News / ETS will see 'a fist fight between carriers and shippers', says Lars Jensen

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The forthcoming EU Emissions Trading System (ETS) rules “will not be transparent”, Lars Jensen, CEO of Vespucci Maritime, told The Loadstar Podcast. 

In its most recent episode, Loadstar podcast host Mike King asked if pushback, from shippers to carriers, could be expected if the implementation of ETS surcharges is not clear. Mr Jensen said: “Yeah, there will be pushback…there are a number of challenges that will prevent a transparent solution, no matter how much anyone would desire it.” 

The first problem, he said, was that the regulation is EU-only. 

“It’s a surcharge that partly depends on what was the last port of call before you get to the EU, so it suddenly matters whether that was Singapore or Jeddah – that actually makes a significant difference, to put it mildly.”  

The second issue revolves around how an ETS surcharge would be calculated. 

Mr Jensen explained that, unlike the standard bunker adjustment factor (BAF) – where its level for 2024 would be based on the actual price of fuel at the end of 2023 – that will not be possible with ETS.  

“Carriers need to report their emissions by the end of 2024 and then buy a CO2 allowance at auction in September 2025, so they need to apply a surcharge in January 2024 that is based on an unknown price in September 2025,” he said. 

“That makes this completely non-transparent right off the bat; there’s nothing that can be done to reasonably resolve that element.” 

Mr Jensen also wondered whether the carriers would even be able to push an ETS surcharge through, and concluded that carrier success with that would “kind of depend on market conditions”.  

He explained: “Whenever carriers increase bunker surcharges, especially when oil prices go up, they will be quick to point out, ‘we have 80%, 90%, 98% bunker surcharge recovery’, which is factually true, but if the market is weak at the same time, you see a corresponding erosion in base freight rates, and that of course makes it a lot less transparent.  

“It will be a fist fight between the carriers and the shippers…the market strength is going to depend on who will have to swallow which part of it,” he added.