News / EU ETS could be a new trading market for 'a bit of a gamble'

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Maritime stakeholders operating under the EU ETS could be tempted to stock up on EUAs when the auction price is low, and even trade them for profit – but it could be a risky strategy.  

The EU Emissions Trading System came into effect on 1 January, requiring vessel owners to buy EU allowances (EUAs) that correspond with the per-tonne carbon emissions of their ships that call at EU ports. They act as ‘carbon credits’.  

The market-based price of EUAs is highly volatile; they can be purchased at a fixed price at auctions arranged by the European Energy Exchange (EEX) on behalf of the EU. 

However, EUAs can also be bought and sold on the secondary market, through brokers or online trading platforms, and like in any market the price fluctuates according to supply and demand. 

On 16 February, the price of EUAs sat at €55.26. This is the universal price across all industries operating under the EU ETS, as the EUA market is also affected by industries such as power stations, oil refineries, steel works and producers of iron, aluminum, cement, paper and glass.   

Hugo Wilson, manager at Hecla emissions management, told The Loadstar: “Most of the emissions in the ETS come from power stations. As such, the utilities are the largest traders of EUAs – they certainly use EUAs as a profit and loss centre.” 

At the start of the year, the EUA price was €80. While maritime EUAs seem a drop in the ocean, compared to other industries, the EUA price has dropped significantly since they were introduced for shipping in January.  

When the auction price of EUAs is low, shipowners may be tempted to stock up, in order to trade for profit or keep them in a ‘war chest’ to use when needed. 

Mr Wilson said: “Collecting that war chest at €60 is definitely attractive. We’ll all be looking back at this time and wondering why we didn’t buy more.”  

And Albrecht Grell, MD of ETS management platform OceanScore, added: “They [EUAs] don’t expire. So, if you feel like stocking up now, or in 10 months when the price could be €40, you can keep them in the bank for as long as you like.

“But your CFO and board won’t like the liquidity effect of this, considering the high cost of capital,” he explained.  

Mr Grell, in fact, urged against this risky tactic.  He told The Loadstar: “[It is] an ambitious assumption in most cases to believe that the market is too low and will go up. It’s like saying ‘I believe I know better than market consensuses’ – especially considering that the EUA market is not made by shipping, we only have a small share.” 

MD of ETS management platform Zero44 Friederike Hesse added: “For smaller volumes, this is not super wise as it’s a bit of a gamble. Last year the prices were around €70-80 and now they are in the €50s, so everyone who bought last year is neither selling with a profit nor having a very smart war chest.”   

Currently, shipping stakeholders are still getting to grips with what the month-old ETS scheme means and, at its current 40% phase-in, it has little financial impact.  

However, by 2026 the industry will have had plenty of time to adjust, and the 100% phase-in level will see a more significant cost associated. This could see shipowners getting more creative at EUA trading as they better understand their EUA needs and buying strategy.  

Mr Wilson told The Loadstar: “Due to the 40% phase-in this year, the volumes involved are not large enough to make EUA trading more attractive for shipping companies. However, volumes increasing should coincide with the supply of EUAs becoming tighter, therefore raising the stakes. 

“As shipping companies become more familiar with ETS, and the volumes involved become larger over the next few years, there will be a significant opportunity to generate revenue.” 

However, Mr Grell concluded: “This is not shipping. We should focus on running ships and crews, leave speculation and financial engineering to those whose profession it is.”