UK ETS Maritime Expansion: How Shipping Companies Should Prepare

What Is Changing

The UK Government has confirmed that the UK Emissions Trading Scheme will be extended to cover domestic maritime shipping. This expansion brings the maritime sector into the UK’s carbon pricing framework alongside power generation, heavy industry, and aviation. The decision follows a public consultation and reflects the government’s commitment to decarbonising all sectors of the UK economy in line with its net-zero target.

Maritime emissions are substantial. Domestic shipping in the UK accounts for millions of tonnes of CO2 equivalent annually, and until now the sector has been largely exempt from direct carbon pricing. The inclusion of maritime in the UK ETS changes the economics of shipping operations and creates a direct financial incentive for fuel switching, efficiency improvements, and investment in low-carbon propulsion technologies.

Which Operators Are Affected

The scope of the maritime expansion covers ships of 5,000 gross tonnage and above engaged in domestic voyages (UK port to UK port) and, potentially, inbound and outbound international voyages. The exact threshold and phasing will determine which operators fall within scope, but the direction of travel is clear: large commercial vessels, including container ships, bulk carriers, tankers, ferries, and cruise ships, will be subject to UK ETS obligations.

Shipping companies, charterers, and operators should assess whether their fleet falls within the scope thresholds and begin planning for compliance. For time-chartered vessels, the allocation of ETS costs between shipowner and charterer will need to be addressed in charter party agreements, a commercial negotiation that the industry should begin now rather than at the point of compliance.

MRV Requirements

Compliance with the UK ETS will require robust monitoring, reporting, and verification of fuel consumption and emissions. Operators will need to implement approved monitoring plans, collect voyage-level data on fuel consumption and distance travelled, and submit annual emissions reports that are verified by an accredited third-party verifier.

For many shipping companies, this represents a step change in data collection rigour. While the International Maritime Organization’s (IMO) Data Collection System already requires fuel consumption reporting for ships of 5,000 GT and above, the UK ETS MRV requirements are expected to be more granular, with voyage-level rather than annual-level reporting. Companies should evaluate whether their existing data systems can meet these requirements or whether investment in digital fuel monitoring, automated data capture, and reporting software is needed.

Supply Chain Impact

The inclusion of maritime in the UK ETS will not only affect shipping operators directly. The cost of UK ETS allowances will flow through supply chains, affecting the landed cost of goods, the competitiveness of different logistics routes, and the relative attractiveness of sea freight versus other modes. Importers and exporters should model the impact of maritime carbon costs on their logistics budgets and consider whether route optimisation, modal shift, or supplier negotiations can mitigate the additional cost.

For retailers and manufacturers with significant inbound shipping volumes, the maritime ETS expansion is a Scope 3 consideration. Companies reporting under the UK SRS or ISSB standards will need to capture these upstream transport emissions with greater precision, and the existence of a carbon price provides a clear financial signal to track and manage them.

EU ETS Maritime: Dual Compliance Risk

The EU Emissions Trading System incorporated maritime shipping from 1 January 2024, applying initially to 40% of emissions from voyages between EU and non-EU ports, rising to 70% in 2025 and 100% in 2026 for intra-EU voyages. The EU ETS maritime scope covers ships of 5,000 GT and above, mirroring the likely UK ETS threshold. This creates a significant compliance challenge for shipping operators with routes that touch both UK and EU ports.

Consider a container ship sailing from Rotterdam to Felixstowe. Under the EU ETS, the operator must surrender allowances for a proportion of the emissions from that voyage (classified as a voyage between an EU port and a non-EU port). Under the UK ETS, if the scope includes inbound international voyages, the same operator may also need to surrender UK allowances for the UK-side proportion of that voyage’s emissions. Without a linking agreement or mutual recognition mechanism between the UK ETS and the EU ETS, there is a real risk of double coverage on cross-channel and cross-North-Sea routes.

At the time of writing, no UK-EU ETS linking agreement has been concluded. The UK Government has acknowledged the issue and indicated that it will seek to avoid double charging, but the mechanism for achieving this has not been finalised. Companies should not assume that a linking agreement will be in place by the time maritime UK ETS obligations commence.

