UK ETS maritime expansion – consultation response

Consultation response – UK ETS scope expansion: maritime

January 2025

In response to the UK government’s consultation on expanding the scope of the UK emissions trading scheme (ETS) in the maritime sector, the SASHA Coalition emphasised that as many emissions as possible should be covered by the ETS, including:

Emissions from vessels under 5,000 GT.
Emissions released at berth.
Non-CO2 greenhouse gas (GHG) emissions.
Emissions from international, as well as domestic, voyages.

Covering these emissions would:

Enhance the success of the UK ETS in reducing emissions in the maritime sector.
Increase the uptake of truly sustainable green hydrogen-based solutions by bridging the price gap between them and conventional maritime fuels, and creating new revenues to finance their development and adoption.
Give the UK the best opportunity of meeting its climate goals and unlocking the growth potential of the burgeoning e-fuel industry, creating jobs and skills.
Make those responsible for emissions pay a fair price for them, in line with the polluter pays principle.

The consultation response also addressed GHG emissions accounting approaches, alignment with the Carbon Budget Delivery Plan (CBDP), and recommended changing biofuels' zero-emission rating in line with the best-available science.

Responses

2. Do you agree that the proposed definition will capture all relevant domestic emissions?

The proposed definition does not include vessels under 5000 GT. The International Maritime Organization (IMO) has required vessels from 400 GT to fulfil certain monitoring, reporting, and verification (MRV) requirements since 1 January 2023, and the EU has done the same from this year. The EU will also consider 400-5000 GT vessels as part of the ETS review at the end of 2026.

The Authority itself recognises that the 5000 GT threshold means that only 39% of total UK domestic maritime greenhouse gas (GHG) emissions will be covered. We do not believe the proposed definition captures all relevant domestic emissions, and further consideration for vessels between 400-5000 GT should be included, especially as these vessels are subject to global MRV regimes. A 400 GT threshold would be coherent with existing IMO legislation,[1] and if the Authority is concerned about administrative burden, mitigation such as a carbon threshold for 400GT+ vessels with a high financial turnover, or a simplified reporting process for vessels between 400-5000 GT can be considered.[2]

We understand that a rationale for including maritime in the UK ETS is to correct the market failure that maritime fuel prices do not reflect the social costs of their GHG and air pollutant emissions. However, if 61% of maritime GHG emissions are not covered, this failure will persist. Although the plan as it stands will incentivise shipowners and operators to invest in decarbonisation technologies such as green hydrogen and its derivatives, this effect would be stronger if all relevant domestic emissions were covered.

4. Do you agree with the inclusion of emissions at berth in a UK port from vessels performing both domestic and international voyages?

We agree with the inclusion of emissions at berth in a UK port from vessels performing both domestic and international voyages to ensure as many significant emissions as possible are covered and therefore limited.

The overall emissions contribution from at berth emissions is small – in 2020, only 10% of UK domestic emissions from shipping came from vessels at berth.[3] Yet, in the UK in 2022, residents of port towns breathed in very high levels of ship-produced air pollutant emissions (including nitrous oxide [N2O] and sulphur, and fine particulate matter), with the effects of this felt most by dock workers. Port town residents and workers are therefore exposed to a higher chance of respiratory and cardiovascular disease.[4] These are crucial reasons for including shipping emissions at berth in the UK ETS as not only do they reinforce the polluter pays principle, but the broader inclusion of shipping emissions will contribute to a stronger demand signal from the Authority to encourage industry to invest in e-fuels. From a health perspective, including at berth emissions will improve the accuracy of the Government’s predictions of health costs caused by emissions in port towns, and have a multiplier effect in reducing costs incurred on the National Health Service (NHS), maximising the impact of public health spending.

