EU ETS for Shipping Explained: Scope, Phase In, Rules

What the EU ETS for shipping is

The EU Emissions Trading System (EU ETS) has covered maritime transport since 1 January 2024. The legal basis is Directive 2003/87/EC as amended by Directive (EU) 2023/959, with monitoring rules set by the MRV Regulation (EU) 2015/757 as amended by Regulation (EU) 2023/957. Both amending acts entered into force on 5 June 2023.

The scheme is a cap and trade system. Shipping companies must surrender one EU allowance for each tonne of CO2 equivalent in their verified emissions, and the maritime sector receives no free allocation. To bring shipping into the cap, the Directive increased the Union wide quantity of allowances by 78.4 million in 2024.

The rules apply to ships of 5,000 gross tonnage (GT) and above calling at ports in the European Economic Area, whatever flag they fly. Every ship in scope must hold an approved monitoring plan and report verified emissions each year.

Which ships, voyages and gases are covered

The EU ETS covers 100% of emissions on voyages between two EU ports and 100% of emissions while a ship is at berth in an EU port. It covers 50% of emissions on voyages that start or end outside the EU. A call counts as a port of call only when cargo or passengers are loaded or unloaded, so stops purely for bunkering, supplies, repairs or shelter do not split a voyage.

Cargo and passenger ships of 5,000 GT and above have been in scope from the start. Offshore ships of 5,000 GT and above join the EU ETS from 2027. Until the end of 2025 the system covered CO2 only. From 2026 it also covers methane (CH4) and nitrous oxide (N2O), which matters most for ships running on LNG.

Smaller ships are already reporting. Since 1 January 2025, the MRV Regulation has applied to general cargo ships of 400 to 5,000 GT and to offshore ships of 400 GT and above. Directive (EU) 2023/959 required the Commission to report by 31 December 2026 on bringing ships of 400 to 5,000 GT into the EU ETS. Its July 2026 proposal, set out below, addresses that question.

The phase in of surrender obligations

Shipping companies did not face the full obligation in the first two years. Article 3gb of the Directive phases in the share of verified emissions that must be covered by allowances. Surrender takes place by 30 September of the year after the emissions year.

Emissions year	Share of verified emissions to surrender	Surrender deadline	Gases covered
2024	40%	30 September 2025	CO2
2025	70%	30 September 2026	CO2
2026	100%	30 September 2027	CO2, CH4, N2O
2027 onwards	100%, offshore ships of 5,000 GT and above added	30 September of the following year	CO2, CH4, N2O

Ships with ice class IA or IA Super, or an equivalent class, may surrender 5% fewer allowances than their verified emissions until 31 December 2030. Shipping companies pay the full carbon cost on in scope emissions from the 2026 reporting year onwards.

Who is responsible and how compliance works

The obligation sits with the shipping company. The Directive defines this as the shipowner or any other organisation or person, such as the manager or the bareboat charterer, that has assumed responsibility for operating the ship and the duties under the ISM Code. The registered owner is responsible by default unless the ISM company has formally taken on the obligation.

Each shipping company is assigned to one administering authority in one Member State. A company registered in the EU is administered by the Member State where it is registered. Others are assigned by port call history, and the Commission publishes and updates the list of companies and their authorities.

The annual cycle runs as follows. The company submits a verified emissions report for each ship, and from 2025 a verified company level report, by 31 March. It then surrenders allowances from its Maritime Operator Holding Account in the Union Registry by 30 September.

Penalties and enforcement

A shipping company that fails to surrender enough allowances pays an excess emissions penalty of EUR 100 per tonne of CO2 equivalent not covered. The amount rises in line with the European index of consumer prices. Paying the penalty does not cancel the debt, and the missing allowances must still be surrendered.

Persistent failure carries operational risk. Where a company misses its surrender obligation in two or more consecutive reporting periods and other measures have failed, the Member State of the port of entry may issue an expulsion order. Other Member States must then refuse entry to the company's ships, and the flag State may detain them. The names of non compliant companies can also be published.

Exemptions for islands, outermost regions and transhipment

The Directive allows temporary relief until 31 December 2030. Ships must still monitor and report these emissions, but surrender is treated as satisfied. The relief covers voyages within or to outermost regions of the same Member State, passenger voyages to small islands, and certain transnational public service contracts.

