The inclusion of shipping in the EU Emissions Trading System (ETS) and its impacts (if any) on the Brazilian shipping market
Market Insight 30 June 2023 30 June 2023
The European Union’s Emissions Trading System (ETS) is a carbon market created by the EU in 2005 to tackle climate change by means of reducing greenhouse gas emissions.
On 18 April 2023, the European Parliament voted in favour of including shipping in the EU ETS.
This vote shall have a significant impact on the shipping industry in Europe and potentially worldwide, as costs will likely be passed down the trade chain between shipowners, charterers, managers, etc.
Similar systems to the EU ETS in Brazil
Last year, in May, the Brazilian Government took a step forward, towards the creation of a carbon and green house gas emissions market, with the issuance of a Federal Decree (which we call “Gas Emission Reduction Decree “ n. 11.075/2022).
This created a new system called SINARE, which is the National System for the Reduction of Greenhouse Gas Emissions.
This system has the purpose of serving as a single centre for recording emissions, removals, reductions, offsets and transactions of certified emission reduction credits.
However, Brazil has no regulated carbon market yet (although there are Bills in this regard being reviewed by the Senate), so the enactment of the Gas Emission Reduction Decree started the path towards the development of this market and, also, towards an environmental policy which is in line with the commitments undertaken by Brazil in the Paris Agreement.
Also, the new Brazilian government and Minister of Environment is pushing the climate agenda forward with plans for a forest carbon project and creation of carbon credits through reforestation.
Whether Brazil may impose similar actions to the EU’s inclusion of shipping in the ETS
Currently, under the Gas Emission Reduction Decree, there is a provision which establishes that it is incumbent upon the Ministry of Environment to propose Sectorial Plans for Mitigation of Climate Change.
At present, shipping is not an economic sector included in the list of industries under the National Policy on Climate Change. as part of their Eco shipping program.
However, with the development of the regulation governing emissions and the step forward in the direction of a carbon and emissions market, it is likely that the Government will include shipping in the list of sectors subject to Climate Change Mitigation Plans.
Developments in the decarbonisation of the Brazilian shipping market
Brazil is a signatory to the Marpol Convention and has committed to the Paris Agreement, which overall reinforces a general commitment to decarbonisation.
There are however no local regulations yet establishing precise criteria applicable to the shipping market, on the reduction of greenhouse gas emissions and carbon market or similar systems to the EU Emissions Trading.
There has been an increase in the initiatives from players in the market towards the energy transition of the Brazilian shipping industry.
For example, the mining company Vale, together with other players, has developed a multi-fuel tank vessel (the Guaibamax, which is a Very Large Ore Carrier), equipped with rotating sails, and aimed to operate using alternative fuels, such as LNG, methanol and ammonia, as part of their Eco shipping program.
Reaction from the Brazilian shipping industry to the expansion of the EU ETS
This is very recent, but there have been discussions regarding how the implementation of this will impact on the Brazilian exportations to the EU, Brazil being a huge exporter to the region.
The Brazilian commodity players who export to the EU are discussing how they will deal with the carbon footprint incorporated into their products in terms of compliance with the European legislation. Also, how the stakeholders will share the burden of these costs, arising from the expansion of the EU ETS, and the likelihood that they will be recouped by owners from charterers/exporters further down the line.
Thus, there is an economic impact following from the decision which will no doubt echo into the Brazilian commodity trade industry. Shipowners, charterers, and operators are therefore encouraged to understand the new measures.
For further guidance on the above, please do not hesitate to contact the authors below.