The value of including at berth emissions is demonstrated by legislation enacted in California, USA. The Ocean-Going Vessels At Berth Regulation 2020[5] states that each vessel visiting a regulated Californian port must use an emission control strategy to control its emissions for the duration of the visit, unless the visit qualifies for an exemption. The regulation is estimated to save $2.3 billion in adverse health outcomes including reduced mortality, hospitalisations, and Accident and Emergency visits, and is predicted to lead to a 90% reduction in pollution from vessels at berth. The new regulation is also projected to result in a 55% reduction in potential cancer risk for communities near the Ports of Los Angeles, Long Beach, and Richmond.[6] The Authority should look to legislation such as this as evidence for the importance of including emissions at berth in a UK port from vessels performing both domestic and international voyages.

13. Do you agree with the inclusion of emissions from the combustion or slippage of methane and nitrous oxide emissions from maritime activity within the scheme?

Yes, we agree with the suggested inclusion. Firstly, due to policy coherence, as the EU ETS is due to cover methane and N2O from 2026.[7] Secondly, the inclusion is crucial due to the environmental impacts of methane and N2O. As both the Department for Energy Security and Net Zero (DESNZ) and the Department of Transport (DfT) have recognised, methane and N2O have a much higher global warming potential than CO2 over a 100-year timescale. This is particularly relevant in the context of fossil LNG. Fossil LNG has been labelled as a sustainable fuel as it reduces carbon emissions and air pollutants at the point of combustion, and its demand is set to increase as countries look to move away from Russian gas following international sanctions. However, the emission of unburned methane (methane slips) originating from the use of fossil LNG in vessel engines undermines the climate benefits of its use.[8] Methane has climate impacts over 80 times greater than CO2 over a 20-year period. Moreover, the ICCT has demonstrated that policymakers currently underestimate the magnitude of methane slips. The EU and IMO assume 3.1% and 3.5% respectively, whereas new research found slippage rates were on average almost double these estimates at 6.4%.[9] Excluding the combustion or slippage of methane from the scope of the scheme therefore risks perversely incentivising the investment in and use of fossil LNG. In turn, this could both undermine the true climate benefits of the scheme and potentially cause investor and consumer confusion as to the true environmental impacts of fossil LNG.[10]

The shipping industry accounts for 18-30% of all global N2O emissions in the atmosphere.[11] N2O is the most damaging ozone-depleting substance emitted globally, risking exposing the majority of Earth’s population to higher UV levels and an increase in skin cancers and cataracts.[12] It is therefore crucial that N2O is included in any ETS scheme, as it is a significant contributor to climate change.

We support the Authority’s decision to include emissions from both the combustion and slippage of these additional GHGs. Including all GHG emissions will ensure the UK ETS continues to abide by the polluter pays principle, avoid creating perverse incentives, and further incentivise investment into the e-fuel market as a truly sustainable long-term fuel solution.

14. Do you agree with our proposal for how to calculate an operator’s greenhouse gas emissions on a carbon dioxide equivalent (CO2e) basis?

Yes. Including emissions of methane and N2O in addition to CO2 is essential for accurately quantifying GHG emissions from a range of fuels – conventional and sustainable. The proposed methodology for calculating CO2e is consistent with currently adopted United Nations Framework Convention on Climate Change (UNFCCC) methods.[13]

We agree in principle that 100-year Global Warming Potential values (GWP100) are an appropriate choice for the UK ETS. Since GWP values can depend strongly on the timeframe being considered (e.g. methane has a 20-year GWP of 84 and a 100-year GWP of 28), it is important that this timescale is stated and factored into the calculation methodology, ensuring that the methodology takes proper account of the relevant forcing risks.

We also highlight that the suggested GWP values for methane (28) and N2O (265) are taken from the Intergovernmental Panel on Climate Change’s (IPCC’s) 5th Assessment Report (AR5) published in 2013. Whilst use of these GWP values is consistent with currently agreed UNFCCC methods, GWP values from AR5 have since been updated with new values published in 2021 as part of the IPCC’s 6th Assessment Report (AR6).[14] Since the most recent set of GWP values at a given time will reflect the best available evidence, it may be necessary to consider and clarify whether and how the UK ETS will incorporate future updates to GWP values if, for instance, adopted UNFCCC methods for calculating CO2e are updated to reflect those updated GWP values.

