Under the EU Emissions Trading System (ETS), shipping companies are obligated to account for implicit greenhouse gas emissions from voyages. 

To ensure compliance and avoid penalties, shipping companies must purchase and surrender allowances on the EU Union Registry. Beginning as a phase-in requirement, starting at 70% compliance on actual emissions in 2025, this will soon rise to 100% from 2026.

However, in practice, where ship owners and ship operators fail to clarify their emissions liability, meeting ETS compliance can be complex.

This blog post will discuss how to avoid the penalties and delays that can arise from failing to address this potential bottleneck.

Who Bears the Liability? Defining Responsibility Within the ETS

The ETS operates under a “polluter pays” principle. This means that entities responsible for greenhouse gas emissions at the point of combustion are also responsible for the cost of those emissions by purchasing and surrendering emission allowances.

In principle, the ship owner is legally liable to fulfil MRV and EU Allowance obligations. In practice, however, the owner may mandate another entity to comply with the MRV and EU ETS obligations.

This may be the operator of the ship, ship manager, or bareboat charterer, or any entity that has assumed the responsibility over the vessel per the ISM code or holder of the Document of Compliance (DoC).

In these cases, in accordance with EU regulations, a contract that demonstrates the outline of the transference of responsibility must be submitted to the administering authority. This ensures that the legal and financial liability for emissions compliance is clearly allocated and recorded, thereby reducing the risk of potential disputes.

Meeting ETS Compliance: Ensuring Cross-party Alignment

In addition to the transference of responsibility to external entities, there are other issues can complicate ETS alignment.

Charterers, for instance, often make navigation decisions independently of ship owners that can lead to increased carbon emissions. These might include faster speeds, route diversions, or the use of inefficient fuels.

The significant impact of these variables makes it essential for owners and operators to agree on an overall decarbonisation strategy – from route management to fuel selection, ensuring a sustainable pathway that goes beyond ETS compliance.

In practice, operators need to establish clear carbon budgets and emission limits in charter agreements, creating shared incentive structures where both parties benefit from emission reductions.

Carbon Management: Compliance and Best Practice

To ensure compliance and reduce contractual ambiguity, there are a number of best practice strategies that shipping owners and operators can follow.

1. Monitoring, reporting, and verification (MRV)

The Monitoring, Reporting, and Verification (MRV) regime mandates ship operators and verifiers to collect and report emissions data. Because the MRV report is submitted by the entity responsible for the vessel under the ISM code, this ensures that emissions liability is tied to a clearly identified legal entity, whether it is the shipowner, operator, or charterer.

2. Contractual clauses for carbon cost allocation

Charter parties now include specific ETS clauses defining who pays carbon costs. In practice, these clauses cover cost-pass-through mechanisms, allowance purchasing responsibilities, and penalties for non-compliance, ensuring emissions liability is contractually assigned.

3. Collaboration across the supply chain

Collaboration through mutually agreed sustainability mandates also plays a vital role in clarifying emissions liability. When shipowners, operators, charterers, and managers take part in engage in regular meetings and share emissions data, it becomes easier to identify which party holds operational control and is therefore responsible for compliance. 

4. Investment in cleaner technologies and alternative fuels

Clean fuels initiatives are another proven pathway to decarbonising shipping and meeting best practice. Biofuels like HVO and FAME, for instance, help align with ETS and meet FuelEU Maritime obligations. However, it is important to note - fuel choice decisions often rest with charterers, not owners, who bear compliance costs. This makes it vital for owners and charters to communicate regularly to ensure a fully joined-up low-carbon strategy.

“The EU ETS is more than a compliance exercise — it’s a catalyst for change. Shipping companies that take a proactive approach, align contracts, and invest in lower-carbon solutions will not only minimise risk but also strengthen their competitive position in a rapidly evolving market.” Victoria Diamantidou, Country Manager – Greece & Cyprus

CFP Energy: Streamlining ETS Shipping Compliance

The inclusion of shipping in the EU ETS marks a significant step in holding the sector accountable for its carbon emissions, but it also brings added complexity in defining liability and managing costs.

Success will depend on more than just compliance - it will require clear contractual alignment, transparent data sharing, and proactive investment in cleaner fuels and technologies.

By fostering collaboration across owners, charterers, and operators, shipping companies can not only meet their ETS obligations but also position themselves as leaders in the transition toward a lower-carbon future.

CFP Energy works with some of the largest shipping operators in the world, providing a range of products and solutions to reduce shipping emissions and ensure compliance with carbon regulations.

Contact our shipping team to see how you can start decarbonising today.