UK Government releases its interim response to expansion of the UK ETS to the maritime sector

UK Government releases its interim response to expansion of the UK ETS to the maritime sector

Following a series of consultations, the UK government has released its interim response to the expansion of the UK ETS to the maritime sector. Despite the UK ETS coming into force on 1 January 2021, it does not yet include the maritime sector. The current price of maritime fuel does not reflect the corresponding environmental impact. Accordingly, the expectation is that the introduction of the maritime sector will encourage the use of lower carbon and more environmentally friendly fuels used on board ships.  

The UK ETS Authority has confirmed that its hope for releasing this detailed interim response is to allow those within the industry enough time to understand how the scheme will be applied to the sector and therefore allow them to become familiar with the regime prior to the intended launch date of 1 July 2026. To assist with this understanding, we provide details of the key elements below. 

Effective from:

All regulatory provisions that currently exist for those sectors already within the UK ETS will also apply to the maritime sector. As such, the scheme will still run from 1 January to 31 December with a reporting deadline of 31 March and surrender deadline of 30 April. The surrender deadline that aligned with the rest of the UK ETS was favoured over the 30 September deadline imposed by the EU ETS as it was deemed essential for all participants within the UK ETS to be subject to the same rules.
However, since the expansion will commence as of 1 July 2026, the first scheme year will run from 1 July 2026 – 31 December 2026 with every year after running from 1 January. 

In accordance with the existing UK ETS, the maritime sector will be required to create a GHG monitoring plan and submit it for approval ahead of the start of the scheme.

Emissions within the scope

The emissions within the scope of the scheme will be CO2, Methane and Nitrous Oxide emissions (from both combustion and slippage) generated from domestic voyages alongside all in port emissions in the UK. The scheme will not only apply to cargo and passenger transporting ships but also to ships and their movements not serving this purpose. 

A ‘domestic voyage’ is defined as any voyage starting from and concluding at a UK port including those voyages starting and ending at the same UK port. All emissions throughout the duration of the voyage including while at anchor and while moored, will be included within the scope of the scheme. Further guidance will be provided in the future regarding what defines the start and end of a voyage.

‘All UK port emissions’ is defined as the emissions at berth in UK and emissions from movements within UK ports regardless of whether the vessel is travelling domestically or internationally. The inclusion of port emissions helps to align the UK ETS with the emissions at berth provision included within the EU ETS. This makes it a more seamless policy for those operators whose vessels are trading within both the UK and EU. Further, port emissions of domestic voyages represent 46% of total domestic maritime emissions so in order to make an impact, it is crucial that they are also included within the scope. 

The requirement for monitoring and reporting of emissions at berth for all voyages regardless of their destination results in the UK ETS MRV being wider in scope than the UK MRV. 

An example of a voyage that would be captured by these regulations is where a vessel is leaving a UK port, travelling to an offshore structure and then returning to a UK port. 

Excluded voyages are those between the UK, Crown Dependencies or British Overseas Territories.

Methane and Nitrous Oxide emissions will be calculated as a CO2 equivalent based on their Global Warming Potential (GWP). The relevant GWPs for each gas will be GWP 28 per tonne of Methane and GWP 265 per tonne of Nitrous Oxide. The inclusion of these gases from the onset differs to the approach taken by the EU ETS who firstly focused on CO2 before they intend to include Methane and Nitrous Oxide in 2026. These gases are also not present in the UK MRV. The addition of Methane also ensures that LNG is not relied upon as an alternative fuel alongside other fuels that produce lower CO2 emissions but greater Methane or Nitrous Oxide emissions thus resulting in a greater GWP than CO2. 

Vessels within scope

The UK ETS will initially follow the same approach as the EU ETS by applying to vessels 5000GT and above. The threshold will then be reviewed at the end of 2028 to determine whether there is the need to include vessels between 4000GT and 5000GT. 

5000GT was considered to be the most appropriate size as this falls in line with the already in force UK MRV scheme and therefore the majority of these ships will already be equipped/ in a position in which they are ready to collect and report the data.

Whilst emergency/medical ships, border force, government vessels, etc will be fully exempt from the UK ETS, they are still encouraged to decarbonise their operations in line with the UK ETS’ commitment to a net zero end goal.  

Who is responsible 

In consistency with the EU ETS, the registered shipowner will be considered the ‘Maritime Operator’ and therefore be the entity responsible for compliance with the UK ETS unless the ISM company has duly assumed responsibility. In order for such responsibility to be devolved to the ISM company, evidence of this contractual agreement will need to be provided to the regulator. Failure to provide notification and evidence to the regulator will result in the registered owner remaining liable. 

The Authority has confirmed it is considering publishing a list of operators and their corresponding regulator in accordance with the responses received to their consultation. 

There will be no legislative provisions to entitle the Maritime Operator to recover UK ETS associated costs from whomever is responsible for the operation of the ship. Instead, the UK will follow suit of the EU ETS in allowing each individual owner to negotiate their own clauses within their contractual agreements as to who is responsible for costs associated with emissions trading. 

Monitoring, Reporting and Verification requirements

Although the monitoring, reporting and verification requirements for the UK ETS are based upon those of the UK MRV, it is highlighted by the Authority that they are indeed separate regimes. The Maritime sector will be required to submit Emissions Monitoring Plans that are to be approved by the UK ETS regulator. Notably, this report together with the Annual Emissions Report will only need to be submitted on a one per operator basis as opposed to one per ship. 

It has not yet been decided whether a Document of Compliance will be required. Further, the Authority has confirmed that for the time being, emissions will be assessed on a Tank-to-Wake basis with the potential of this progressing to Well-to-Wake once the IMO have released their latest regulation. 

Ultimately, the Interim Response has certainly been helpful in providing an overview of what can be expected from the addition of the Maritime Sector into the UK ETS. It appears that when making such introduction, the Authority is trying to establish a good balance between standardising the UK ETS and ensuring some form of consistency with the EU ETS. Further, it is clear that the MRV requirements of the UK ETS are wider than those of the UK MRV with the Authority making it clear that we can expect to see some upcoming changes to the UK MRV also. 

For now, we await the full Authority Response.