EU ETS: deadline to surrender emissions allowances draws near

The nights are drawing in, there’s an autumnal chill in the air and shipping companies are preparing to surrender emissions allowances. 

The deadline to surrender allowances for the EU Emissions Trading System (EU ETS) is fast approaching and it is important for parties to act now to avoid penalties for non-compliance.

EU ETS surrender deadline is just days away

Emissions trading schemes, most significantly the EU ETS, set a cap-and-trade system requiring companies from the maritime sector and other industries, to surrender European Union Allowances (EUAs) to offset their annual emissions.

The EU ETS requires EUAs to be submitted by 30 September. An annual obligation for maritime companies since 2024, this year, shipping companies must surrender EUAs to cover 70% of reported emissions from 2025. Starting next year, EUAs will need to be surrendered to cover 100% of reported emissions.

Don’t leave yourself open to liability: The 30 September deadline is only for the EU ETS. The equivalent UK legislation doesn’t require allowances to be surrendered until 30 April with special measures covering 2026 and 2027 emissions so no surrender is required until 2028.

Looking at EU, responsible shipping companies

The “shipping company” is responsible for surrendering the right numbers of EUAs. In cases where a ship manager has signed a mandate taking on the responsibility for the “shipping company,” they will have assumed responsibility for EU ETS obligations. Such managers must ensure that sufficient EUAs are transferred into their holding accounts in good time to surrender to the EU. The administrative process for receipt and then surrendering allowances is not always instantaneous, and any delay in procurement or transfer could leave managers exposed.

Any managers carrying an EU ETS mandate should already know where their EUAs are coming from or, preferably, have any required EUAs in hand. Otherwise, urgent action will be needed to meet the 30 September deadline.

Absent allowances

The industry has become more accustomed to EU ETS, the rhythm of the reporting cycle and agreeing clauses in charters, MOAs and ship management agreements. This, however, has led some into complacency with delays in EUAs being transferred from charterers to managers/owners – often despite specific language in the relevant charterparty. While the deadline was a distant thought parties were willing to give one another leeway but, now that it approaches, attitudes are hardening.

Although the registered shipping company will almost invariably have some contractual right of recovery against the charterer or the owner, in the case of ship managers, it also remains the entity liable under the EU ETS. 

The consequences of failing to surrender EUAs on time are severe. A penalty of €100 per allowance, adjusted for inflation, is levied and the shipping company must still surrender the EUAs next year. Persistent defaults can even result in an expulsion order effectively barring the vessel from entering European ports.

Shipping companies must ensure that the requisite EUAs are surrendered by the deadline, even if that means purchasing allowances at their own cost and pursuing reimbursement separately.