EU ETS: strategies for mitigating risks and costs
06/06/2024
Experts discuss strategies for shipping companies to comply with EU ETS, while maintaining operational efficiency and a competitive advantage.
The European Union Emissions Trading System (EU ETS) has been a cornerstone of the EU’s policy to combat climate change, and its recent expansion to include maritime shipping represents a significant shift in the industry. Experts in compliance, including Vertis Environmental Finance head of shipping, Frederic Bouthillier, and Wärtsilä Marine head of business development – two-stroke decarbonization solutions, Stam Achillas, shared their insights* on mitigating the risks and costs associated with this new regulatory landscape.
Mr Bouthillier stressed the necessity of an effective compliance strategy to navigate the complexities of the EU ETS, which has been in operation for decades, but only included shipping in 2024. “Vertis Environmental Finance has been involved in the EU ETS since the inception of the system in 2000, and we have significant experience that has built up over the years,” Mr Bouthillier stated. This experience includes introducing and training teams across various industry segments as they join the EU ETS, from aviation to the now-affected shipping sector.
“Our job is to help shipowners keep their fleets fit for the future”
A key focus of the discussion was the operational and technical measures necessary for compliance. Efficient tracking of emissions and securing allowances are fundamental tasks, but managing charterer agreements and containing exposure through operational refinements are equally critical. Mr Achillas highlighted the importance of viewing compliance as an integral part of competitiveness. Wärtsilä Marine’s approach includes two-stroke retrofit solutions that enhance engine efficiency and facilitate a transition to low-carbon operations. Mr Achillas noted: “Compliance is a part of competitiveness. Our job is to help shipowners keep their fleets fit for the future.”
The session also addressed the economic and market implications of the EU ETS. Mr Achillas presented business cases demonstrating the financial viability of engine retrofits and fuel conversions. For instance, Wärtsilä’s ‘Fit4Power’ project involves significant investment in correcting the inefficiencies of overpowered engines on older ships. These retrofits can result in substantial fuel savings, which, despite the high initial costs, offer a competitive advantage by maintaining vessel speed and operational efficiency.
The audience interaction revealed a consensus on the priorities for short-term measures. A poll indicated that most participants saw the operational carbon intensity indicators and rating systems as the aspects most needing adjustment. This feedback underscores the industry’s recognition of the need for clear, effective measures to manage carbon intensity.
Mr Achillas elaborated on the complexities of converting ships to run on alternative fuels, highlighting the substantial investment required. Converting an existing diesel engine to run on LNG, methanol, or ammonia involves not just the engine but the entire ship, including fuel storage and safety systems. Despite these challenges, Mr Achillas believes these solutions offer significant potential, especially as the industry continues to build ships with conventional engines that may require retrofitting in the future.
Mr Bouthillier discussed the market dynamics of emissions allowances, predicting fluctuations influenced by various factors, including economic activity and speculative trading. The importance of timely procurement and strategic planning was stressed as essential for maintaining competitiveness in this evolving market.
The experts agreed that effective compliance strategies, operational refinements, and substantial investments in technology and infrastructure will be crucial as the industry adapts to these new regulations.
*The discussion took place at the International Chemical & Product Tanker Conference in April 2024, which was sponsored by Bureau Vertis, DNV, The Marshall Islands Registry/IRI, Jotun, Lloyd’s Register and MarFlex.
Source: Craig Jallal – Riviera – News Content Hub – EU ETS: strategies for mitigating risks and costs
