The inclusion of maritime emissions in the EU ETS will have important effects in terms of the overall EUA cap (supply), surrender obligations (demand), and adjustments to auction volumes (supply). First, it means that the annual issuance of allowances is increased by 78.4 m EUAs in 2024. That number is based on reported maritime emissions in 2018 and 2019, then adjusted down 4.3% p.a. from 2021, a calculation described in Article 9 and Recital 26 in the amended ETS Directive.

We estimate that the actual maritime emissions covered under the EU ETS will be around 83 Mt in 2024, leaving a slight gap between emissions and the cap. However, the ETS Directive stipulates a gradual phase-in of shipowners’ compliance obligations, starting at 40% in 2024, 70% in 2025, finally reaching 100% compliance from 2026 onwards.

So far, the new set-up is set to cause a significant oversupply for 2024. The supply will increase by 78m, while the demand only increases by 33m (40% of 83m), leading to a net surplus of 45 m. Oversupply will similarly occur in 2025, but slightly reduced as the cap is reduced by the LRF and the compliance obligation for shipowners increases to 70%. To remedy this supply/demand discrepancy, Article 3ga and Recital 17 stipulate that the difference between surrendered allowances and verified emissions shall be balanced out by cancelling a corresponding quantity of EUAs from auctions.

The ETS Directive provides no guidance as to the timing of these cancellations, but the logical solution would be to wait until after the surrender of EUAs for 2024 and 2025 emissions, i.e. by 30 September of the subsequent years. In other words, if the Commission sees in October 2025 that there was a 45m surplus in 2024, it will order the cancellation of 45m EUAs from forthcoming auctions.

maritime emissions cancellations

Shipowners will not draw any particular benefit from the time lag between initial auctioning (year X), verified emissions (year X + 1), and adjustments to subsequent auction volumes (most likely year X + 2). Like any other market participants, they will buy EUAs needed for immediate compliance and then possibly some extra for hedging. The fact that the 2024 EUA auction volumes will almost certainly surpass aggregate demand should not in itself prompt them to buy more than others.

For the EUA market balance, the time lag will be a softening factor in 2024 and 2025. All other things being equal, a net volume of 45 m will be added to the market in 2024, then 17.5 m in 2025. In Figure 1 above, the columns represent the annual supply added for maritime emissions, with the volume cancelled to balance out the surplus marked in yellow. The red line represents the emissions that will need to be accounted for with EUAs each year.

News

Over-the-Counter Wholesale Carbon Credit Price

RED: what did not change for guarantees of origin? 

Global standards for biomethane I-RECs to be developed

Union database – New provision in Renewable Energy Directive

EUA price forecast for H2 of 2023: Anticipation of future shortage will continue to bolster prices

May 2023 HUPX Pan-European auction

Bulgarian power exchange IBEX plans GO trading platform by end of 2023

Serbia starts GO exports but EU deal still pending

May-23 Polish GO Market Quotes: Prices remain largely stable 

Week 20: Full EUA auction volume returns

Week 20: WCI to remain flat as participants await auction results

Week 20: RGGI continues sideways trading without clear fundamental drivers

EAC Market Report - In The Midst Of A Bullish Wave

A platform with real-time GO data and insights, reporting prices and market fundamentals for Wind, Hydro, Solar, Biomass, Biomethane and RGGOs. 

Our community offers access to webinars, discussions and updates from industry leading experts and analysts. 

Including maritime emissions in the EU ETS will contribute to a supply glut in 2024, as the cap increase far outweighs the actual needs in a year of limited (40%) compliance obligation. In parallel, the REPowerEU sale will bring additional EUA volumes to the market. From 2026 onwards, as the market balance turns from surplus to scarcity, the scope expansion will exacerbate the tightening.

In this analysis, we investigate how the time lag between supply and demand side adjustments for maritime will affect the overall market balance, a question that has largely been overlooked so far.

Our Platform gives you unfettered access to price benchmarking, analytics, new and insights covering the green certificates markets. 

Request a trial now and someone from our team will be in touch with you to learn more about your involvement in the markets and to answer any questions you may have.

News

ETS expansion to maritime will aggravate EUA scarcity

To read this article and explore our services, request a trial!

Related reading