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EUA Market Mechanics for Shipping

The EU Allowance (EUA) market is the trading infrastructure for the European Union Emissions Trading System (EU ETS), comprising primary auctions held by the European Energy Exchange (EEX) in Leipzig (the common auction platform for 25 EU Member States plus the European Economic Area) and the secondary market dominated by EUA futures and options listed on the Intercontinental Exchange (ICE) Futures Europe in London. Each EUA represents the right to emit one tonne of CO2-equivalent within the EU ETS scope. From 1 January 2024 the EU ETS Maritime regime added the shipping sector to the EU ETS, with shipping companies surrendering EUAs against verified emissions reported under the EU MRV Regulation. Shipping demand for EUAs is approximately 35 Mt CO2e in 2024 (40% phase-in factor on approximately 88 Mt total scope), rising to approximately 62 Mt in 2025 (70%), 90 Mt from 2026 (100% on CO2 plus CH4 and N2O additions), and stabilising at approximately 90 to 100 Mt annually thereafter as the underlying total scope evolves with maritime decarbonisation. The market price is governed by supply (the annual cap declining at the Linear Reduction Factor of 4.3% per year from 2024 to 2027 and 4.4% from 2028 onwards), demand (the cap-and-trade dynamic across all covered sectors including power, industry, aviation and now maritime), and the Market Stability Reserve (MSR) which automatically withdraws allowances from circulation when the total number in circulation exceeds 833 million. The 2024 to 2025 EUA spot price has ranged approximately EUR 60 to 90 per tonne; the 2025 to 2030 forward curve typically prices in the range EUR 90 to 150 per tonne reflecting the tightening cap and rising maritime demand. ShipCalculators.com hosts the principal computational tools: the EU MRV to EU ETS allowance crosswalk calculator bridges MRV emissions to allowance obligation; the MARPOL EU ETS cost calculator computes the annual surrender cost at a user-set EUA price; the methane slip CO2-equivalent calculator computes the CH4 and N2O additions from 2026. A full listing is available in the calculator catalogue.

Contents

Background and history

EU ETS launch and Phase 1 to 3 (2005 to 2020)

The EU Emissions Trading System (EU ETS) was established by Directive 2003/87/EC and operationalised on 1 January 2005 as the world’s first multi-country, multi-sector cap-and-trade system for greenhouse gas emissions. The initial scope (Phase 1, 2005 to 2007) covered approximately 12,000 power and industrial installations across the (then) 25 EU Member States.

The Phases:

  • Phase 1 (2005 to 2007): pilot phase with free allocation; no banking allowed between phases.
  • Phase 2 (2008 to 2012): aligned with the Kyoto Protocol commitment period; aviation added in 2012.
  • Phase 3 (2013 to 2020): significant tightening; auction became the dominant allocation method (approximately 50% of allowances); the Market Stability Reserve (MSR) was created in 2015 in response to the structural surplus that had built up.
  • Phase 4 (2021 to 2030): aligned with the Paris Agreement; the cap declines at the Linear Reduction Factor (LRF) of 2.2% per year through 2023, increasing to 4.3% per year from 2024 to 2027, and 4.4% per year from 2028 onwards.

The EUA price has varied significantly across the phases:

  • Phase 1: collapsed to near-zero in 2007 due to over-allocation.
  • Phase 2: stabilised in EUR 10 to 15 range.
  • Phase 3: collapsed to under EUR 5 in 2013 to 2017 due to surplus, then rose to EUR 20 to 30 range in 2018 to 2020.
  • Phase 4 (2021 to 2024): rose to EUR 60 to 100 range, reflecting the tighter cap and the post-COVID recovery.

2023 amendments adding maritime

The 2023 amendments to the EU ETS Directive (Directive (EU) 2023/959, published 16 May 2023, in force 5 June 2023) extended the EU ETS to maritime emissions from 1 January 2024 under the EU ETS Maritime regime. The 2023 amendments:

  • Added shipping as a new sector covered by the EU ETS, with phase-in over 2024 to 2026.
  • Increased the LRF from 2.2% to 4.3% per year (rising to 4.4% from 2028) to maintain the overall cap reduction trajectory.
  • Introduced one-off “rebasement” reductions in 2024 and 2026 to absorb the maritime addition without diluting the existing cap.
  • Added carve-outs for islands and remote regions to avoid disproportionate impact on residents.

