Multiple stakeholders welcomed the decision made by the European Union to place the maritime sector under the Emission Trading System (ETS). The preliminary agreement reached last month will now gradually include shipping into the quota system over the course of three years. Under this agreement, ship operators will be asked to buy and surrender emission allowances for each tonne of carbon they emit. In 2024, emission trading allowance quotas will cover 40% of emissions. The percentage will progressively increase from 70% for the year 2026 to 100% in 2027. During the first two years of this phase-in period, the ETS will take into account carbon emissions only. Later starting in 2026, the quotas will include nitrogen oxide, soot and methane. Most large vessels will be included in the EU ETS scope from the start. Big offshore vessels of 5000 gross tonnage and above will be included in the EU ETS from 2027. While many say this trading system will play a crucial role in the decarbonisation of the sector and the introduction of energy-efficient technologies on board ships, they also believe it will come at a great cost. Several shipping companies and carriers have warned that shipping costs will increase as a result of the new system. MSC and Maersk, for instance, had earlier mentioned that part of these costs would be passed on to customers. The cost of carbon emission allowances has been fluctuating in the past. Therefore, it is currently difficult to draw a precise picture of how the ETS rules will be reflected in container shipping costs. Nevertheless, experts estimate the overall cost for the industry could well exceed $10 billion per year. To cover the extra expenses, carriers might introduce an “ETS surcharge,” says Lars Jensen, CEO of Vespucci Maritime and analyst at the Journal of Commerce. “Because the carriers are all subject to the same regulation, based on the same measurement methodology, it would be relatively straightforward to create a surcharge formula that can be applied uniformly across the market. This would at least be transparent and simple for the shippers,” Jensen adds. However, agreeing on a formula for a common surcharge violates EU competition laws. “Hence, carriers will apply different ETS surcharges because they have no other legal option,” says Jensen. It is also likely that carriers will redesign some of their services and schedules to make them as energy- and cost-efficient as possible. The EU ETS comes as part of the ‘Fit for 55’ package and works on the principle of ‘cap-and-trade'. It sets a limit on the total amount of certain greenhouse gases that can be emitted each year by the entities covered by the system. Revenues from the ETS system applied in the shipping sector will be used to support decarbonisation efforts in the industry. At least 20 million emission allowances ($1.6 billion approximately) will be used to fund maritime projects.