EU ETS expenses for shipping companies could triple amid Red Sea crisis

Frequent missile assaults conducted by Houthi rebels on vessels taking the Red Sea route have prompted an escalating number of commercial ships to opt for an alternative route to Europe via the Cape of Good Hope. Consequently, ships are extending their journeys by approximately 9000 nautical miles, or 80%, to the distance sailed.

Cargo volumes decline 21% in Red Sea region

According to Hamburg-based maritime technology company OceanScore, the tense situation in the Red Sea region has led to a surge in emissions liabilities for shipping companies under the EU Emissions Trading System (EU ETS). This is caused by the increasing prevalence of extended route diversions for ships heading towards Europe, leading to increased fuel usage.

Financial burdens

Albrecht Grell, OceanScore’s co-Managing Director, said: “We have observed increased speeds to compensate for at least some of the longer distance – to keep sailing times and the need for additional tonnage to be deployed at acceptable levels – and this has an inevitable impact on fuel consumption and emissions.”

OceanScore’s analysis reveals that the widespread rerouting of marine traffic is amplifying the financial burdens on shipping companies, primarily stemming from heightened exposure to the EU ETS regulations. These regulations impose liability for 50% of emissions for voyages to and from the EU, and 100% for port calls and transits within the EU.

Higher bunker consumption

Furthermore, OceanScore has estimated that the Cape of Good Hope route has caused bunker consumption to triple due to the extended distance, coupled with an approximate 25% increase in sailing speed, rising from 16 to 20 knots. These estimates are based on OceanScore’s Automatic Identification System (AIS) tracking data, primarily focusing on container vessels.

The OceanScore analysis, using a 14,000 TEU container ship as a case study, reveals that under the current 40% liability requirement during the three-year phase-in of the EU ETS starting from January 1, 2024, the number of EU Allowances (EUA) or carbon credits required to offset emissions would increase significantly.

Specifically, the EUA requirement per voyage would escalate from 1,800 to 5,200. This represents a substantial rise, projected to reach 70% next year and 100% in 2026.

Consequently, the EUA costs would surge nearly threefold from EUR 98,000 to EUR 285,000 per voyage this year, assuming a prevailing carbon price of approximately EUR 55 per tonne of CO2. This translates to an increase of EUR 18 per twenty-foot equivalent unit (TEU).

Grell noted that if the volatile carbon price were to return to its level of around EUR 100 observed a year ago, these costs would almost double.