2024 onwards: maritime demand enters the market

The 2024 entry into force of EU ETS Maritime added approximately 35 Mt CO2e of new EUA demand to the market in the first year, equivalent to approximately 2.4% of total EU ETS demand. The phase-in trajectory:

  • 2024: 40% phase-in factor on approximately 88 Mt of maritime CO2 scope = ~35 Mt allowances surrendered.
  • 2025: 70% phase-in = ~62 Mt allowances surrendered.
  • 2026: 100% phase-in on CO2 + 100% on CH4 and N2O additions = ~90 Mt allowances.
  • 2027 onwards: ~90 to 100 Mt annually, with gradual decline as maritime decarbonisation progresses.

The maritime demand has had a measurable impact on EUA prices:

  • First half 2024 (before significant maritime demand materialised): EUA spot ~EUR 65 to 75 per tonne.
  • Second half 2024 (first maritime surrender period approaching): EUA spot rose to ~EUR 75 to 85.
  • First half 2025 (first maritime surrender on 30 September 2025 imminent): EUA spot ~EUR 70 to 90.

The maritime impact is one factor among many (power sector demand, industrial demand, MSR rebalancing, geopolitical events) but is broadly cited as having added approximately EUR 5 to 10 per tonne to the EUA price floor relative to a counterfactual without maritime inclusion.

Market structure

Primary market: EEX auctions

The European Energy Exchange (EEX) in Leipzig operates the EUA primary auction on behalf of 25 EU Member States plus Iceland, Liechtenstein and Norway (the “common auction platform”). The other Member States (Germany, Poland, Italy, Belgium) historically operated separate national auction platforms, with Germany returning to the EEX common platform from 2024. Total annual EUA auction volume in 2024 was approximately 600 million EUAs (including the maritime extension auction increment).

The EEX auction operates:

  • Daily auctions for the spot market (typically 1.5 to 2 million EUAs per auction day).
  • Standardised auction format: sealed-bid, single-round, uniform-price auction at 09:00 CET each trading day.
  • Minimum bid size: 500 EUAs (= 500 tonnes CO2e).
  • Reserve price: set at the previous day’s spot close minus a small adjustment to prevent runaway price collapse.
  • Auction floor mechanism: if the auction clears below the reserve price, the auction is cancelled and the unsold allowances are placed in the next auction.

Auction proceeds flow to the participating Member States, which use the revenue (under Article 10a of Directive 2003/87/EC) for climate-related purposes:

  • At least 50% must be used for climate change mitigation in Member States or third countries.
  • A portion is retained centrally for the Innovation Fund (~30% of auction proceeds; supports breakthrough low-carbon innovation).
  • A smaller portion for the Modernisation Fund (helping lower-income Member States transition).
  • A new EU Hydrogen Bank (launched 2024) supports renewable hydrogen production scale-up.

Secondary market: ICE Futures Europe

The dominant secondary EUA market is ICE Futures Europe in London, which lists:

  • EUA December Futures: standardised futures contract (December delivery) extending out to December 2030. The benchmark futures contract for the EU ETS market.
  • EUA Spot: physically-settled spot contract.
  • EUA Options: call and put options on the December futures contracts.
  • EUA Daily Futures: short-dated futures for hedging tail-end exposures.

ICE Futures Europe accounts for approximately 90% of EUA secondary-market trading volume. The remaining 10% is split across EEX (Leipzig, also operates a secondary market alongside its auction role), Euronext (Amsterdam, smaller), and OTC trading (typically by industrial off-takers using bilateral contracts).

The secondary market is deeply liquid: typical daily trading volume is approximately 300 to 500 million EUAs (notional value approximately EUR 20 to 40 billion at typical prices), making it one of the world’s largest commodity markets by notional value.