From a practical standpoint, shipping operators on UK-EU routes should begin monitoring emissions under both the EU MRV Regulation (Regulation 2015/757, as amended) and the forthcoming UK ETS MRV requirements. This means maintaining dual monitoring plans, engaging verifiers accredited under both regimes, and budgeting for allowance purchases in both markets. The EU ETS allowance price and the UK ETS allowance price may diverge significantly, adding further complexity to cost forecasting.

Charterers and cargo owners should also pay attention. Under the EU ETS, the commercial operator (typically the entity responsible for paying for fuel) bears the compliance obligation. Similar provisions are expected under the UK ETS. Charter party clauses must clearly allocate ETS costs, and cargo owners should expect that these costs will be passed through as surcharges, similar to bunker adjustment factors.

Alternative Fuels and Decarbonisation Pathways

The inclusion of maritime in carbon pricing systems fundamentally changes the economics of fuel choice. Under the UK ETS, the cost of emitting CO2 becomes a direct operating expense, which means that lower-carbon fuels gain a competitive advantage proportional to the allowance price. Companies that invest in decarbonisation now will benefit from lower ETS exposure as carbon prices rise over time.

Liquefied natural gas (LNG). LNG offers a CO2 reduction of approximately 20 to 25% compared with heavy fuel oil on a tank-to-wake basis. However, methane slip (uncombusted methane released during combustion) can erode this benefit on a lifecycle basis, particularly in low-pressure dual-fuel engines. LNG is available at major UK ports and represents a near-term transitional fuel, but it is not a pathway to full decarbonisation.

Methanol. Green methanol, produced from renewable hydrogen and captured CO2, offers a near-zero carbon pathway. Several major container lines have ordered methanol-capable newbuilds. Grey methanol (produced from natural gas) offers more modest emissions reductions. The availability of green methanol at UK bunkering locations is currently limited but is expected to grow as production capacity scales.

Ammonia. Ammonia produced from renewable energy (green ammonia) contains no carbon and produces no CO2 when combusted. However, ammonia is toxic, has a lower energy density than conventional fuels, and combustion can produce nitrous oxide (N2O), a potent greenhouse gas. Engine technology for ammonia is still in development, with pilot projects expected to deliver commercial-scale solutions in the late 2020s.

Hydrogen. Green hydrogen is a zero-carbon fuel at point of use, but storage and handling challenges (it must be stored at very low temperatures or very high pressures) currently limit its application to shorter-distance and smaller vessel operations. Hydrogen fuel cells are being trialled in ferries and harbour craft in the UK and Norway.

Wind-assisted propulsion. Technologies such as rotor sails (Flettner rotors), rigid wing sails, and kite systems can reduce fuel consumption by 5 to 30% depending on the route, wind conditions, and vessel type. These technologies are commercially available today and can be retrofitted to existing vessels, making them one of the most immediately deployable decarbonisation measures.

Shore power (cold ironing). Connecting vessels to the electrical grid while in port eliminates emissions from auxiliary engines during port stays. The UK Clean Maritime Plan supports the expansion of shore power infrastructure at major UK ports, and some port authorities are already investing in shore power facilities. For operators spending significant time in port, shore power can meaningfully reduce both emissions and UK ETS exposure.

The UK Clean Maritime Plan, published by the Department for Transport, sets out the government’s strategy for decarbonising domestic shipping and supporting the transition to zero-emission vessels. Companies should review the Clean Maritime Plan alongside their UK ETS compliance strategy to identify where government support, infrastructure investment, and regulatory incentives can de-risk their decarbonisation investments.

What You Should Do Now

• Determine scope exposure by assessing which vessels in your fleet meet the gross tonnage threshold and operate on routes that will fall within the UK ETS.
• Assess dual compliance risk for vessels operating between UK and EU ports, and budget for allowance costs under both systems.
• Invest in MRV systems that can produce voyage-level emissions data to the standard required by both UK and EU regulators.
• Review charter party clauses to ensure clear allocation of ETS costs between owners and charterers.
• Evaluate alternative fuels and propulsion technologies against your route profiles and expected UK ETS allowance price trajectories.
• Engage with the UK Clean Maritime Plan to identify government support mechanisms and infrastructure investments relevant to your operations.