Classification society DNV on Friday (17 November) released a statutory news for cargo and passenger ships above 5,000 GT sailing in the EU on the upcoming Emission Trading System:

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 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.

MRV/ETS requirements timeline

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.

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.

Photo credit: CHUTTERSNAP on Unsplash
Published: 21 November, 2023

Global law firm Reed Smith recently invited transportation industry professionals to contribute their valuable insights on the future of sustainable fuel sources, in its survey.

The initiative seeks to gather perspectives and predictions from professionals across the entire transportation sector. This includes, but is not limited to, those working in aviation, shipping, logistics, manufacturing, utilities, and environmental services.

Richard Hakes, chair of Reed Smith’s Transportation Industry Group, said, “The industry has experienced significant changes over the past decade, driven by technological advances, regulatory developments, and environmental targets. Events such as the global pandemic and geopolitical factors have further emphasised the need for foresight and adaptability.”

Highlighting the widely discussed uncertainty surrounding the fuels of the future, Hakes added: “Determining the optimal solution in terms of cost, safety, storage, and scalability remains a challenge. Against the backdrop of ambitious targets – such as the European Green Deal which aims to slash transport emissions by 90% by 2050 – the industry is now grappling with decisions that will shape its trajectory.”

Preliminary feedback from the respondents suggests that close to half the industry is poised to embrace dual fuel as a transitional solution within the next five years. 

Responding to the numbers, Thor Maalouf, partner at Reed Smith, said: “It's a dynamic landscape. As we collect more data, I'm curious to witness the potential shift in this percentage.”

“Fostering a sustainable industry demands a collective commitment to knowledge exchange. A joined-up and collaborative approach is the most effective path towards sustainable fuels, and by pooling our expertise we can help steer the industry towards a more sustainable and innovative future.”

The survey seeks input on renewable energy sources, including the perceptions of sustainable options, potential challenges, barriers, and anticipated timelines for a complete transition to sustainable fuel. The survey takes less than five minutes to complete and is completely anonymous.

Nick Austin, partner at Reed Smith, said: “We aim to capture insights from the full spectrum of the transportation sector. By collecting data from our clients and beyond, we hope to present results that offer clarity on industry views, predictions, and challenges.”

Note: The sustainable fuels survey by Reed Smith can be found here.

Photo credit: Reed Smith
Published: 19 October, 2023

The composition of the maritime fuel mix by 2050 will be shifting away from the predominantly oil-based fuel mix today and mainly encompass 84% of low- and/or zero-carbon fuels, according to classification society DNV’s Energy Transition Outlook report.

Among the low- and zero-carbon fuels, ammonia is projected to command the largest share (36%), followed by biofuel at 25% and e-fuels at 19%, according to the report, which was published on Wednesday (11 October).

The role of electricity is anticipated to be minimal at 4%. This extensive shift in fuel types will be bolstered by region-specific decarbonization initiatives.

DNV noted the view on the maritime sector's ability to decarbonize has progressed rapidly over the last five years, pushed by the IMO's decarbonization strategy introduced in 2018 and revised in 2023.

“A shift in mindset within the sector towards shouldering its part of the net-zero challenge is evident, and will help to drive a significant change in fuel composition over the coming decades,” it said in the report.

However, DNV said the fuel switch in the maritime industry depends on many factors such as advanced biofuel availability and sufficient availability of renewable hydrogen for e-fuel production. 

Those uncertainty factors are captured in DNV’s 2022 version of the Maritime Forecast to 2050 where 24 scenarios for the maritime sector's future fuel mix are outlined.

“Based on the updated IMO strategy and a push from both charterers and regulators such as the EU, our main ETO 2023 has a more decarbonized fuel mix than last year’s forecast. Nevertheless, this forecast acknowledges that the IMO ambitions lack enforcement mechanisms and might not be fully met, as the ambitions have yet to be translated to ship-specific regulations,” it said.

“Nevertheless, this forecast acknowledges that the IMO ambitions lack enforcement mechanisms and might not be fully met, as the ambitions have yet to be translated to ship-specific regulations.”

DNV said the fuel mix forecast for maritime illustrated in Figure 1.11 is a result of its best estimate assessment and not the result of a cost competition-based model output. 

“This implies that our view on the maritime fuel mix to 2050 holds significant uncertainties, partly described above and more fully detailed in DNV’s Maritime Forecast to 2050.”

The report also found that limiting global warming to 1.5°C warming is less likely than ever.

“To reach the goals of the Paris Agreement, CO2 emissions would need to halve by 2030, but DNV forecasts that this will not even happen by 2050. CO2 emissions will be only 4% lower than today in 2030 and 46% lower by midcentury. Energy related CO2 emissions are still hitting record highs and are only likely to peak in 2024, which is effectively the point at which the global energy transition begins,” the classification society said.

“Globally, the energy transition has not started, if, by transition, we mean that clean energy replaces fossil energy in absolute terms,” said Remi Eriksen, Group President and CEO of DNV. 

“Clearly, the energy transition has begun at a sector, national, and community level, but globally, record emissions from fossil energy are on course to move even higher next year.”

Note: The full report of DNV’s Energy Transition Outlook can be found here while the executive summary can be found here.

Related: DNV ‘Maritime Forecast to 2050’ report examines shipping’s energy future and role of technology in energy transition
Related: DNV Maritime CEO urges shipping industry to take more action and move faster in bid to decarbonise
Related: DNV urges cross-industry collaboration to overcome ‘ultimate hurdle’ of fuel availability

Photo credit: DNV
Published: 12 October, 2023