Freeport – Progress on ETS port charges

On 17 July the European Commission published its long-awaited review and proposed revisions to the EU Emissions Trading System (EU ETS). It did not come a moment too soon for us.

The Freeport has faced growing competitive pressure from ports in North Africa, particularly those in Egypt and Morocco, which have significantly expanded their infrastructure and capacity in recent years. The use of these ports automatically avoids paying any ETS charges. Thus, it stands to reason that several shipping services have already shifted operations away from EU ports, resulting in non-EU hubs capturing the majority of new transhipment business. Difficulties of passage due to the Houthis firing on vessels passing through the Red Sea compound the issues. Therefore, the recent revision of the ETS for the Freeports of Malta, Cyprus and Greece did not come a moment too soon.

The key points of the Commission’s latest proposal are certainly highly relevant to us. The revisions aim to cut emissions while addressing industry concerns about competitiveness and carbon leakage, especially by tackling the shift of transhipment business from EU ports to non-EU hubs in North Africa. The Malta Maritime Forum (MMF) and the Maltese authorities have responded positively to these revisions to the ETS while emphasising that further refinement is needed. Much-desired improvements include the removal of ETS charges on certain cargo arriving from non-EU ports that is not destined for the European market. This shall provide direct relief for transhipment hubs such as Malta Freeport.

Malta requested amendments by way of an extension of the “neighbouring ports” clause to cover competing ports across North Africa. Also of beneficial effect is the extension of the ETS scope to certain smaller vessels, thereby lowering the threshold towards 400 GT in selected categories. This shall improve the level playing field, together with the simplification of monitoring, reporting and verification rules, as well as alignment measures with FuelEU Maritime. Readers will learn that new provisions are intended to avoid double carbon pricing if, or when, a global International Maritime Organization (IMO) measure is adopted. In a nutshell, one may explain that a vessel can be fully compliant under the ETS by buying allowances while still facing FuelEU penalties, unless it is generating surplus credits, depending on the fuels it burns.

The Minister for Shipping and Maritime Affairs, Dr Miriam Dalli, appreciated the support mechanisms and revenue allocations that benefit island member states. In some related contexts, these include dedicated ETS revenue allocations for Malta, Cyprus and Greece, applicable until 2038. The Minister for Energy and the Environment welcomed the package, describing it as a reflection of Malta’s long-standing advocacy. She noted that it reinforces protections for the Freeport and air connectivity, while striking a balance between climate goals and the practical challenges faced by island states.

On the other hand, the MMF welcomed the direction of the proposals as a step forward, particularly the transhipment-related relief and the extension of the neighbouring ports clause.

At the same time, consistent with its earlier advocacy throughout 2025 and 2026, the MMF stressed that further reforms remain necessary to fully protect the long-term competitiveness of Malta’s maritime industry. So far, considerable risks have existed with regard to business and carbon leakage to North African ports, higher costs for short-sea and trailer operations, and the need for stronger alignment with, or eventual supersession by, a global IMO framework. Dalli cannot rest on her laurels, given that the proposal is still at an early legislative stage. As can be expected, it will now be negotiated by the European Parliament and the Council. These negotiations are planned to start in autumn with a possible agreement in 2027 and subsequent implementation. Industry stakeholders, including the MMF, are expected to continue pressing for additional safeguards during that process.

While one appreciates that a great deal has been achieved to safeguard the interests of the Freeports of Malta, Cyprus and Greece, one may nevertheless question the taxonomy of the terms used. In this instance, one can elaborate that the ETS and FuelEU Maritime are both complementary EU regulations targeting greenhouse gas emissions from shipping, but they operate on fundamentally different principles, measurement methods and compliance mechanisms. So far, the detailed interaction rules are still being clarified. For instance, if one buys all the required EU Allowances (EUAs) under the ETS, there still remains the obligation to improve the average greenhouse gas intensity of the energy used on board through biofuels, LNG, methanol, ammonia, hydrogen, shore power or other cleaner alternatives. The system rewards lower-carbon fuels and, in fact, many agree that complexity is unlikely to disappear. Consequently, a vessel can be fully compliant under the ETS by buying allowances while still facing FuelEU penalties, depending on the fuels it burns.

Conversely, switching to lower-intensity fuels reduces both the ETS bill and helps meet FuelEU targets. The July Commission review of the EU ETS introduced simplifications and closer alignment between the two regimes, especially in relation to monitoring and reporting, but they remain distinct instruments with different compliance obligations.

In conclusion, Minister Dalli deserves considerable recognition for her efforts to date, while the Freeport should continue engaging in negotiations to secure further improvements to the current arrangements.