The small island derogation applies to passenger and ro pax ships, excluding cruise ships, serving islands with fewer than 200,000 permanent residents and no road or rail link to the mainland. Commission Implementing Decision (EU) 2023/2895 lists the islands and ports. For Malta, the list covers Gozo (Mġarr), so the Gozo ferry routes within Malta do not require allowances until the end of 2030. The only listed transnational contract is the Cyprus and Greece link.

To limit evasion, a containership stop at a listed neighbouring container transhipment port outside the EU does not count as a port of call. The Commission first listed East Port Said in Egypt and Tanger Med in Morocco. This rule is directly relevant to transhipment hubs such as Malta Freeport.

Where the revenue goes

Auction revenue goes mainly to Member State budgets. Until 31 December 2030, Member States with more than 15 shipping companies per million inhabitants share an extra 3.5% of the additional allowances created for maritime transport. Half is distributed by each country's share of shipping companies and the rest in equal parts.

The Innovation Fund was widened to cover maritime decarbonisation, and the Directive tells the Commission to give special attention to maritime projects. The July 2026 proposal would go further with a dedicated mechanism for sustainable maritime fuels and propulsion.

How the EU ETS fits with FuelEU Maritime and the IMO

FuelEU Maritime, Regulation (EU) 2023/1805, has applied since 1 January 2025 to ships above 5,000 GT calling at EU ports. It limits the greenhouse gas intensity of energy used on board, starting at 2% below the 2020 level in 2025 and reaching 80% below by 2050. From 1 January 2030, container and passenger ships must use onshore power supply or a zero emission technology at berth in ports covered by AFIR. The EU ETS prices emissions, while FuelEU sets a fuel standard, so ships face both.

At the IMO, MEPC 83 approved the draft Net Zero Framework in April 2025, combining a global fuel standard with emissions pricing. In October 2025 an extraordinary session adjourned adoption for one year. MEPC 84 in April 2026 did not finalise it, and a resumed session is scheduled for 4 December 2026, subject to confirmation by MEPC 85. As of November 2026 the framework is not adopted. The Directive requires the Commission to review the EU ETS within 18 months of any global market based measure being adopted.

On 17 July 2026 the Commission proposed a revision of the EU ETS, COM(2026) 616, with a parallel MRV proposal. For shipping it would bring ships of 400 to 5,000 GT into the EU ETS from 2031 by ship type, extend the island, outermost region and ice class derogations to 2035, widen the anti evasion rules for transhipment, and earmark up to 110 million allowances for 2028 to 2040 through a Sustainable Maritime Alternative Propulsion mechanism. These are proposals only and need agreement by the European Parliament and the Council.

FAQ

Questions, answered

When did the EU ETS start applying to shipping?+

It applied from 1 January 2024. The first surrender, covering 40% of 2024 emissions, was due by 30 September 2025.

Which ships are covered by the EU ETS?+

Cargo and passenger ships of 5,000 GT and above calling at EU ports, whatever their flag. Offshore ships of 5,000 GT and above join from 2027.

How much of an international voyage is covered?+

50% of emissions on a voyage between an EU port and a non EU port. Voyages between EU ports and time at berth in EU ports are covered at 100%.

Who has to surrender allowances?+

The shipping company, meaning the registered owner by default or the ISM company where it has formally assumed the obligation. Each company reports to one administering authority.

What is the penalty for not surrendering allowances?+

EUR 100 per tonne of CO2 equivalent not covered, indexed to inflation, and the missing allowances must still be surrendered. Repeated failure can lead to an expulsion order from EU ports.

Does the EU ETS apply to the Gozo ferry?+

Gozo (Mġarr) is on the Commission's list of small islands, so passenger voyages to and from Gozo within Malta need no allowances until 31 December 2030. Emissions must still be monitored and reported.

Are methane and nitrous oxide included?+

Yes, from 2026 emissions onwards. Before 2026 the EU ETS covered CO2 only, although methane and nitrous oxide were already monitored under MRV from 2024.

Will the IMO Net Zero Framework replace the EU ETS?+

Not automatically. The framework had not been adopted as of November 2026, and EU law requires a review of the EU ETS within 18 months of any global measure being adopted.

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