16. Do you think an exemption is necessary for specific ferry services serving island communities in Scotland?

Whilst we do not take a position on the exemption itself, we do recognise that ferry services are crucial for island communities in Scotland. Therefore, we see an opportunity to direct funding towards demonstrating e-fuel, green hydrogen-electric and battery electric solutions on these services, as their size and weight make them the perfect vessels for these trials. This also has the potential to contribute to a just transition for these communities, by creating jobs in the area. The 31 operational projects awarded a share of £7 million from the Emerging Energy Technologies Fund[15] will contribute to Scotland’s goal of reaching a total installed capacity of five gigawatts of low-carbon or renewable hydrogen production by 2030. Earmarking a proportion of this funding to trial green hydrogen solutions on these specific ferry services would contribute to green hydrogen demand, helping boost the market, in line with the Scottish Government’s plans to decarbonise these vessels by 2045.

21. Do you agree that the proposed approach, of adding allowances equivalent to emissions in scope per emissions trajectories aligned to the CBDP, is the most appropriate approach to adjusting the cap and to ensure the emissions reductions required to deliver climate targets?

Whilst we broadly agree that allowances should be added to align with the CBDP to maintain policy coherence, there are several risks to consider. Adding allowances equivalent to emissions in scope per emissions trajectories aligned to the CBDP could lead to an enabling of investment in non-solutions simply because they operate within the CBDP trajectories in the short or medium term until 2030. Both the CBDP and therefore the UK allowance (UKA) cap trajectory being flat until 2030 does not provide the UK maritime industry with the regulatory signal it needs from the Authority to drive forward decarbonisation efforts before the end of the decade.

Whilst we understand the CBDP trajectory is flat and assumes no real abatement before 2030, the 2.4 million UKA cap for maritime until then does not reflect the other changing types in Table 41 of the analytical annex.[16] Therefore, it is difficult to understand how the UKA cap for maritime can contribute to net zero goals before 2030 if both the cap and the CBDP trajectory stay the same. Noting that the Authority would seek to consult with stakeholders if an updated decarbonisation trajectory were to be produced, this regulatory uncertainty could distract stakeholders from spending time on decarbonisation, and a sudden amendment to allowances in the early 2030s would not provide stakeholders with the stability of a gradual increase. We are concerned that the flat trajectories until 2030 are not addressing the problem, therefore delaying the uptake of e-fuels and delaying the decarbonisation of the maritime sector.

We suggest that the cap should be decreased incrementally each year until 2030 (to be revisited then). Providing a cap which decreases between 2026 – 2030 will also send a clear signal to the shipping industry and investors, highlighting the level of ambition from the government as each year passes, further outlining the urgency to invest in novel technologies such as green hydrogen and e-fuels for maritime vessels. However, we understand this would not be in line with the CDBP trajectory, so increasing the CDBP trajectory should be considered in the upcoming Carbon Budget update.

26. Do you agree that we should use the UK MRV regime as the basis for the UK ETS, with deviations for the purpose of the UK ETS MRV requirements as outlined?

We agree that it is logical to use the UK MRV regime as the basis for the UK ETS, and we agree with the deviations suggested by the Authority. However, the maritime UK ETS should be more ambitious to achieve maritime decarbonisation, and, as the Authority notes, the MRV sets biofuels’ emissions at zero, failing to account for these fuels’ lifecycle emissions. With the MRV due an update, we urge both the Authority and DfT to revisit the zero-rated emissions of biofuels.

Any benefits of biofuels are heavily dependent on the ability of these fuels to meet applicable standards and certifications. If biofuels do not meet these standards, their emissions could be equivalent to conventional fossil fuels.[17] These standards across the biofuel market itself are extremely difficult to harmonise, as there are major discrepancies between different forms of biofuel, leading to difficulties fulfilling MRV requirements, and the risk of shipowners and their customers being misled.[18]

As recognised by the Authority and mentioned in our answer to Question 29, we would urge the Authority to work with the UK MRV regime to update the zero-rated biofuels emissions, as it is scientifically inaccurate.

