operators will also need to apply for approval of a greenhouse gas emissions monitoring plan ahead of participation in the scheme. They will then need to comply with the conditions of the plan. Operators will also need to appoint an independent verifier accredited by the UK Accreditation Service to verify their annual emissions report.
Failure to meet the requirements of emissions monitoring, reporting, verifying and surrender of allowances could result in significant financial penalties.
The consultation notes that by the end of 2028 there will be a review of whether the proposed 5,000 gross tonnes threshold ought to be lowered and whether emissions from inland waterways and leisure craft could be captured.
The EU has expanded the EU Emissions Trading Scheme for the maritime sector to include coverage of 50% of greenhouse emissions from:
This may mean that in-scope ships at 5,000 gross tonnes and above travelling between the Republic of Ireland and the UK would be subject to 50% emissions coverage under the EU Emissions Trading Scheme.
UK Emissions Trading Scheme expansion to domestic maritime could create a potential discrepancy in emissions coverage on routes between the Republic of Ireland and Great Britain, and Northern Ireland and Great Britain. This is because in-scope ships will be subject to 100% emissions coverage on routes between Great Britain and Northern Ireland under the UK Emissions Trading Scheme, compared to 50% emissions coverage for Republic of Ireland and Great Britain routes under the EU Emissions Trading Scheme.
In seeking to avoid differential treatment and potential economic distortion between ports on the island of Ireland, the consultation proposes to reduce the UK Emissions Trading Scheme obligations to which ships travelling between Northern Ireland and Great Britain are subject. An in-scope ship’s emissions would only be subject to 50% of their carbon pricing obligation under the UK Emissions Trading Scheme on voyages between Northern Ireland and Great Britain, to deliver equivalent emissions coverage to ships travelling between the Republic of Ireland and Great Britain. Under this proposal, participants will be required to monitor and report all emissions, but only 50% of emissions will have a surrender obligation.
According to the International Maritime Organization (IMO), shipping as a sector is responsible for between 2% and 3% of global greenhouse gas emissions, more than a billion tonnes of emissions every year. In response, the IMO has set itself a long standing mandate to contribute to the fight against climate change by addressing greenhouse gas emissions from ships.
In 2022, the IMO adopted a resolution to encourage member states to facilitate voluntary cooperation through the whole value chain, including ports, to create favourable conditions to reduce greenhouse gas emissions from ships through shipping routes and maritime hubs.
The 2023 IMO Strategy on Reduction of GHG from Ships envisages a minimum 40% reduction in carbon dioxide emissions across international shipping by 2030, including the uptake of zero or near-zero greenhouse gas emission technologies, fuels and/or energy sources which are to represent at least 5% of the energy used by international shipping by 2030.
The consultation recognises that the primary route to addressing international emissions remains multilateral action taken by the IMO. Although there are currently no proposals to expand the UK Emissions Trading Scheme to include emissions for all international voyages beyond potentially that of voyages between the UK and European Economic Area for 2026, the consultation recognises the merit in exploring how potential future inclusion of international emissions could work, should multilateral action through the IMO be delayed, or prove insufficient in reducing greenhouse gas emissions from international shipping.
The UK Government is funding the development of green shipping routes from the UK to Norway and Denmark. Green corridors are zero emission maritime routes between two or more ports. The UK led the development of green corridors through the launch of the Clydebank Declaration at COP26.
In addition, funding has been announced from the fifth round of the government’s Clean Maritime Demonstration Competition (CMDC5), which focuses on driving innovative solutions and new technologies to decarbonise the industry and grow the economy. Up to £8 million of match funding will be given to 30 projects across the UK to accelerate plans to develop smart technologies, such as autonomous systems, AI, robotics and sensors. These technologies will help position the UK as a world leader in maritime decarbonisation and are designed to support economic growth and coastal communities by delivering local jobs and boosting local businesses.
The UK maritime sector provides a wide range of services and infrastructure. In 2019, it directly contributed 227,100 jobs. As noted in the consultation, the impacts of the proposed policy will affect different services, sectors or parts of society differently.
The government anticipates that the expansion of the UK Emissions Trading Scheme to the maritime sector will help to address the issue that the cost of maritime fuels doesn't currently reflect the environmental cost of emissions from these fuels. The application of a carbon price via the UK Emissions Trading Scheme will help to strengthen the incentives to use zero or near-zero greenhouse gas emission fuels and technologies, which are typically more expensive than their conventional counterparts.
The consultation on the UK Emissions Trading Scheme closes on 23 January 2025. For further information and advice, please contact Paul Collins.
