OceanScore reviews the first year of EU ETS: What have we learned and what lies ahead?

OceanScore has identified persisting EU ETS pain points for shipping such as system readiness, data anomalies, transparency and contractual responsibility after assessing lessons learned from the first year of the regulation, with the clock ticking towards the initial settlement of emissions liabilities in 2025.

“Fortunately, the EU Emissions Trading System (EU ETS) is now well understood by most players in the industry after a year of implementation, despite adding yet another layer of regulatory complexity to an already highly regulated business. But we see that significant obstacles still need to be overcome as we navigate the road ahead to efficient compliance,” says OceanScore Managing Director Albrecht Grell.

Shipping companies are now anxiously awaiting a March 2025 deadline for verification of MRV reports submitted for the current year that will determine the volume of EU Allowances (EUAs), or carbon credits, to be surrendered next September.

“This leaves the industry with nine more months of uncertainty. Many challenges remain and their true impact will only become clear when EUAs need to be surrendered,” Grell points out.

System readiness and automation gaps

In its end-of-year assessment, maritime data and technology firm OceanScore has diagnosed a range of technical and commercial issues still to be resolved to make progress, as it also looks ahead to 2025 and beyond.

On the technical side, it highlights system readiness and automation gaps with a lack of harmonized data formats and standardized APIs, as well as odd errors in reporting systems, leading to inefficiencies that underscore the need for a coordinated approach and standardized practices across the industry.

Data overcharging, voyage discrepancies and off-hire issue

A contentious issue has been the attempt by some service providers to charge shipping companies twice for their data - once for the service itself and again for sharing it via APIs. “The industry has largely resisted this practice, curtailing most cases of double charging, but continued vigilance will be essential,” OceanScore states.

Significant discrepancies between commercial voyage definitions and MRV reporting requirements have also created challenges, particularly for voyage charter agreements, that “hinder efficient compliance”. “These differences complicate commercial settlements, as event reporting systems often fail to align data accurately in verification statements,” according to the firm.

Another issue is that technical off-hires need to be deducted when invoicing charterers for EUAs, as allowances incurred for off-hires remain the responsibility of the owner. Off-hires though are typically not verified, delaying negotiations and settlements. “Improved reporting frameworks could help resolve these inefficiencies and support more seamless compliance,” it states.

Transparency in transactions

On the commercial side, transparency has emerged as a significant concern in managing EUAs. Invoicing for EUAs has become a labour-intensive task, with diverse format requirements, varying request frequencies and interim statements complicating the process.

OceanScore says many shipping companies struggle to track whether invoices have been accepted, EUAs delivered or payments made without a centralized system.

This, it points out, has exposed the limitations of Excel in handling the complexities of emissions compliance, prompting an industry shift towards adoption of professional compliance management tools like OceanScore’s ETS Manager that is now being used by some 50 companies representing 1300 vessels. From January next year, this will be part of an integrated OceanScore platform rebranded as Compliance Manager covering solutions for both the EU ETS and FuelEU Maritime.

OceanScore client Hammonia Reederei states: “As a high-quality third-party manager, transparency is at the core of how we work with our customers - no hidden charges, no hidden fees. Managing ETS exposure across multiple owners and charterers is a complex task, but OceanScore’s ETS Manager has made it efficient and straightforward. Their solution not only streamlines our processes but also helps us provide clear, transparent cost breakdowns around ETS compliance to our customers, reinforcing our commitment to trust and accountability.”

Accountability and accounting

Shipman clauses continue to be a source of friction, particularly for non-European owners reluctant to accept responsibility for EU ETS compliance, according to OceanScore.

“Third-party managers thus often attempt to shift this responsibility onto owners, including the management of commercial processes, which has proven challenging. Managers, as the natural entities to handle compliance (given their MRV and FuelEU obligations), require appropriate compensation for the added workload and protection against counterparty risks to effectively manage EU ETS compliance,” the firm states.

Opening Maritime Operator Holding Accounts (MOHAs) also remains a significant challenge for many companies. Those without MOHAs or Union Registry Trading Accounts face inefficiencies, such as being unable to receive EUAs from charterers or purchase EUAs when needed. Vessel-specific MOHAs often create additional inefficiencies.

“Concerns about ‘contaminating’ an entire fleet due to non-compliance in one vessel have proven exaggerated, and the headache of managing these multiple accounts appears to outweigh the benefits,” OceanScore states.

Limited access to MOHAs and Trading Accounts could have exposed companies to significant price risks in 2024. However, the relatively low volatility of EUA prices mitigated these risks, providing some stability for companies navigating the first year of compliance, according to OceanScore.

‘Need for robust solutions’

Looking ahead, Grell says “temporary solutions may suffice for now in tackling some of these challenges, but they are not sustainable long-term”, especially with implementation of FuelEU from next year that he believes will amplify pressure for automated data-driven systems to cope with the complexity.

“The lessons from these challenges highlight the need for systematic, scalable solutions to manage emissions compliance effectively, ensuring long-term success under the EU ETS framework. The growing need for robust tools is clear. Transparency, efficiency and collaboration across stakeholders will be crucial to tackle the challenges ahead,” he concludes.