Featured: Platts Carbon Emissions Charges Aid EU Container Shippers with Independent Cost Benchmark Transparency

With the introduction of maritime in the EU Emission Trading System (EU ETS), ships above 5,000 gross tonnages (GT) will have to acquire and surrender emission allowances for their CO2 emissions for shipping both intra-EU (within the EU) and inter-EU (in and out of the EU) from 2024 onward. Shipowners will have to account for 100% of emissions on voyages and port calls made within the EU/European Economic Area (EEA), and 50% of emissions on voyages into or out of the EU/EEA will be subject to EU ETS.

In the container markets, liner companies began publishing what are known as emissions surcharges beginning in September 2023. These are in-house, calculated emissions costs charged to customers on a dollar-per-40-foot equivalent unit ($/FEU) or a dollar-per-20-foot equivalent unit ($/TEU), designed to offset the emissions costs that shipowners will have to pay for in the form of EU Allowances (EUAs).

Due to the cost becoming a methodological calculation by the carriers, which is then passed onto shippers, this creates a sense of pricing opacity on two levels:

1. What parameters of operational measurements do carriers use that directly affect a vessel's emissions (i.e., knot speeds, fuel consumption levels, distances traveled, and vessel sizes).

2. How carriers blend in pricing mechanisms for emissions to arrive at a particular calculation.
EUAs must also be surrendered by shipping companies a full year ahead. This poses significant questions in the form of pushing retrospective emissions charges for costs that will be redeemed more than a year ahead in the calendar. The volatility in the EU Allowance Nearest December Prices will likely continue increasing exposure for counterparties involved in redeeming allowances since surcharges typically could have a monthly or quarterly revision. The formulaic nature of calculating surcharges from carriers on an in-house level presents a challenge for market participants because the pricing is volatile, and the pace of price changes is not accurately reflected for the customers paying those emissions surcharges.

S&P Global Commodity Insights has launched the Platts Carbon Emissions Charges, or PCECs, to address these pricing disparities and bring much-needed transparency to the market. The PCECs are independent indexes for every Platts-assessed European shipping lane, providing the container market with better tools for managing exposure to volatility in EUAs.

Employing an internal calculation model utilizing daily spot carbon assessments – namely the EU Allowance Nearest December contract - PCECs reflect the underlining emissions costs for several European Container trade lanes as an independent and fully transparent benchmark. This independent benchmark, therefore, acts as a replacement for the monthly/quarterly surcharges that carriers push to markets, which lack the transparency in calculations reflective of a carbon market known for price fluctuation and volatility.

These assessments deliver transparent, daily updates enabling robust tracking of emissions market movements, which are expected to swing unpredictably in the coming months.

Read the report to learn more about the Platts price assessments and market movements.

https://view.highspot.com/viewer/65e1abb7fc751ee9adf1594f

To learn more about S&P Commodity Insight's Shipping services, which include this new price assessment, click here.