Another emissions trading scheme for maritime: the UK takes shape
Final policy decisions made by the UK Government this summer will, if enacted as law, lead to new emissions costs for vessels sailing to, from and between United Kingdom ports from 1 July 2026.
The policy decisions follow industry consultations initiated in November 2022 and 2024 on the prospective expansion of the UK Emissions Trading Scheme (ETS) to emissions from shipping. While decisions on numerous details are still pending, the UK Government's interim response to the consultations constitutes the first firm outlining of the UK ETS for maritime and, importantly, communicates to the industry what it needs to start preparing for.
Going forwards, if sailing to, from or between UK ports shipping entities will need to:
- accommodate the UK ETS in their compliance and contractual regimes, and
- pay the UK ETS costs arising.
This recent development should be particularly noted by registered owners (including banks and financiers) as, like the EU ETS, the registered owner of a vessel will be the party with the compliance obligation by default, notwithstanding that the obligation may be shifted to the ISM company if certain criteria are met.
The development is also significant for the offshore sector. The sector position is somewhat uncertain pending the UK Government's final consultation response. However, the intention appears to be that offshore vessels will fall within the UK scheme albeit there could be provision for the rules to apply to such vessels differently. If so, this will mean offshore owners will be subject to the UK ETS ahead of the EU ETS, which extends to include offshore ships of and above 5,000 GT from 1 January 2027 - although monitoring and reporting obligations pursuant to the EU MRV commenced for the offshore sector earlier this year.
Moreover, whilst the UK Government's proposals have consistently been orientated toward the capture of domestic rather than international emissions (i.e. those emissions produced on journeys between UK ports only), the decision to include within the UK ETS all emissions produced by vessels in UK ports has the critical outcome of drawing vessels performing international voyages within the scope of the scheme – even if only in relation to UK port emissions and not the emissions of the incoming or outgoing international sailing.
A further notable aspect of the policy decisions is the start date of 1 July 2026. This means the industry will need to prepare for compliance with new obligations quickly, whilst also continuing to wrestle with the first verification period of the EU ETS, the first reporting period of FuelEU Maritime and the prospect of the potentially forthcoming IMO NZF regulations.
Whilst adaptations made to accommodate the EU ETS will stand the industry in good stead here, it will be important for shipping entities to recognise that the UK scheme, whilst exhibiting similarities to the EU scheme, will be separate and in some respects fundamentally different and that compliance and contractual regimes will need to be re-designed and re-visited accordingly.
Summary
Key features of EU ETS vs. proposed UK ETS
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EU ETS |
UK ETS |
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Compliance entity |
Registered owner with option to shift to ISM company |
Registered owner with option to shift to ISM company |
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Start date |
1 January 2024 |
1 July 2026 |
|
Reporting period |
1 January to 31 December |
1 July to 31 December in the first year, thereafter 1 January to 31 December |
|
Included vessels |
Vessels 5,000GT and above carrying cargo or passengers for commercial purposes
From 1 January 2027 offshore vessels 5,000GT and above |
Vessels of 5,000GT and above, potentially inclusive of offshore ships from the outset |
|
Excluded vessels |
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Vessels performing government non-commercial maritime activity including:
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Greenhouse gases |
From 1 January 2024 carbon dioxide |
From 1 July 2026 carbon dioxide, methane and nitrous oxide |
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Reporting deadline |
31 March each year following the relevant reporting period |
31 March each year following the relevant reporting period |
|
Surrender of allowances deadline |
30 September each year following the relevant reporting period |
30 April each year following the relevant reporting period |
Further details of the scheme are expected to be released when the UK Government issues its full response to the recent consultations, a date for which has not yet been specified. The proposals will then need to be enacted as law. However, as time at that stage may be running short, it is recommended that shipping entities take steps to prepare for compliance as soon as possible including by way of reviewing their charterparty and ship management agreements.
Our expert maritime decarbonisation team supports maritime clients preparing for and navigating the full suite of maritime emissions legislation and participated in both rounds of the UK ETS consultations. To seek further information, guidance or advice on what to do next please do not hesitate to reach out to them.