Sluggish industrial activity and declining imports of goods dragged carbon emissions from Europe’s shipping sector down sharply in 2023, but emissions are widely expected to be either marginally up or stable this year as many vessels sail longer distances to circumvent attacks near the Red Sea.
Ships traveling within the EU territorial waters emitted 116.6 million mtCO2e in 2023, down 15% from the previous year, an analysis of provisional data released by the European Maritime Safety Agency showed.
Containerships and tankers were the biggest emitters, releasing 38 million mtCO2e and 26 million mtCO2e respectively in 2023. Almost all ships types (container, tanker, dry bulk, ferry, gas, RoRo) except for cruise ships recorded year-on-year falls in emissions.
Mattia Ferracchiato, head of carbon markets at BRS Shipbrokers, said the emissions decline was a consequence of weaker demand for commodities and consumer goods in Europe.
“[There was] lower demand for coal and energy raw materials from non-EU countries, especially due to the ban on Russian imports. Inflation has deteriorated the purchasing power of European citizens. Reduced European production led to lower imports of metals and cement,” he said.
2024 emissions outlook
Looking forward, EU shipping emissions are likely to stay at similar levels in 2024 even as emissions from the global shipping sector rise due to the escalation of tensions in the Middle East.
“We believe that potential increases caused by the situation in the Red Sea could be offset [in European terms] by the cancelation of emissions from trips between small islands, to places like the Canary Islands, and the still slow economic recovery in the EU,” added Ferracchiato.
“Additionally, please remember that this year, emissions will be monitored much more precisely than in previous years, where companies often reported emissions differently for the same identical voyage. Now that the cost of CO2 is significant, ship speeds may be reduced, and some initial use of green fuel blends might already begin this year, helping to further reduce total ETS emissions.”
An escalation in attacks by Yemen’s Houthi rebels on merchant shipping in response to the Israel-Hamas war has pushed a number of shipping companies to divert vessels from the Suez Canal and go via the longer Cape of Good Hope route.
Rerouting vessels from the Suez Canal to the Cape of Good Hope increases bunker consumption due to the longer voyage and typically higher speeds travelled at, raising emissions.
Among container ships, a 1% increase in speed typically leads to a 2.2% rise in fuel consumption, according to a recent report by the United Nations Conference on Trade and Development.
For example, accelerating from 14 to 16 knots increases fuel use per mile by 31%. As a result, the longer distances caused by rerouting from the Suez Canal to the Cape of Good Hope imply a 70% increase in greenhouse gas emissions for a round trip from Singapore to Northern Europe, UNCTAD said.
Shipping in EU ETS
The fall in shipping emissions last year also comes amid a backdrop of economic malaise in Europe.
Emissions from the industrial sector have been down due to reduced output and efficiency gains, which are mainly visible in cement, iron and steel.
This comes as the EU continues to face macroeconomic headwinds due to high inflation, weak manufacturing data and weak industrial output.
Regulated CO2 emissions from power plants and factories under the EU Emissions Trading System in 2023 also fell 15.5% from 2022, the steepest decline since this compliance carbon market was established in 2005.
The plunge in emissions was also due to a substantial increase in renewable electricity production led by wind and solar, at the expense of both coal and gas as the bloc’s power sector has made significant strides to decarbonize its operations.
From Jan. 1, 2024, the maritime sector was also incorporated in to the EU ETS. Demand from this sector for trading EUAs is still very slow, according to trading sources.
This lack of interest is also because the EU has only required shipping companies to surrender EUAs for the first time by Sept. 30, 2025 for this year’s emissions.
The cost of the EU ETS for the entire maritime industry is expected to be Eur2.2 billion in 2024, assuming emissions in are in line with 2023 and an average price of Eur70/mtCO2, according to BRS Shipbrokers.
Platts, part of S&P Global Commodity Insights, assessed the EUA contract for December delivery at Eur70.92/mtCO2e ($77.14/mtCO2e) on July 2.
The EU has also agreed on a phase-in period to give the industry some preparation time, with the ETS covering 40% of the emissions in 2024, 70% in 2025 and 100% from 2026 onward.
This industry is expected to be spot price takers in the world’s largest compliance carbon market.
The shipping sector is projected to add emissions of 90 million mtCO2e this year and 86 million mtCO2e in 2025, as part of the EU ETS supply volumes, according to Commodity Insights estimates.
