What is the EU ETS?

The EU ETS is a key tool being applied within the EU to reduce GHG emissions across the region. It is a cap-and-trade system where a limit is put on how many GHG emissions are permitted to be released into the atmosphere from industries. Companies falling under the scope of EU ETS are able to trade emission rights, those who emit fewer emissions can trade their permitted allowance to those industries who emit more than they are permitted. Those companies, who emit more than their allowance and are not able to buy additional allowance must pay a financial penalty into the ETS system.

How does the EU ETS work?

In the current system, installations that emit GHG in the power, manufacturing and aviation industries must ensure they have sufficient allowances to cover their relevant GHG emissions each year. A cap is set on the total amount of GHG that can be emitted by the installations covered in the system. The total GHG allowance across all installations within the EU-ETS system are fixed each year ensuring they have a monetary value. Each year the total GHG allowance within the system is lowered, thereby reducing the total GHG emissions.

Emissions allowances may be bought or traded between installations included in the EU ETS. At the end of each year, installations must surrender enough of their allowance to cover their total GHG emissions. Failure to do so will result in large financial penalties. In effect, the polluters pay for the GHG they emit. If an installation's GHG emissions are lower than the allowance, the spare allowance may be kept for use in subsequent years or may be sold to another installation that is short of allowance that year.

Currently, the system is applicable in all EU member states, plus Iceland, Lichtenstein and Norway, and includes emissions of Carbon Dioxide (CO2), Nitrous Oxides (N2O), Hydrofluorocarbons (HFCs), Perflurocarbons (PFCs) and Sulphur Hexafluoride (SF6) but does not include requirements for the maritime industry.

How does shipping fit into EU ETS?

ETS is being expanded to include the maritime industry into its requirements. As such, phasing in from 2025 for 2024 emissions, parts of the shipping industry will be required to surrender their permitted allowance each year to encourage reductions in GHG emissions. In order to do this additional data will need to be recorded on N2O and CH4 emissions from ships. Therefore, in relation to this the EU MRV regulation is also being updated.

What is the EU MRV?

The EU MRV regulation sets requirements for shipowners to monitor and report their vessel emissions each calendar year in an ongoing cyclical process. Both EU and non-EU Flagged ships (within 2 months of the first port call to an EEA Member State – EEA ports are the EU plus Norway and Iceland) are required to develop a written monitoring plan detailing how they will collect emissions data (currently CO2) from their ships each year. The plan must be verified by the ship’s Administration (or accredited verifier) before data collection commences.

Data is to be collected on an annual basis (January to December) following the methodology stipulated in the verified monitoring plan. Verification and submission (to the EU) of data collected from the preceding year is then undertaken by the Administration (or delegated RO) ahead of final submission to the EU via the THETIS database by 31 March. Upon successful submission of verified data a Document of Compliance (DoC) is issued by THETIS and should be placed onboard no later than June of that same year.

How is the EU MRV regulation being updated?

The EU MRV regulation is being updated to include requirements for:

  • CO2, N2O and CH4 emissions to be included in the monitoring plan from 2024

Data on CO2, N2O and CH4 emissions to be collected on cargo and passenger ships ≥ 5000 GT and general cargo and offshore ships ≥ 400 GT from 2026.

Class News resources
Class News 07/2023

Class News 07/2023 - EU ‘Fit for 55’ - EU ETS and updates to EU MRV

Class News 42/2016

Class News 42/2016 - Statutory Alert: Publication of EU MRV delegated and implementing regulations, including templates for monitoring plans, emission reports and documents of compliance.

Class News 15/2017

Class News 15/2017 - Statutory alert: Guidance to support EU MRV regulation compliance.

Class News 28/2017

Class News 28/2017 - Statutory alert: EMSA launches a monitoring, reporting and verification system to report CO2 emissions from ships.

Class News 03/2019

Class News 03/2019 - Submitting emissions data for the EU MRV regulation

Class News 24/2020

Class News 24/2020 - Brexit and MRV – The change of status of the UK in the monitoring and verification of CO2 emissions from maritime transport in the EU.

Class News 16/2022