07 – Sale and Purchase of EUAs – Practical aspects
Authors: Filippo Pellerano and Lucy Nusbaumer | 7 December 2023
Shipping companies will soon be confronted with new compliance obligations, including the obligation to offset their greenhouse gas emissions (GHG) with EU emission allowances (EUAs). To anticipate their needs, shipping companies shall promptly take all necessary measures to be able to sell, purchase and/or transfer EUAs and be aware of the different legal instruments and processes available to them to do so.
In April 2023, the European Parliament and Council voted a revision of the EU Emission Trading Scheme (EU ETS) and the extension of said scheme to the maritime industry to ensure that the maritime transport sector contributes to the EU’s increased climate ambition. Such extension will apply as of 1 January 2024 to ships above 5000 gross tonnages, regardless of their flag, which means that shipowners will have to surrender EUAs to offset their GHG emissions, unless such responsibility has been transferred to the manager or bareboat charterer.
Considering that in practice, the amount of GHG emissions originating from the operation of a ship is largely determined by the time charter, shipowners and time charterers may agree either on the transfer of corresponding EUAs by the time charterer to the shipowner (who will in turn surrender said allowances to its administering authority) or on a reimbursement for the costs of said allowances. Only the latter alternative will trigger the need for shipowners to purchase EUAs on the market.
PRIMARY AND SECONDARY MARKETS
In 2024, the EU-wide quantity of allowances is supposed to be increased by 78.4 million EUAs for maritime transport, but no free allowances will be allocated to the shipping sector. The stakeholders are therefore expected to navigate both the primary and secondary markets to buy and/or sell allowances.
The primary market for the purchase of EUAs consists of an auctioning process currently operated by the German trading venue European Energy Exchange (EEX), where participants can submit bids to acquire a given volume of EUAs issued by EU Member States.
There is also a secondary market in which EUAs can be sold bilaterally or through derivatives offered by three European trading venues (EEX in Germany, ICE Endex in the Netherlands and Nasdaq Oslo in Norway). The bilateral sale and purchase of EUAs will be further discussed below.
ACCOUNT OPENING IN THE UNION REGISTRY
To buy and sell EUAs, shipping companies must open an account in the Union Registry. To do so, they must submit a request with all the necessary information to the national administrator of the Member State to which the company is associated, i.e.:
- in the case of a shipping company registered in an EU Member State, it will be the EU Member State in which the shipping company is registered;
- in the case of a shipping company that is not registered in an EU Member State, it will be the EU Member State with the greatest estimated number of port calls from voyages performed by that shipping company in the last four monitoring years;
- in the case of a shipping company that is not registered in an EU Member State and that did not carry out any voyage falling within the scope of the EU ETS Directive in the preceding four monitoring years, the administering authority will be the EU Member State where a ship of the shipping company has arrived or started its first voyage falling within the scope of the EU ETS Directive.
At their opening, each account shall have at least two authorized representatives with a specific combination of rights regarding the initiation and approval of processes. It shall be noted that for now, shipping companies can only request the opening of trading accounts. Indeed, the opening of maritime operator holding accounts will be possible only from February 2024, namely once the implementing act listing the administering authority for each shipping company will be published by the European Commission.
If so required by the Member State to which the request is submitted, the opening of a trading account may be subject to the following additional conditions to be complied with by the prospective account holders: (i) permanent residence or registration in the Member State and/or (ii) registration for value added tax (VAT) in the Member State.
In view of meeting their upcoming compliance obligations, it is recommended that shipping companies falling within the scope of the EU ETS from 2024 promptly request the opening of a trading account to anticipate their needs for EUAs. Our Team is available to offer assistance in relation to such process.
BILATERAL SALE AND PURCHASE OF EUAs
Once their trading account opened, shipping companies will be able to sell and purchase EUAs bilaterally on the secondary market. To facilitate such transactions, the International Emissions Trading Association (IETA) issued two standardized EUAs trading agreements in relation to phase 4 of EU ETS (2021-2030): (i) a single trade agreement and (ii) an emissions trading master agreement which is meant to govern all oral or written agreements between the master contract’s parties to enter into one or more transactions. Pursuant to these agreements, the delivering party agrees to sell and transfer and the receiving party agrees to buy a certain number of allowances.
Considering that it shall be the responsibility of the time charterer to provide the shipowner with EUAs corresponding to the ship’s emissions during the time charter period, the question arises whether the transfer of allowances between a shipowner (as receiving party) and a time charterer (as delivering party) which are made without monetary consideration falls within the scope of IETA agreement and/or in general should be covered by a trading agreement. While this approach seems to be consistent with BIMCO ETS clause under which the charterer has an obligation to transfer the corresponding EUAs to the shipowner, the exact modalities for such transfer – and the corresponding legal documentation – nevertheless still need to be further clarified.
Overall, IETA trading agreements provide a useful outlook on the terms and conditions for the trading of EUAs, even though it is still to be determined whether such agreements are suitable for shipowners/charterers.
 For a detailed timeline and scope of application of the EU ETS to the maritime sector, see our publication of 8 June 2023.
 An EUA is an entitlement to emit 1tCO2e.
 See Commission Regulation (EU) No 1031/2010 of 12 November 2010.
 The contracts offered for trading are the following: (i) contracts with a daily expiry, called “daily futures” or “spot”, (ii) futures with various maturities, and (iii) option on futures.
 It shall be noted that the rules on the Union Registry (Commission Delegated Regulation (EU) 2019/1122) are currently being revised to include the maritime sector within the EU ETS and that the adoption of the revised regulation is planned for late 2023.
 The difference between a trading account and a maritime operator holding account is that simplified rules apply to the execution of transactions on the trading account.
 The sale and purchase of EUAs through derivates is also possible following the opening of a trading account and will be discussed in more detail in another alert.
 The standardized IETA trading agreements are available on the following link: https://www.ieta.org/resources/trading-documents/.
 See our alert dated 7 July 2023.