29. How best should we account for biofuels and other sustainable fuels used in the maritime sector in the scheme? How best can we consider lifecycle emissions for fuels used in the maritime sector in the scheme? Please explain your response, providing evidence where possible.

The UK MRV regime setting biofuel emissions at zero is scientifically inaccurate and we suggest an alternative accounting method for both the MRV and the UK ETS. Whilst using biofuels in shipping industry can significantly, though not completely, reduce sulphur and CO2 emissions, CO2e measure should be used in MRV and UK ETS accounting to capture all GHG emissions, including non-CO2 impacts. Moreover, the MRV fails to use lifecycle emissions analysis (LCA), therefore failing to account for supply chain emissions that may be significant depending on different biofuel feedstocks. Unaccounted for emissions may result from land use changes, fuel production and transportation. Further overlooked environmental impacts may include acidification, eutrophication, and biodiversity loss.

It is therefore recommended that to accurately account for lifecycle emissions for biofuels, e-fuels and other alternative fuels, the UK ETS goes beyond GHG emissions and includes other sustainability indicators from across the whole supply chain.[19] Quantifying these effects will assist the Authority in creating the most accurate and effective UK ETS. Our previous work on the climate and biodiversity impacts of four different alternative fuel feedstocks can assist in calculating lifecycle emissions.[20]

30. Which greenhouse gas emission factors for each maritime fuel and energy source would be most appropriate to use under the scheme? Are these emission factors fit for purpose for calculating lifecycle CO2e emissions?

Whilst there is no global agreement on a standardisation for each maritime fuel and energy sources, there are several documents which the Authority should consider.

The IMO has recently published guidelines for calculating lifecycle GHG emission factors for marine fuels. Appendix 2 of this document provides default emission factors for some marine fuels. Meanwhile, Annex II of EU Regulation 2023/1805 also lists default emission factors for certain marine fuels.

Default emission factors have not been internationally agreed for all fuels.[21] Considering ammonia as an example, EU Regulation 2023/1805 lists the default Tank-to-Wake N2O emission factor as “to be measured”. Defining this value is challenging due to a current lack of data regarding the amount of N2O production which occurs during ammonia combustion.[22] Further uncertainty on both a Well-to-Tank and Tank-to-Wake basis may result from the release of reactive nitrogen during the ammonia fuel cycle (e.g. due to ammonia leakage, ammonia slip or NO production), which may result in additional GHG emissions if this reactive nitrogen is later converted to N2O.[23]

This example illustrates that, currently, scientific uncertainty can affect the accuracy, or even prevent the designation of, default emission factors for some marine fuels. Where default emission factors cannot be designated, actual emission factors may be developed in accordance with internationally accepted procedures.[24] In all cases, to avoid underestimating emission factors, the full range of possible emission sources should be considered and precautionary assumptions used where necessary.

The need for robust and comprehensive emissions assessments is also demonstrated by biofuels. As discussed in more detail in our response to Question 29, the Authority, and the MRV regime, should not be reporting emissions of biofuel as zero. This would be inaccurate, and misleading, and can lead to greenwashing.

In summary, work is underway to develop and refine lifecycle emission factors for a range of marine fuels.[25] The UK ETS should have the flexibility to incorporate this new information as it becomes available. To ensure that calculated emissions are accurate, emission factors must consider the full range of processes which could contribute to GHG emissions, with uncertainty addressed in a manner consistent with a precautionary approach.

31. Do you agree that the changes outlined above should also be made to the existing UK MRV regime?

Yes, as for reasons discussed in the previous answers, the UK MRV is outdated.

36. How else could the UK ETS support decarbonisation in the sector?

Carbon pricing schemes and the UK ETS can play a crucial role in closing the price gap between sustainable alternative fuels, and conventional marine fuels. Sustainable alternative fuels such as e-fuels are the most long-term solution, and the creation of these fuels can boost jobs and skills in the UK, ensuring economic stability and net zero prominence.[26] The Authority should therefore seek to reinvest revenues generated by the ETS into the industries, which can lead to the price gap being significantly reduced. [27] The highly undesirable delay[28] to the update of the Clean Maritime Plan 2019 should also be addressed by DfT as another key policy tool to assist in driving down the price gap of e-fuels. We urge the Authority to work with DfT on developing an updated Clean Maritime Plan which should include an alternative fuel mandate, similar to the sustainable aviation fuel mandate.

