Brexit 'Loophole' Saving Operators Up to 73% on EU-ETS Costs

Brexit causing unindended loopholes for EU-ETS. File Image / Pixabay

Brexit has been accused of having numerous unintended consequences, and if the latest report from Sea-Intelligence is any indication, that includes helping some ship operators save as much as 73% on their EU-ETS costs.

The apparent 'loophole' exists due to the wording of the ETS regulation that from January 1, 2024 requires ships to pay for 100% of their emissions generated on voyages within the EU, and 50% of the emissions generated on voyages between EU and non-EU ports.

However, because only the previous port of call is considered in the EU-ETS tax calculation, and the United Kingdom (UK) withdrew from the European Union (EU) in 2020, any ship sailing into Europe can significantly cut their apparant voyage distance by first calling at a UK port prior to entering EU waters.

For example, if a ship were to sail between New York and Rotterdam it would have to pay emissions tax on 50% of that total voyage, as one port lies outside the EU and one port within the EU.

If this ship were to instead sail from New York to a UK port before then sailing to Rotterdam, the ship would be liable to pay zero tax on the New York to UK leg - the vast majority of the intended New York to Rotterdam voyage distance - and 50% on the short UK to Rotterdam leg.

"If we map out the port rotation of the services offered in the North Atlantic trades (i.e. liner services from North America to North Europe), we can calculate the total sailing distance for which emissions must be reported, under two different circumstances: one based on the current reality where the UK is exempt, and the other based on what the situation would have been, had the UK remained in the EU," Sea Intelligence writes.

Under these two scenarios, the reportable ETS distance is 51,181 miles, while the reportable ETS distance if there was no Brexit would have been 67,069 miles.

"It tells us that BREXIT has resulted in the reduction of total reportable sailing distance on the North Atlantic of -24%," Sea-Intelligence notes.

"If we dig a layer deeper and look at the individual liner services themselves, there are outlier services which are seeing reductions in reportable distances of as high as -73%."

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