Brussels Extends Carbon Market to Smaller Ships as Hormuz Risk Premium Bites

The European Commission has proposed drawing vessels between 400 and 5,000 gross tonnage into the EU Emissions Trading System, a targeted expansion that shipowners have broadly welcomed while pressing Brussels for firmer commitments on where the money goes.

The draft forms part of a wider climate policy overhaul and would close several avenues for cost avoidance. Offshore worksites in EU waters would be treated as ports of call, preventing offshore vessels from sidestepping ETS liabilities by operating from non-EU bases. Rules covering nearby non-EU transshipment hubs would tighten, though containerships of 10,000 TEU and above transferring cargo at EU hubs after long voyages would receive limited relief until 2035, a concession aimed at stemming the drift of transshipment activity outside the bloc.

The numbers are substantial. The European Community Shipowners' Associations estimates the allowances in question at roughly €10 billion of the €90 billion the sector expects to pay into the system between 2030 and 2040. ECSA maintains that the full revenue take should be directed to the sector's energy transition, and noted that while the Commission has committed to avoiding double payments should an IMO agreement emerge, it has not signalled that the ETS would be withdrawn in that event.

Danish Shipping welcomed the reduced tonnage threshold as levelling the playing field. The proposal now goes to Parliament and Council negotiations in autumn, with possible agreement in the first half of 2027 and implementation expected in 2028.

Operationally, geopolitical risk continues to reprice trade lanes. Maersk has introduced a $1,000 per container charge for Hormuz transits, and the EU has warned Israeli and US-linked vessels away from the Red Sea following renewed Houthi threats. Freight rates from South Asia to the US and Europe have climbed roughly 50 per cent over the past fortnight.