Preparing for the EU ETS - next steps

As of 1 January 2024, the EU ETS will include ships above 5000 GT transporting cargo and passengers for commercial purposes. The EC has just adopted an implementing regulation detailing which company is responsible for reporting and surrendering emission allowances. This statutory news outlines the next steps to prepare for the EU ETS, and updates to the EU MRV Monitoring Plan.

Relevant for ship owners and managers of cargo and passenger ships above 5,000 GT sailing in the EU.

Background

The EU amended the Emission Trading System (EU ETS) Directive to include shipping from 1 January 2024. The monitoring, reporting and verification requirements detailed in the EU MRV regulation have also been revised to support the EU ETS. 

The European Commission (EC) is now in the process of developing implementation and delegation regulations providing more details, and DNV will communicate these in due course. 

This news provides an update on the options for the responsible shipping company, as well as other relevant technical, operational and commercial matters when preparing for ETS. Please make sure to visit our revamped EU ETS topic page with a comprehensive FAQ section providing you with even more clarity and guidance on these critical topics.

Shipping company responsible for the EU ETS and EU MRV

The EC has adopted an implementing regulation detailing which company is responsible for monitoring and reporting greenhouse gas (GHG) emissions and surrendering emission allowances. The default responsible entity is the registered owner, also if the ship is on a bareboat charter. The responsibility can be shifted to the technical manager – i.e. the ISM company – only by an agreement between the registered owner and the ISM company explicitly stating the delegation. 

The company responsible for monitoring and reporting under the MRV regulation must be the same as the company responsible under the ETS directive for surrendering emission allowances. However, the practical aspects related to monitoring and reporting – such as developing a monitoring plan, implementation, and developing emissions reports – can still be performed by technical management companies.

Options for managing the responsibility and practical aspects related to the EU MRV and EU ETS

There are basically three options for managing the responsibility and practical aspects related to the EU MRV and EU ETS: 

1. The registered owner takes on the responsibility for compliance with the MRV and ETS and establishes its own monitoring system

The owner company should provide its Administering Authority (AA – see below) with a list of ships for which it assumes responsibility with the MRV and ETS obligations. The registered owner must establish its own monitoring system, develop a Monitoring Plan, have it assessed by a verifier, and submit it to the AA by 1 April 2024.

2. The registered owner takes on the responsibility for compliance with the MRV and ETS but delegates the practical monitoring to the ISM company 

The owner company provides its AA with a list of ships for which it assumes responsibility with the MRV and ETS obligations. The ISM company can continue with the monitoring and reporting as today, but the Monitoring Plan must be updated referring to the owner as the responsible entity. 

The ISM company will implement the Monitoring Plan and provide the emissions reports for the registered owner. It is still not decided if it will be possible for the ISM company to submit the plans and reports in Thetis MRV on the owner’s behalf. 

3. The registered owner delegates the responsibility for compliance with the MRV and ETS to the ISM manager 

The registered owner company and ISM company must sign a document clearly indicating that the ISM company has been mandated by the shipowner to comply with the MRV and ETS obligations. The ISM company may be mandated by several owner companies, but it remains a single shipping company responsible for the combined fleet under the MRV and ETS. Under this option, the existing Monitoring Plan can be continued, provided it is extended with the required additional elements required by the updated Monitoring Plan template (see below).

Shipowners and ship managers should make an agreement on who assumes the responsibility for the EU MRV and EU ETS, and update any documentation as needed.

Administering Authority (AA)

Each company, whether it is the registered owner or ISM company, will be assigned to an AA of an EU/EEA member state. Companies registered in an EU/EEA country will be assigned to the AA of that country. Companies registered outside the EU/EEA will be assigned to the AA of the country where their ships had the most port calls the last four years. The EC will provide a list of companies and their respective AA by 1 February 2024. 

Each shipping company responsible for one or more ships under ETS needs to apply for a Maritime Operator Holding Account with its AA, within 40 working days after the list is published by the EC. The practicalities related to this will vary between different AAs. The AA is then required to open the account within an additional 40 working days.

The documentation requirements for opening an account are common for all AAs and include:

• General info about the legal entity (e.g., name, address, contact person)

• If the company is the registered owner: a list of ships for which the company assumes control 

• If the account holder is part of a group: a document clearly identifying the structure of the group (certified true copy required).

The AA may also ask for a document proving:

• Registration of the legal entity, its bank account details and confirmation of VAT registration

• Name, date of birth and nationality of the legal entity’s beneficial owner, including the type of ownership or control they are exercising

• A copy of the instruments establishing the legal entity

• A copy of the annual report or of the latest audited financial statements, or if no audited financial statements are available, a copy of the financial statements stamped by the tax office or the financial director.

Companies, who know which AA they will be assigned to, should apply for a Maritime Operator Holding Account as soon as possible.

Change of company and partial emissions reports

In case of change of company (i.e., either the registered owner or the ISM company), the MRV regulation requires that a partial emissions report is verified and submitted in the Thetis MRV no later than three months after the change. This ensures that both the previous and the next companies can submit a company level emissions report containing the emissions for which each company was liable for surrendering allowances for under the ETS in the reporting period. The need for a partial emissions report strictly follows from the responsible company, either the registered owner or the ISM company. In case the owner has assumed the responsibility, a change in the ISM company will not trigger the need for a partial emissions report. If the responsibility is delegated to the ISM company and the ship changes owner, it will depend on whether the new owner delegates the responsibility to the same ISM company. If the new owner assumes the responsibility itself, or a new ISM company takes over the responsibility, a partial emissions report is required.

Update of Monitoring Plan

An updated Monitoring Plan assessed to be in conformity by a verifier must be submitted to the AA by 1 April 2024. Regardless of which AA the company is assigned to, the submission of Monitoring Plans and emissions reports is performed through Thetis MRV. 

The Monitoring Plan has been expanded to reflect the additional obligations under the MRV and ETS. The new plan template covers, among other smaller adjustments:

  • Emission factors for CH4 and N2O, in addition to CO2 
  • Procedures related to determining the emission factors for biofuels, RFNBOs (renewable fuels of non-biological origin) and RCFs (recycled carbon fuels)
  • Emission source class and slippage coefficient values for LNG-fuelled ships
  • Detailed information on the shipping company 
  • Information on application of carbon capture and storage technologies
  • Procedures covering data flow activities and risk assessment.

The figure on the following page summarizes the EU MRV/ ETS milestones as discussed in this news.

TecReg28_770.jpg

DNV recommends that companies establish or update their Monitoring Plans and submit them for assessment as soon as possible. Conveniently, the revised MRV Monitoring Plan online form from DNV is now available in Fleet Status on Veracity to support the preparation, with information from the previous plan revision readily available. Validation rules and info boxes will guide you to ensure all updated tables are filled in and the plan is ready to be submitted.

MRV Monitoring Plan >>

Recommendations

Ship owners and managers should make an agreement on who assumes the responsibilities for the EU MRV and EU ETS and to provide an updated Monitoring Plan to the verifiers. For DNV customers, the revised MRV Monitoring Plan online form is available in Fleet Status on Veracity. AAs should be updated on the ships as soon as it is clear which AA each company is assigned to. DNV recommends that companies, who know which AA they will be assigned to, apply for a Maritime Operator Holding Account as soon possible.

References

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