SIMIC

"However, the main concern for shipping companies will be carbon price uncertainty. From October 20 to 21, for instance, the carbon price jumped between EUR24 and EUR62," said Lexology essayists from Clyde & Co LLP.

The tax would be phased in over four years, in which shipping companies would be obliged to allowances - 20 per cent of verified emissions in 2023, 45 per cent in for 2024, 70 per cent in 2025, 100 per cent in 2026 and thereafter.

If shipping companies fail to comply with their obligations to monitor, report and verify emissions, and then surrender allowances, they would be fined, under the terms of the proposal.

"In extremis, if a company failed to comply for two or more consecutive reporting periods, the EU would issue an expulsion order with the result that no EU port would allow the shipping company's vessels to enter and the vessel may even be arrested by its flag state, if that state is an EU member."

Shipping companies would need to purchase allowances to cover 100 per cent of emissions for intra-EU voyages and 50 per cent of emissions for voyages beginning or ending at EU ports.

The EU Emissions Trading Scheme would be monitored and enforced by all of the EU member states, and each shipping company would be assigned an "administering authority" by which it would be supervised.

If the shipping company was registered to an EU member state, then its administering authority would be that that member state. In most other cases the administering authority would be the member state at which the shipping company has made the most port calls.

The UN's International Maritime Organisation (IMO) is creating similar provisions globally, like Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII), which would also affect shipping companies.

The European Commission has identified this potential problem, and in response have included a review clause aimed at considering the effect of EU emissions tax in combination to the global measures taken by the IMO.

"In the meantime, the industry will have to watch these schemes as they develop to understand if and how they interact with each other in practice," said Lexology.