Maritime participants

EU ETS Maritime introduced approximately 3,500 to 5,000 shipping companies (the “Shipping Companies” defined in the EU ETS Directive Article 3gb) as new EU ETS participants from 2024. The shipping participants include:

  • Container lines: Maersk, MSC, CMA CGM, Hapag-Lloyd, ONE, Evergreen, Cosco, Yang Ming, HMM, ZIM, Wan Hai.
  • Bulk carrier operators: Star Bulk, Genco, Diana Shipping, Eagle Bulk, NYK Line, Pan Ocean.
  • Tanker operators: Frontline, Euronav, Teekay, Scorpio Tankers, DHT Holdings.
  • Cruise operators: Carnival, Royal Caribbean, MSC Cruises, Norwegian Cruise Line.
  • Ro-ro / ferry operators: Stena Line, DFDS, Tallink-Silja, Color Line.
  • LNG / LPG carriers: dedicated operators (BW LPG, Avance Gas, GasLog).

The shipping participants must have an EU Operator Holding Account in the European Union Transaction Log (EUTL) for surrendering allowances, established through their flag state’s EU ETS authority or (for non-EU flagged ships) through an “administering authority” assigned to a port state of frequent call.

Treasury and procurement function

EU ETS Maritime has prompted the establishment of dedicated EU ETS treasury teams at major shipping companies, typically reporting to the CFO. These teams:

  • Forecast the annual EUA surrender obligation based on voyage planning + IMO DCS / EU MRV data.
  • Procure EUAs through ICE Futures Europe (most), EEX auctions (large operators), or OTC contracts (specialised).
  • Hedge EUA price exposure through forward purchases (typically 12 to 24 months ahead).
  • Participate in the EUA auctions as direct bidders (Maersk, MSC, CMA CGM are typically direct EEX participants).

The EUA treasury function is now a recognised commercial discipline within shipping, with classification societies and major banks offering specialised EU ETS advisory services to their shipping clients.

Price drivers

The EUA price is driven by multiple factors:

Supply factors

  • Annual cap declining at the LRF: 4.3% per year through 2027, 4.4% from 2028, providing a structural tightening.
  • One-off rebasement reductions: 2024 and 2026 absorption of maritime addition.
  • Market Stability Reserve (MSR): automatic withholding when total allowances in circulation > 833 million.
  • Auction calendar: front-loading vs back-loading of annual auctions creates intra-year supply variation.
  • Innovation Fund cancellations: a portion of allowances is permanently cancelled when used for Innovation Fund disbursements.

Demand factors

  • Power sector demand: dominant sector by EUA volume; sensitive to coal-vs-gas-vs-renewables economics.
  • Industrial demand: cement, steel, refining, chemicals, paper.
  • Aviation demand: covered since 2012, major demand jump from 2024 with reduced free allocation.
  • Maritime demand (new from 2024): ~35 to 90 Mt phasing in.
  • Cross-sector substitution: industrial switching between gas, coal and electricity (which carries embedded EUA cost).

Geopolitical and macroeconomic factors

  • Energy prices: high gas prices increase coal-fired power generation and thus EUA demand.
  • Russian gas supply: 2022 to 2024 disruptions increased coal use and EUA demand.
  • Chinese coal demand: indirectly affects EU ETS via gas-coal price spreads.
  • Industrial recession: lower output reduces EUA demand.

Speculative factors

  • Hedge fund and asset manager positions: EUA futures are a recognised commodity asset class.
  • Bank prop trading: investment banks trade EUAs alongside other commodity exposures.
  • MSR-driven speculation: traders front-run MSR withdrawal triggers.

