Case gives clarity on the incorporation of standard terms. Credit: 3D Animation Production Company, Pixabay

Brokers sit at the ‘intersection’ of commercial agreements on EU ETS and FuelEU

 

By Carly Fields

 

Shipbrokers are playing their part in the industry’s decarbonisation as it tussles with a tangle of emissions regulations, not least the EU Emissions Trading System (ETS) and FuelEU Maritime.

Speaking at a joint Institute of Chartered Shipbrokers and Baltic Exchange webinar on ‘Counting the cost of emissions regulation’, Alastair Stevenson, head of digital analysis at SSY, said the broker views decarbonisation as a service to its clients, a service which is now part and parcel of shipbroking. 

SSY, he explained, offers client advisory services, providing tools like an ETS and FuelEU calculator to estimate exposure, and facilitates European Union Allowances (EUAs) brokerage through partnerships.

"We're at the intersection of the commercial arrangement between an owner and a charterer,"

Stevenson said, emphasising a broker's unique position in navigating these regulations.

Also on the panel, Jacqueline Chao, sustainability director at Wah Kwong Maritime Transport Holdings, gave an owner’s view of the administrative burden and financial risks associated with the EU ETS. "As an owner, we are ultimately responsible for surrendering the EUAs," she explained, detailing the complex delegation of this responsibility to Wah Kwong’s ship management business. "There's a documentation cost involved...and you also have external counterparty risk cost." She highlighted the significant time investment required to establish Marine Operator Holding Accounts (MOHAs), particularly for non-European entities, noting, "it took us somewhere in the region of nine months to be able to do that”.

The complexities extend to third-party owners, many of whom, particularly those based outside Europe, require assistance in managing their EUAs. "We get involved in holding EUAs on behalf of some of our clients, because they don't actually know where to put them because their MOHA accounts aren't open," Chao said.

 

Dose of caution 

Both panellists acknowledged the industry's cautious approach to implementing these regulations. Chao noted the importance of observing market dynamics before committing to specific strategies. "Lessons learned from the EU ETS is that sometimes you can jump into these things a little bit too early," she warned, advocating for a "wait and see" approach. 

Stevenson, meanwhile, highlighted the disparity in preparedness among ship owners. "We really probably could split our client base into two very, very broad groups," he said, distinguishing between large clients with dedicated compliance teams and smaller, often non-European clients who lack the same resources. 

Explaining FuelEU Maritime, he said that its focuses on fuel type rather than vessel efficiency and introduces three primary compliance options: banking surplus compliance units, participating in vessel pools, and blending biofuels. Each option presents its own set of challenges.

"Navigating those three options, each of them with their own complexities, is very, very difficult, I think, even for a sophisticated ship owner,"

Stevenson said.

Chao added another layer of complexity, highlighting the random nature of tramp shipping. "There is also the unpredictability of what your ships are doing," she said. "Committing to a pool too early is not something that you would necessarily think is a good idea."

There are also timings to consider. "If you're going to go down the biofuels route, you kind of have to be doing that in 2025," Stevenson said, while pooling decisions can be deferred until April 2026. He also noted the differing preferences between the tanker and dry bulk sectors. "On the tanker side, there's been a lot of interest in pooling arrangements. On the dry bulk side, much more interest in biofuel blends."

 

Spot versus time

Types of charters are important, too. “We have some ships out on spot rates or very short-term time charters, and we have other ships out on long term periods,” Stevenson said. “Now, as you have those ships out on longer durations, we really don't know that those vessels will necessarily go into the EU at all, and it makes it very difficult to consider what we should carry on board the vessel in terms of biofuels, what pools should we or shouldn't we be part of – it’s incredibly complicated to work through these issues.”

A critical point raised by Stevenson was the "one size fits all" approach adopted by the IMO and the EU. "I think the IMO and the EU as well have tended to follow a sort of one size fits all approach to regulating a market that's incredibly fragmented," he said.

He also critiqued the EU ETS's revenue generation, arguing that the substantial funds collected have done "precious little to actually reduce CO2 emissions”.

He claimed that the EU had earned about Euros2.3 billion in 2024 from the maritime sector.

Chao echoed this, highlighting the lack of access to these funds for non-European companies. "What's also interesting about the EU ETS is that...for companies, international companies, or global companies like ourselves, we're contributing to this EUA fund, but there is literally no access for a Hong Kong based company out of that fund."