
The European Union’s Emissions Trading Scheme (EU ETS) is making waves in the shipping industry, transforming from a regulatory side note into a significant cost driver for shippers and freight forwarders. With tighter regulations and rising emissions costs, stakeholders are now facing increasing pressures to adapt and strategize.
What is the EU ETS?
Introduced in January 2024, the EU ETS aims to cap and reduce greenhouse gas (GHG) emissions by requiring companies in specific sectors, including shipping, to purchase allowances for their emissions. These allowances, traded on a carbon market, effectively put a price on pollution. For shipping, this marks a pivotal moment as environmental accountability translates directly into operational costs.
ETS Costs Today: A Manageable Burden
Currently, ETS charges appear manageable for most shippers. Drewry, a prominent maritime consultancy, reports an average cost of €48 per container, which equates to approximately $43. For many in the industry, this hasn’t yet sounded alarm bells. Why? In part, it’s because these costs are only now beginning to climb, and stakeholders have been preoccupied with other challenges, such as the aftermath of pandemic-related disruptions.
But the calm won’t last. Three looming factors are set to make ETS charges an unavoidable cost burden in the coming years.
Factor 1: Longer Shipping Routes Are Raising Costs
One unexpected byproduct of the ETS implementation is how shipping companies are altering their routes. To avoid emissions-heavy areas like the Suez Canal, many vessels on the Asia-Europe trade are detouring around the Cape of Good Hope. This alternative route increases voyage distances by approximately 16%, leading to higher fuel consumption and, in turn, increased carbon emissions.
This shift creates a compounding effect: more emissions mean more ETS allowances must be purchased, directly inflating costs for carriers and their customers. For shippers reliant on Asia-Europe trade lanes, the consequences are tangible and growing.
Factor 2: Policy Expansions Through 2026
The phased implementation of the EU ETS is another driving force. When shipping was first included in the scheme, only 40% of emissions were covered under the program. By 2025, this will jump to 70%, with full coverage—100% of emissions—expected by 2026. As these thresholds rise, so too will the costs borne by the industry.
Shippers and forwarders should note that these policy expansions don’t just mean more compliance. They also create greater exposure to fluctuations in carbon prices, making ETS charges a more unpredictable expense.
Factor 3: Reducing Allowances Will Push Prices Higher
Adding to the complexity, the European Commission plans to progressively reduce the number of emissions allowances available in the market. This reduction will begin in 2026 and is likely to drive allowance prices upward. Though certificates currently average around €80 per ton—below the expected €100 per ton—the tightening supply is expected to push prices much higher over time.
For perspective, Drewry estimates that ETS charges per container will rise significantly in 2025, potentially reaching €75–€85 per forty-foot container—an increase of over 63% compared to 2024 levels. These escalating costs will disproportionately impact smaller shippers and forwarders, who often lack the financial flexibility to absorb such increases.
Mitigation Strategies for Shippers
How can stakeholders respond to this growing financial burden? Drewry recommends that shippers implement standard ETS policies within their contracts with carriers and forwarders. This approach can help control costs, reduce risks, and ensure greater transparency in how ETS charges are calculated and passed on.
Additionally, forward-thinking shippers may consider investing in greener technologies or alternative fuels to reduce their emissions’ footprint. While these solutions require upfront capital, they could offer long-term savings as emissions’ costs rise further.
Looking Ahead: The ETS Challenge
The EU ETS isn’t just a regulatory hurdle; it’s a call for the shipping industry to rethink its environmental and operational strategies. As costs rise and policies tighten, shippers, carriers, and forwarders alike must embrace a proactive stance. Ignoring the ETS today could mean paying a much steeper price tomorrow.
Source: Drewry