Proposed EU ETS review brings smaller vessels into scope

The European Commission has proposed an overhaul of the EU Emissions Trading System (ETS) that would bring certain vessels as small as 400 gross tonnage (GT) in scope.

IMAGE: EU flag in front of the Berlaymont building, the headquarters of European Commission. Getty Images

Under the current system, covered vessels of 5,000 GT and above must monitor and report their greenhouse gas emissions and surrender EU carbon allowances covering 100% of emissions from voyages between two EU ports and while within EU ports, and 50% of emissions from voyages between an EU port and a non-EU port.

The proposed draft would extend these requirements to selected vessel categories between 400 GT and 5,000 GT from 2031. Ro-pax and passenger ships between 400 and 5,000 GT have been left out of the proposed extension for now, and a feasibility report is only due in December 2031.

Industry association Danish Shipping welcomed this expansion of the scheme’s scope. "This will contribute to a more level playing field and increase demand for alternative fuels and propulsion solutions by bringing more vessels within the scope of the system," it said in a statement.

The proposal also recommends setting aside up to 110 million EU allowances (EUAs) to support uptake of sustainable bunker fuels, as well as electric and wind-assisted propulsion through 2040.

Industry association European Community Shipowners' Association (ECSA) estimates these allowances would amount to about €10 billion ($11 billion) out of the €90 billion ($103 billion) that the sector is expected to pay into the system between 2030 and 2040.

“The full potential of the revenues generated by shipping must be used for the energy transition of the sector,” ECSA said in a statement.

Some of the other proposed changes in the draft:

• Offshore worksites in EU waters would be treated as ports of call to prevent offshore vessels from avoiding ETS costs by operating from non-EU bases.
• Rules for nearby non-EU transshipment ports would be tightened, while some large containerships of 10,000 TEU and above transferring cargo at EU hubs after long voyages would receive limited ETS relief until 2035. The measures aim to discourage shipping lines from shifting transshipment activity outside the EU.
• Temporary exemptions for certain ice-class ships, island routes, outermost regions and public-service passenger services would be extended from 2030 to 2035.

Separately, the Commission proposes reviewing the EU ETS if the IMO adopts a global carbon-pricing measure, to prevent shipping companies from paying twice for the same emissions.

Meanwhile, a parallel proposal to revise the MRV Regulation would combine EU ETS, MRV and FuelEU Maritime reporting, allowing companies to report once to a shared database under a single responsible entity. The Commission estimates this could cut annual MRV compliance costs by 10–20%.

The Commission’s revised proposal is expected to enter negotiations between the European Parliament and the Council in autumn 2026. An agreement could be struck in the first half of 2027, for implementation in 2028 and reporting from 2029.

By Nachiket Tekawade

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