47. Should the UK ETS be expanded to include emissions from all international voyages starting or ending in the UK in future?

It is imperative that international shipping emissions are included as soon as possible, at least until the IMO has enacted an effective mechanism for international voyages, in order to fulfil the UK ETS’ aims and address the full extent of the climate and social impacts of maritime carbon emissions in the UK, and globally.

Analysis from Transport and Environment demonstrates the urgency of this requirement. UK maritime CO2 emissions were just over 22 Mt in 2021. Of those, approximately 18Mt were from UK international voyages and approximately 4Mt from UK domestic voyages. Applying the proposals from the ETS consultation to the data, only ~10% of these emissions, i.e. 2.13Mt, would be included in the ETS while 90% would be exempted.[29] Moreover, the UK, as a signatory to UNCLOS and the Paris Agreement, has a positive obligation to reduce maritime emissions in the absence of global regulation. As discussed in Opportunity Green’s consultation response of 2022, the Authority should not wait for the IMO to act on international emissions.[30]

In order to accurately account for emissions and fulfil the main rationale behind introducing maritime into the UK ETS, all emissions, international and domestic, should be included. This will then lead to the price of conventional marine fuel reflecting its true climate impact and will encourage shipowners and their customers to invest in e-fuels.

48. If you agree with the above, do you think 50% of emissions from voyages by in-scope ships making an international voyage which starts or ends in the UK from overseas should be covered?

We agree that 50% of emissions from international voyages by in-scope ships should be covered, as this is the fairest approach. The EU ETS already covers 50% of emissions from voyages starting or ending outside the EU, providing precedent for including third country emissions. We agree that all international emissions should be included at a 50% rate since this is the fairest approach that neither penalises nor privileges the UK and others as primarily importers or exporters. Adopting this approach would align the UK ETS with principles of global equity and common but differentiated responsibility, as asserted by the EU and corroborated by research from Opportunity Green and Transport and Environment.[31] The Authority should be reminded that whilst we recognise the UK is subject to IMO level regulation, this does not mean the UK cannot nor should not independently enact national legislation to abate shipping emissions.

49. If you support the inclusion of international voyages, do you have a view on when this should be implemented?

We believe that the inclusion of international voyages should be implemented in line with the EU ETS international maritime inclusion, to minimise carbon leakage.

[1] Transport & Environment, ‘A pricey omission: not charging ships for their pollution costs the UK £1.6bn/yr,’ January 2023.

[2] Transport & Environment, ‘Climate Impacts of Exemptions to EUʼs Shipping Proposals,’ January 2022.

[3] Department for Transport, ‘UK Domestic Maritime Decarbonisation Consultation: Plotting the Course to Zero,’ July 2022.

[4] Transport & Environment, ‘Coastal fug: the UK’s most polluted ports, ranked in order,’ May 2024.

[5] California Air Resources Board, Ocean-Going Vessels At Berth Regulation 2020.

[6] California Air Resources Board, ‘California’s regulation to reduce pollution from ocean-going vessels granted U.S. EPA authorization,’ October 2023.

[7] European Commission, ‘Reducing emissions from the shipping sector.’

[8] Niina Kuittinen et el., ‘Methane slip and other emissions from newbuild LNG engine under real-world operation of a state-of-the art cruise ship,’ August 2024.

[9] ICCT, ‘Fugitive and Unburned Methane Emissions from Ships (FUMES): Characterizing methane emissions from LNG-fueled ships using drones, helicopters, and on-board measurements,’ January 2024.

[10] BBC News, ‘'Green' ferry emits more CO2 than old diesel ship,’ December 2024.

[11] Sea News, ‘Shipping Industry and the NOx Emissions,’ February 2019.

[12] UNEP, ‘Rise in nitrous oxide emissions endangers pathway to 1.5°C, the ozone layer, and human health,’ November 2024.