Navigating EU ETS and global regulations: The case for shipping and beyond

As the drive for decarbonization accelerates, industries are grappling with the challenges and opportunities presented by evolving carbon regulations. The European Union Emissions Trading System (EU ETS) has emerged as a pivotal mechanism to address greenhouse gas emissions, especially in the shipping industry. To shed light on how companies are adapting to these regulations and managing their impact, this blog brings together four experts from the Hellenic Association of Treasurers (HAT) and industry-leading organizations to share insights on how companies can effectively navigate the evolving carbon markets:

• Yannis Lefas – Head of Shipping Treasury at HAT, specializing in shipping finance and risk management.
• Dimitris Stamoulis – Head of Corporate and Shipping Sales / Global Markets at Eurobank, focusing on financial solutions for shipping clients.
• Apostolos Androutsopoulos – Senior Treasury Analyst at JERA Global Markets, with expertise in carbon credit trading and hedging strategies.
• Sourabh Verma – VP – Treasury Strategy and Market Insights at ION Group, providing insights on financialization and emerging ESG-linked products.

The first instalment unpacked the fundamentals of carbon markets, exploring the differences between compliance and voluntary systems. In this second blog, we shift focus to the shipping sector and the EU Emissions Trading System (EU ETS). From operational strategies and fleet upgrades to cost management and carbon pricing, our experts discuss how shipping companies are navigating evolving regulations while balancing financial and environmental priorities.

The impact of EU ETS on the shipping industry

Dashmeet: Yannis, how has the EU ETS impacted the shipping sector, and how are companies adapting?

Yannis: The inclusion of maritime emissions in the EU ETS has been a game changer for the shipping industry. Companies are now required to purchase allowances to cover their carbon emissions, which have added a significant layer of cost to operations. To adapt, many are investing in energy-efficient technologies—like hull modifications, air lubrication systems, and optimized engines—to reduce fuel consumption and emissions. Others are turning to cleaner fuels, such as LNG and biofuels, to ensure compliance while maintaining operational efficiency.

Also, operational strategies like slow steaming and advanced voyage planning have gained traction, as they help optimize fuel use and minimize emissions. These measures not only align with regulatory requirements but also provide long-term cost savings.

Carbon pricing in the shipping industry

Dashmeet: Apostolos, how do carbon pricing policies like the EU ETS influence fleet upgrades and long-term planning?

Apostolos: Carbon pricing has fundamentally reshaped decision-making in the shipping industry. Companies now view decarbonization as a financial and strategic imperative. Fleet upgrades, such as investing in new, energy-efficient vessels or retrofitting older ones with cleaner technologies, have become priorities.

Long-term planning increasingly incorporates carbon price forecasts. For instance, many firms are factoring in future price increases when evaluating the return on investment for new technologies. This proactive approach ensures they remain competitive in an environment where compliance costs are expected to rise.

Global versus regional carbon regulations

Dashmeet: How do companies navigate the challenges posed by regional carbon markets like the EU ETS versus the absence of global carbon pricing?

Dimitris: The lack of a unified global carbon pricing mechanism is a significant challenge. Companies operating across regions must navigate a patchwork of regulations, which creates compliance complexities and financial uncertainty. For example, a shipping company operating in both the EU and Asia might face strict ETS requirements in Europe but encounter less stringent or non-existent regulations elsewhere.

To address this, firms are adopting flexible operational strategies, such as adjusting routes or vessel usage to minimize exposure to high-cost regions. Some are also using financial instruments, like carbon hedging, to manage price volatility and stabilize compliance costs.

Challenges in carbon credit usage

Dashmeet: What specific challenges do shipping companies face when using carbon credits for compliance under the EU ETS?

Apostolos: One major challenge is the availability of high-quality carbon credits. Shipping companies often struggle to find credits that meet regulatory standards and are cost-effective. Also, regulatory changes can create uncertainty, forcing firms to constantly adapt their strategies.

Geographic limitations also pose hurdles. For instance, some carbon credits are region-specific, limiting their usability for companies operating globally. To overcome these challenges, businesses need robust market intelligence and strategic partnerships to secure the right credits at the right time.

Operational cost management

Dashmeet: How are shipping companies managing the rising costs associated with carbon pricing?

Yannis: Cost management strategies vary, but efficiency improvements remain a common theme. Beyond technological upgrades, companies are optimizing their operations by adopting slow steaming, optimizing routes, and applying digital tools for voyage planning. Sometimes, firms pass on the increased costs to customers, though this is typically seen as a last resort.

Another approach is hedging against carbon price volatility using financial derivatives. By securing allowances through futures contracts, companies can better predict and manage their compliance costs.

The role of Corporate Social Responsibility (CSR) in carbon market activity

Dashmeet: To what extent does a company’s CSR policy influence its carbon market activity?

Sourabh Verma: CSR policies play a significant role in shaping carbon market activity. Companies with strong CSR commitments often go beyond regulatory compliance, investing in voluntary carbon markets to offset their emissions. This not only enhances their environmental credentials but also strengthens stakeholder trust.

For example, many shipping firms are aligning their CSR goals with their decarbonization strategies, using carbon credits and offsets as tools to achieve net-zero targets. This alignment ensures that their market activities contribute to broader sustainability goals rather than being purely transactional.

The EU ETS has undeniably raised the bar for emissions management in the shipping industry, driving innovation, and strategic planning. However, the lack of global alignment and the challenges of managing compliance costs remain significant hurdles.

By investing in energy-efficient technologies, applying financial instruments, and aligning carbon market activities with CSR goals, companies can navigate these challenges effectively. In our next blog, we’ll delve into the strategic role of corporate treasury in managing carbon credits and addressing the complexities of financialization. Until then check how our solutions, including Reval and ION Carbon Zero, empower you to manage carbon credits with enhanced confidence and regulatory compliance. Stay tuned!