Introducing the EU Emissions Trading System (ETS) to the shipping sector in 2024 – the impact on Stena Line and our customers
With a goal of net zero emissions by year 2050, the European Union is expanding the use of ETS to include the shipping industry. As from 1 January 2024, ferry operators will start paying for carbon emission and at Stena Line we are fully committed to support EU’s ambitions with carbon neutral energy sources and sustainable solutions across all operations.
The COP26 – the UN climate change conference – has started a global movement around climate change and actions against it. While shipping and ferry operations are essential parts of global supply chains and travelling, but it is also a growing contributor of carbon emissions. The share of carbon emissions from shipping out of total carbon emissions from human activities is close to 3%.
With ETS, the EU will be the first governmental authority to introduce an incentive for shipping companies to accelerate the move to sustainable operations, creating an incentive for the industry to increase investments in new technologies and shifting to new fuels to reduce its environmental impact.
Impact on customers
Shipping companies need to purchase emission allowances from the EU while also investing in alternative fuels and new technologies. ETS will have a significant impact on the cost base for the industry and the increased cost will need to be absorbed by the market.
With shipping in ETS starting next year, we will introduce a surcharge towards all customers in January 2024. This surcharge will be specified towards customers for best transparency. As the launch of ETS approaches, more details will become available from the EU and we will gradually inform customers regarding the anticipated effects.
Stena Line’s shift to sustainable shipping
Stena Line is committed to a shift towards new fuels for the fleet, as well as taking action to reduce the environmental impact in ports and other parts of our business. The first step in decarbonizing our vessel fleet will rely on improved energy efficiency measures and biodiesel. This will continue together with the uptake of sustainable methanol for converted vessels. The long-term perspective will be governed by battery electrification with a share of cost-competitive sustainable liquid fuel at routes more challenging to electrify.
Introducing a degree of bio-based fuel from sustainable sources is the most viable action to achieve a positive impact on emissions in the short term. At Stena Line we are working closely with Stena Teknik and Stena Oil to secure that these fuels are compatible with the fleet of vessels, aligned with regulatory requirements as well ensuring future supply of viable sustainable fuel.
In 2022, we entered a partnership with Liquid Wind for the development of new supply chains for a carbon neutral methanol fuel. We are confident that also battery electric propulsion will play an important role in the future and discussions are ongoing with authorities and other stakeholders around the development of the necessary infrastructure for electric charging. The co-operation with Stena Teknik will also help to keep track of state of the art of battery development.
A new generation of modern Stena Line E-Flexer ro-pax ferries meeting the demands from both freight customers and passengers is gradually being launched into our fleet, introducing a range of new design features and innovations that have significant positive impact on fuel consumption and emissions.
We are also moving to shore power supplied with carbon neutral electricity to reduce fuel consumption and emissions while in ports, with positive effects both for carbon emissions and the local environment.
A closer look at the emissions trading program
ETS is a ‘cap and trade’ scheme where a limit (the cap) is placed on the amount to emit specified pollutants and obliges us as a company to hold an allowance for each tonne of CO2 or other carbon equivalent gases we emit. The money from the sales of allowances will be used for EU’s green fund.
The ETS will in the start phase cover CO2 and eventually incorporate also nitrous oxides, soot and methane emissions – these will be included in the ETS scope using a certain calculation method.
There will be no set price list for these emission allowances – instead, the price will be defined by supply and demand on the market. As the supply side of these emission allowances will gradually be reduced to support the 2050 goal of net zero emissions, emission allowances will be increasingly costly, putting an even higher pressure on shipping companies to accelerate efforts to reduce their environmental footprint.
As for the scope of ETS, the new legislation will include 100% of emissions for voyages within the EU, 50% of the emissions from voyages starting or ending outside of the EU, and all emissions that occur when ships are at berth in EU ports.
The UK has notified that they will eventually introduce a similar system which would have an impact both on UK domestic routes and UK-EU routes.
To allow for a smooth transition to ETS, shipping companies will during an initial phase-in period purchase allowances for a portion of their total emissions; 40% in 2024, 70% in 2025 and eventually reaching 100% in 2026.
More details on the EU ETS can be found on the EU Commission website.
The cost impact of ETS will be significant, and we will need to introduce a surcharge for it, using the same principle as for existing similar externally added costs.
Yes, it will.
It is too early to say as we do not yet have all details from the EU. We will get back mid-2023 with a guidance on the expected impact on customers.
The cost will be significant, meaning above 1bn SEK annually (approx. 100MEUR) for our total operations. However, we are awaiting more detailed information on ETS from the EU and it also depends on our CO2 emissions which we continuously are working to reduce.
Once we have full information on the ETS setup, we will be able to calculate the surcharge for our passengers and freight customers, which may differ between routes. We will get back to this later in the year.
We regard biodiesel as the most realistic tool to achieve a positive impact on emissions in the short term. Together with Stena Teknik and Stena Oil we are working to secure that the B30 diesel quality is compatible with our current powertrains as well as ensuring that it is available in the volumes we would need for our operations.
We cannot provide a timeline for introduction at this point but will come back with an update as we progress with our plans.
The price for new fuel types heavily depends on the balance between supply and demand so we cannot comment on figures at this point, however the current price difference is significant.
Apart from the methanol-powered Stena Germanica – the first on the market – we have an ambition to convert several other vessels to methanol. The methanol used today is based on fossil fuels.
We are also developing partnerships with producers of sustainably produced methanol (e.g., Liquid Wind/FlagshipONE) to secure the supply of renewable methanol required for our long-term targets to shift to carbon neutral fuels.
We cannot comment on a timeline for these fuels today however the use of methanol fuels is a cornerstone in our future strategy.
We are working together with Stena Teknik on the development of the concept Stena Elektra with the ambition of making it possible to launch a fully electric ferry by 2030. This will however require the development of infrastructure to charge the ferry in both ports on a specific route so we are in continuous discussions with authorities and other external stakeholders to ensure that the charging capacity is secured prior to going ahead with the project.