To date, only the EU has implemented "Market Based Measures" for taxing carbon emissions, which took effect on January 1, 2024. Other nations, including the USA, are evaluating similar measures, signaling a broader carbon market that will have a significant impact on global shipping. It remains unclear how the funds generated (estimated in the tens of billions of dollars annually) will be utilized to meaningfully address climate change in a positive way.

Understanding EU Emissions Trading

• The EU ETS works on the "cap and trade" principle, where a cap will be set on the total amount of GHG emissions that can be emitted by a ship.
  
  
• Over time, the cap will be reduced allowing total emissions to fall.
  
  
• Within the cap, operators, will be able to buy or receive emissions allowances (EUAs) which they can trade with one another.
  
  
• At the end of each year an operator must surrender sufficient emission allowances to cover their own ships’ emissions, otherwise heavy fines will be imposed.
  
  
• If an operator reduces their emissions, they can keep the spare allowances to cover future needs or sell them in the open market.
  
  
• Whether a charterer has operated a ship during whole or part of a year, the shipping company remains responsible for surrendering the emission allowance to the Administering Authority (AA). The shipping company will be entitled to claim reimbursement from the charterer for the EU ETS costs accrued from the charter time.