Important surcharge: ETS tax
31 October 2023
Climate change is a global challenge that we should address together. And the shipping business must also play its part. From 1 January, 2024, all shipping traffic to and from Europe will be subject to ETS taxes. This is a surcharge aimed at freeing up sufficient funds to enable fully climate-neutral shipping by 2050. You as a forwarder will also have to deal with this. We would like to explain what you need to take into account.
What is the ETS tax?
Whereas it is already commonplace in other sectors, this tax on CO2 emissions is new for shipping branches. From 2024, shipping companies operating between ports in the EU/EEA (European Economic Area) will have to purchase annual emission allowances. This is settled through the ETS tax. ETS stands for the European Emissions Trading System. This is the system by which the European Union aims to cost-effectively reduce greenhouse gas emissions.
The allocation key is simple: the more you emit, the more you pay the EU. The European Union is calling for strongly reduced CO2 emissions by 2030. This is part of their commitment to making shipping greener. With the ultimate goal of being completely climate neutral by 2050.
When does it go into effect?
From 1 January, 2024, all shipping traffic to and from Europe will be subject to ETS taxes. Within our sector, implementation will be fully phased in within three years. This applies to all shipping to and from Europe. Intended as a financial incentive for shipping to reduce GHG (greenhouse gas) emissions. In 2024 the tax calculation is 40%, in 2025 70% and in 2026 it will be 100%. The ETS will be revised monthly, based on the EUA price.
Shipping companies using environmentally friendly fuels are not required to pay the emissions tax. This is because these fuels are more climate-friendly and cleaner. Are their ships still running on fossil fuels? If so, it would be a smart move to switch to a green alternative soon. The fewer CO2 emissions, the lower the ETS tax will be. In some cases, however, switching completely may sometimes seem impossible; it is too expensive, the distances travelled by the ships are too great or there is a shortage of sustainable fuels.
What does it cost?
As a result of the ETS tax, shipping companies are expected to incur higher costs. Currently, only ships over 5,000 gross tons are affected, but in the future smaller ships will also be expected to comply. This has led a large number of shipping companies to charge on an ETS surcharge to forwarders. Assuming that fuel costs are well over half of a shipping company’s total costs, we are talking here about a 25% increase in cost per TEU (Twenty-foot Equivalent Unit).
The industry has no further influence on this tax or such surcharges. Prices will likely range from 20 to 35 euros per TEU, with outliers here and there. Feel free to call your Ritra Cargo contact person with any questions you might have.
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