Market Stability Reserve (MSR)

The Market Stability Reserve (MSR), established by Decision (EU) 2015/1814 and operational from January 2019, is the EU ETS’s automatic supply-adjustment mechanism. The MSR:

  • Withdraws allowances from auction when the total number of allowances in circulation (TNAC, calculated annually in May based on the previous year’s data) exceeds 833 million. The withdrawal rate is currently 24% of the TNAC excess, withdrawn over the following 12-month period.
  • Releases allowances if the TNAC falls below 400 million. The release rate is 100 million allowances per year.
  • Cancels surplus allowances if the MSR holding exceeds the previous year’s auction volume; the excess is permanently invalidated.

The MSR has been the principal tool preventing the EUA price collapse seen in 2013 to 2017. Through 2024, the MSR has cumulatively withdrawn approximately 2.5 billion allowances and permanently cancelled approximately 200 million.

The 2023 EU ETS Directive amendments retained the MSR but increased the absorption rate from 12% to 24% (and expanded the withdrawal duration to 12 months) to handle the structural surplus expected from the maritime addition. The 2027 review may further tighten the MSR.

Banking and trading

Inter-period banking

EUAs are fully fungible across years: an EUA purchased in 2025 can be surrendered against 2027 emissions, banked indefinitely, or traded on the secondary market. This contrasts with the Phase 1 to Phase 2 transition (no banking allowed) and the Phase 2 to Phase 3 transition (banking allowed but with adjustments).

The maritime sector has emerged as a significant net buyer of banked allowances, with major shipping companies acquiring forward EUA inventory to hedge future surrender obligations. This has contributed to the structural tightening of the EUA price floor.

Cross-border trading

EUAs trade cross-border within the EU + EEA (Iceland, Liechtenstein, Norway) without restrictions. The 2023 amendments also enable potential linkage with non-EU emissions trading systems (e.g. Switzerland’s ETS is already linked since 2020; potential future linkage with the UK ETS Maritime is under discussion). Cross-jurisdiction linkage would expand the EUA market and could affect prices.

Forward curve

The EUA forward curve typically shows contango (forward prices higher than spot), reflecting:

  • Cost of carry: storage of EUAs (zero, since EUAs are book-entry assets) plus financing cost.
  • Tightening cap expectation: future allowances are expected to be more scarce.
  • Demand growth expectation: maritime extension and aviation tightening add forward demand.

The 2024 to 2030 forward curve typically shows EUA prices rising from current spot of ~EUR 70 to 90 to ~EUR 110 to 150 by 2030, embedding the cumulative effect of the LRF and the maritime addition.

Implications for shipping companies

Cost impact projection

For a typical Suezmax tanker on Atlantic basin trading (assuming approximately 10,000 tonnes CO2 in scope per year on EU voyages):

YearPhase-inAllowance demandEUA price (forward)Annual cost
202440%4,000 EUAsEUR 75EUR 300,000
202570%7,000 EUAsEUR 80EUR 560,000
2026100% (incl CH4/N2O)12,000 EUAsEUR 85EUR 1,020,000
2027100%12,000 EUAsEUR 95EUR 1,140,000
2030100%11,500 EUAs (after some efficiency)EUR 130EUR 1,495,000

For a 12,000 TEU container ship on Asia-Europe trade (approximately 30,000 tonnes CO2 scope per year):

YearAnnual cost
2024EUR 900,000
2025EUR 1,680,000
2026EUR 3,060,000
2027EUR 3,420,000
2030EUR 4,485,000

The MARPOL EU ETS cost calculator and the EU MRV to EU ETS allowance crosswalk calculator implement the cost calculation for arbitrary inputs.

Charter party allocation

Most of the EU ETS cost is passed through to charterers under the BIMCO EU ETS Clause for Time Charters (May 2023). The clause provides:

  • The shipowner is the regulated entity (must surrender EUAs).
  • The charterer reimburses the shipowner for the EUAs corresponding to fuel consumed during the charter period, at the EUA price prevailing on the date of fuel consumption.
  • The clause includes detailed mechanics for cross-jurisdiction voyages (the 50% factor for non-EU port pairs).

The clause has been widely adopted in EU-touching trades since mid-2023. For voyage charters, the standard practice is for the shipowner to embed the EUA cost in the freight rate.

