The EU Emissions Trading System (ETS) will focus on the CO2 emissions from large ships, i.e. above 5,000 GT and aims to reduce greenhouse gas emissions in the EU by at least 55% by 2030, on the path toward climate neutrality by 2050.

ETS would provide a cost incentive (some cynically call it a "tax") to improve energy efficiency and low-carbon solutions within the sector. However, its scope has been widened to include (i) all emissions from ships calling at an EU port for voyages within the EU; (ii) 50% of the emissions from voyages starting or ending outside of the EU; and (iii) emissions that occur when ships are at berth in EU ports.

What this would require shipping companies to do, in practice, is purchase and surrender ETS emission allowances for each tonne of reported CO2 emissions, with the penalties for non-compliance to include denial of entry into EU ports.

Whilst some ship owners and operators have welcomed the move, it has received a fair bit of criticism. The race to climate neutrality is a global issue and some would have preferred it if the European Commission piloted the scheme wholly within Europe, whilst global solutions are explored.

The International Chamber of Shipping (ICS) has also expressed its displeasure, arguing that: (i) the proposal only covers 7.5% of global CO2 shipping emissions; and (ii) the initiative is nothing more than an extra-territorial tax on trade. 

The ICS also appears to take issue with what many would perceive to be revenue generation scheme for the EU, funded by non-EU shipping companies, in an initiative that at the very same time undermines a global solution (noting that Japan has expressed concern over the move).

Perhaps there is some merit in the concerns expressed. Global problems require global solutions.