The EU’s Emissions Trading System and the maritime industry

Last week we started hearing politicians from the Nationalist Party, as well as Maltese eurocrats mentioning the EU ETS extension to the maritime sector

Maltese eurocrats are rallying around Malta, accusing the Maltese government of allowing the extension of the European Union’s Emission Trading System (EU ETS) to cover CO2 emissions from all large ships measuring 5,000 gross tonnage and above that enter EU ports, irrespective of which flag they fly.

In summary, if a trip starts or ends outside the EU, 50% of the share of the emissions will be assigned to the EU member state, while the rest of the remaining share of emissions will be decided by the third country. However, if the trip occurs between two EU ports, and when vessels are within EU ports, all the emissions will be assigned to the respective member states. Well, not sure if this will be opening a window for the IMO to lobby with third countries to include a global emissions trading system to cover the other 50% emissions. Otherwise, third countries will be ignoring it just like they will ignore both President von der Leyen as well as President Roberta Metsola for the introduction of such directive. In 2024, the EU ETS will cover for CO2 emissions. However, in 2026 emission emanating from CH4 (methane) and N2O (nitrous oxide) will be accounted as well as part of the EU ETS. What this means is that the emissions yielded from maritime transportation will be included in the total ETS capping.

The ETS capping outlines the allowable maximum amount of greenhouse gases that can be emitted under the EU system. The idea is to pressure the industry to transit to cleaner practices and push technological advancement to start using alternative fuels, as opposed to traditional maritime fuels. The President of the European Commission made it her priority to extend the EU ETS to the maritime industry, while President Metsola described the agreement as historical. However, what we have here, is a situation of contradictions. The political arguments brought forward by other Maltese eurocrats, who are on the Nationalist Party’s ticket for the upcoming EU elections, are incongruent to their peers’ actions. One of the Maltese members of the European Parliament worked on the directive, which also included parts of the Social Climate Fund. Consequently, the President of the European Parliament dubbed this agreement as historical.

The lead negotiator that pushed this directive in the European Parliament is Piter Liese who forms part of the group of the European People's Party, (Christian Democrats). To simplify the complex modus operandi of the EU, we must explain how the negotiations unfolded. The European Commission has the right of initiative and before the Lisbon Treaty the current ordinary legislative procedure, which is the adoption of legislation jointly and on an equal footing with Parliament and the Council, was known as codecision. There are different stages of readings before it is formally adopted. However, I will try to explain the weight in Council and in the European Parliament, because that is what really matters.

In Council, negotiations were carried out and executed under the Quality Majority Voting. Under the QMV system in Council, bigger member states, especially Germans and French have a bigger weight, much bigger weight. Remember that the lead negotiator in the European Parliament is German and they do lobby with Ambassadors in Council. It is normal practice. I have been there and saw it happening. This means, that if the legislation is required to pass from Council by QMV, bigger member states can throw their weight around, and smaller member states are ignored and outvoted in Council. However, the weight of the European Parliament in such negotiations, especially on this directive was much bigger than that of Council, because the President of the European Parliament and her peers come from the political family of lead negotiator Piter Liese.

Indeed, they could have easily spoken to Liese to include additional safeguards and longer transitions for Malta and small island states. After all, in 2018 the global shipping emissions amounted to around 2.9% of global emissions generated by human activities, so the EU’s share is by far smaller. In the end, the President, her counterpart, as well as others working in the EU Parliament will all be running on the Maltese ticket and are cognisant of the country’s requirements. On the other hand, the Maltese government tried to work within the parameters of the system of QMV in Council to take something out of the negotiations. This is why it is important for the industry to stay on the lookout when such proposals are issued, and when the government authorities consult for positions.

The Maltese government, through Minister Miriam Dalli, managed to negotiate a special allocation of resources from the revenues generated through the EU ETS. Technically, the Maltese government, along with that of Greece and Cyprus, managed to tap into an extra pot of circa 3.5% of tradable allowance proceeds, to primarily invest in sectors that contribute to the reduction of emissions. The value of such proceeds for Malta's share is estimated to be around €250m, which also depends on the market prices attached to the tradable allowances at that point in time. What I think the EU must do is to see how it is going to fix this mess. The acceleration of regulations, and directives, are leaving many within the industry injured.

Normally, when regulations are issued, an impact assessment is delivered in tandem with the issuance of such proposals. The way negotiations are being executed, and the acceleration of such compromise, is creating additional distortions within the single market. It is not a onesize-fits-all exercise. The fixation of President von der Leyen is truly becoming annoying. Now that the President of the European Council, Charles Michel, announced that he will be contesting the upcoming European Parliament elections, we have a vacant seat for the coming months. This is why last Sunday I wrote that President von der Leyen used the Christmas recess to lobby for her seat. It has become truly surreal. So, while we have two wars and losses of lives, President von der Leyen is more interested in her seat. Please do us all a favour and calm down. This is not a Hollywood movie. You are all responsible for playing with people’s livelihoods.

Hopefully, only five months are left. And we are all eager to see you go!