Treasury hedging

Shipowner EU ETS treasury teams typically:

  • Hedge 80 to 100% of the next 12-month obligation through forward EUA purchases.
  • Hedge 50 to 80% of the year+2 obligation.
  • Hedge 20 to 50% of years+3 to +5 obligations.

The hedging programme is funded through the EU ETS pass-through to charterers. Net exposure (the unhedged portion plus charterer credit risk) is typically managed via the shipowner’s broader commodity hedging programme.

Comparison with parallel ETS markets

MarketEUAsUKAs (UK ETS)RGGI allowances (US Northeast)China ETS allowances
Total cap (2024)~1,400 Mt~120 Mt~70 Mt~5,000 Mt (power only)
Spot price (2024 avg)~EUR 75~GBP 50~USD 25~CNY 100
Maritime includedYes (from 2024)Planned 2027NoPlanned 2027 to 2030
Secondary marketICE, EEX, OTCICE EndexOTCShanghai Environment & Energy Exchange
MSR-equivalentMSR (active)Cost Containment MechanismEmissions Containment ReserveAllowance reserve under development

The EU ETS remains the dominant global carbon market by liquidity and price discovery. Cross-jurisdiction linkages remain limited (only Switzerland-EU); broader linkages with the UK ETS, the planned IMO Net-Zero Framework and the China ETS are politically desirable but technically and politically complex.

Future outlook

By 2030 the EUA market is expected to:

  • Show prices in the EUR 100 to 200 per tonne range (up from current EUR 70 to 90), reflecting the LRF tightening.
  • Have absorbed the full maritime addition (~90 to 100 Mt annually).
  • Possibly be linked with the UK ETS (planned consultation 2027 to 2028).
  • Be supported by the IMO Net-Zero Framework RU price as a parallel global benchmark (the IMO RU price starts at USD 100 per tonne in 2027, comparable to the EUA price; convergence over time is anticipated).

For shipping companies, the cost of EU ETS Maritime compliance is projected at approximately USD 5 to 10 billion industry-wide per year by 2030, equivalent to approximately 2 to 4% of total industry revenue. Companies operating outside EU ETS scope (Asian intra-region trades, US domestic, Russian-dominated trades) face no direct cost but may face indirect competitive pressure as the EU adjusts trade rules to address carbon leakage.

See also

Additional calculators:

Additional related wiki articles:

References

  1. European Parliament and Council. Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union. Original text published 25 October 2003, as amended.
  2. European Parliament and Council. Directive (EU) 2023/959 of 10 May 2023 amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union. OJ L 130/134, 16 May 2023.
  3. European Commission. Decision (EU) 2015/1814 of 6 October 2015 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme. OJ L 264/1, 9 October 2015.
  4. European Commission. Commission Implementing Regulation (EU) 2023/2123 of the EU ETS Auctioning Regulation. 2023.
  5. European Energy Exchange (EEX). Annual Report 2024: EU ETS Auction Statistics. EEX, Leipzig, 2024.
  6. Intercontinental Exchange (ICE) Futures Europe. EUA Futures Market Statistics 2024. ICE, London, 2024.
  7. ICAP (International Carbon Action Partnership). EU ETS Status Report 2024. ICAP, Berlin, 2024.
  8. European Environment Agency. Trends and Drivers of EU Greenhouse Gas Emissions. EEA, Copenhagen, annual editions.
  9. Refinitiv. European Carbon Market Annual Report 2024. London, 2024.
  10. BloombergNEF. EU ETS Outlook 2024 to 2030. BNEF, London, 2024.
  11. ICAP. Switzerland-EU ETS Linkage: Implementation Review. ICAP, Berlin, 2024.

Further reading

  • European Commission. EU ETS Handbook. DG CLIMA, Brussels, 2023 edition.
  • ERCST (European Roundtable on Climate Change and Sustainable Transition). EU ETS State of the Market Report. ERCST, Brussels, annual editions.
  • DNV. Maritime Forecast to 2050. DNV, Oslo, 2025 edition.