The $3 Billion Shake-Up: Managing EU ETS Expenses with Veson

 

The inclusion of maritime shipping in the EU ETS from January 1st will have a significant financial impact, projected to cost the industry more than $3 billion in 2024. For maritime organizations to maintain compliance and control monetary impact, they must have a standardized process in place to track emissions and manage risk. This article explores practical approaches to compliance and highlights the role of the Veson IMOS Platform‘s Emission Expense Settlement Workflow in addressing this major regulatory development.

4 Steps to Success in Managing EU ETS Expenses

In collaboration with industry experts and clients, Veson Nautical has established a consensus around what is needed for early success in managing EU ETS expenses. This has translated into four crucial steps, which include:

1. Calculating emissions expenses
2. Actualizing emissions expenses
3. Capturing financials and proving compliance
4. Managing carbon risk

Let's delve into how these steps fit into maritime workflows and how the IMOS Platform can provide support.

The pre-fixture workflow serves as the initial stage for calculating and implementing emissions data into business decisions. The IMOS Platform’s Carbon Calculator has built-in logic so you can accurately calculate the emissions expense and visualize how the calculation is being made. You can then make direct comparisons between estimates and their associated emissions expenses all within one workspace.

In operations and voyage management, noon reports are the way by which emissions expenses are realized. For more precise calculations and measured monetary impact, the IMOS Platform supports different definitions of port consumption versus birth consumption by allowing you to define ROVs. The platform also incorporates year split logic that accounts for voyage legs spanning multiple years.

Proper EU ETS financial management requires the ability to manage the voyage P&L and balance different contracts by transferring allowances or managing cash, allowance, or hybrid settlements. The IMOS Platform allows you to report on data from the Carbon Calculator and the boarder voyage workflow, aiding in compliance validation. Another valuable tool, the cargo emissions table, allows you to allocate specific prorated emissions expense contributions to the relevant charterers based on the loaded cargo. Calculations adhere to Sea Cargo Charter guidelines and the data can be evaluated, reported on, and shared with relevant counterparts.

In the context of a cap-and-trade system, it is especially important to maintain visibility into your carbon risk, or your exposure to the EUA and EUA Futures market. At Veson, our approach involves calculating and capturing associated exposure and risk for a given physical contract as well as tracking paper trades and the underlying assets linked to the new market. The IMOS Platform allows you to accurately calculate the mark-to-market value for physical trades via flexible benchmark estimates, record EUA futures in EUR and USD and track them alongside physical contracts, and maintain an inventory of EUAs and EUA Futures contracts to understand their impact on your overall net position.

An End-to-End Workflow for Contracts, Invoicing, and Settlement

Ultimately, the responsibility for emissions expenses falls on those deciding a vessel's route, consumption, and fuel use. In time charter scenarios, owners are expected to pass expenses to vessel charterers, either through allowances or cash, whether based on actuals or embedded in the freight rate. Vessel charterers, in turn, may transfer these costs to cargo owners, settling in allowances or cash. The EU, as the regulator, will receive allowances in 2025 for the emissions generated in 2024.

The IMOS Platform supports this chain of carbon costs throughout the contract lifecycle firstly by allowance settlement and expense accounting, or the capturing and tracking of financials for the emissions expense as well as new instruments and contracts. Additionally, the platform manages contractual agreement changes and allowance transfers by structuring time charter contracts per industry standards while also allowing flexibility for custom clauses. To track and manage allowance transfers effectively, IMOS aligns the allowance inventory with what has been budgeted versus what is available to be allocated and the current balance at a given time. It also supports the revenue (cargo) side when the freight rate is not inclusive of the carbon expense and additional handling is needed. This comprehensive EU ETS contract management solution establishes a foundation for support and flexibility come January 1st, and will continue to be refined with input and feedback from the maritime industry as EU ETS evolves.

Learn more on this topic and see the functionality for yourself by tuning in to our EU ETS readiness on-demand webinar. You won’t want to miss out on this informative conversation and one of Veson’s most globally attended webinars to date.

Josh Luby is Group Product Manager at Veson.