The European Union’s Emissions Trading System  is set to enter its most critical phase in 2026. After a gradual phase-in, the maritime sector will face full compliance, with 100% of CO₂ emissions subject to carbon pricing—and, for the first time, methane (CH₄) and nitrous oxide (N_₂O) will be included. This shift will bring higher costs, stricter reporting requirements, and new strategic challenges for both shippers and carriers.

The 2026 EU ETS Phase-In: What’s Changing?

Full Emissions Coverage

From January 1, 2026, shipping companies will be required to submit allowances for 100% of their verified CO₂ equivalent emissions for all voyages involving EU or EEA ports. This marks the end of the phased implementation, which began with 40% coverage in 2024 and 70% in 2025 and 100% in 2026.

What does this mean?

• EU ETS in 2025 only considered CO₂ emissions: In earlier regulatory frameworks, ships were often granted as emissions trading units (EU Allowances or EUAs) primarily covered CO₂ emissions from fuel combustion.
• Expansion Now Includes CO₂ Equivalent (CO₂e): The regulatory scope has now expanded to include all greenhouse gases measured as carbon dioxide equivalent (CO₂e), such as methane (CH₄) and nitrous oxide (N₂O), in the emissions accounting and allowances framework. This means ships must surrender allowances not just for CO₂ but for the aggregate GHG emissions expressed in CO₂e.
• All GHG emissions count fully toward the ship’s compliance obligations.
• Higher Compliance Costs.

The following calculations are based on the combustion of 1 tonne of fuel on a Between-EU Voyage.

Geographical Scope

The EU ETS applies to:

• 100% of emissions for voyages between two EU ports.
• 50% of emissions for voyages starting or ending outside the EU.

The Impact of Methane and Nitrous Oxide Inclusion

Why It Matters

Starting in 2026, the EU ETS will expand to include methane (CH₄) and nitrous oxide (N_₂O), two potent greenhouse gases:

• Methane has a global warming potential 28 times higher than CO₂.
• Nitrous oxide is 265 times more potent than CO₂.

Implications on Different Types of Vessels

• Vessels using traditional marine fuels (e.g., HFO, LFO, MDO) will also need to account for N₂O emissions, further increasing costs.
• LNG carriers using LNG as fuel, will have a relatively higher cost as the vessel’s engines have methane slip associated with them.

What methane slip is and why it matters?

Methane slip is the fraction of methane in LNG that passes through the engine and auxiliary systems unburned, appearing in the exhaust or as operational releases rather than as CO₂ from combustion. Because methane has a much higher global warming potential than CO₂, even a few percentage points of slip can erase most of the climate benefit of LNG and significantly increase reported CO₂‑equivalent emissions.​In the EU regulatory framework, methane slip is treated as a tank‑to‑wake phenomenon that must be accounted for alongside CO₂ and N₂O when calculating greenhouse‑gas intensity and allowance obligations. FuelEU Maritime uses well‑to‑wake GHG intensity benchmarks, while EU MRV and ETS require reporting and, from 2026, surrendering allowances for methane based on defined slip factors.​

Default methane slip factors today

Until recently, operators had no choice but to rely on default methane slip factors linked to engine type rather than specific engine performance. For LNG‑fuelled engines, the Commission has proposed defaults such as around 3.1% of fuel mass for Otto dual‑fuel medium‑speed engines and substantially lower values (for example, around 0.2%) for dual‑fuel slow‑speed engines, with other technologies interpolated using literature values.​These default coefficients are used across FuelEU Maritime, EU MRV and EU ETS for engines consuming LNG whenever no certified actual slip factor is available. While simple to apply, they do not recognise modern engine designs and retrofit solutions that can reduce actual methane slip far below the default values, which can lead to over‑reporting of emissions and higher compliance costs.​

The new EU guideline on actual methane slip

To close this gap, the European Commission has issued a dedicated guideline for reporting and verification of actual tank‑to‑wake methane slip emissions from marine diesel engines under FuelEU and EU MRV/ETS. This document builds on IMO’s MEPC.402(83) guidelines for test‑bed and onboard measurements of methane and nitrous‑oxide emissions, translating them into a regulatory method for deriving annual emission factors.​

The approach is conceptually simple: operators perform CH₄ measurements at defined engine loads, develop a load‑dependent emission curve in g CH₄/kWh, and combine this with continuously monitored engine load data averaged over 30‑minute intervals. Integrating the curve against the recorded load profile over a calendar year yields a verified, engine‑specific “actual methane slip factor” that can replace the default slip share in FuelEU and EU MRV/ETS calculations once it is accepted and verified.

The EU ETS 2026 milestone will bring full emissions coverage, expanded gases, and higher costs, reshaping the maritime industry’s approach to compliance and sustainability.