The EU's Emissions Trading Scheme Extended to Shipping Introduction The main source of carbon dioxide (CO 2 ) and other greenhouse gas (GHG) emissions is fossil fuels. While there is concerted global effort to produce alternative carbon neutral fuels, it will be a while yet before such fuels become fully available and accessible to ships. The need to decarbonise is urgent if the worst impacts of climate change is to be avoided. In line with the Paris Agreement goal, the EU and IMO have set ambitious targets to reach net-zero GHG emissions by, or in the case of the IMO, “ by or around, i.e. close to”, 2050 [1] .  Members are directed to the Club’s article, A Roadmap for Ship Decarbonisation (ukpandi.com) for the Club’s discussions on the IMO’s initiatives. In this article, we will be looking at the EU’s initiatives, more specifically the framework of its emissions trading system as it relates to shipping.   The European Union's emissions trading system (EU-ETS) EU-ETS is the world’s first emissions trading system and it remains the largest GHG emissions trading system across multiple countries and multiple sectors. Today, the system is aligned with the overarching EU climate targets. It is an emissions cap-and-trade system, meaning that a limit, or cap, on GHG emissions is set for certain sectors of the economy. The EU issues a limited number of EU allowances (EUAs) each year for each sector, with the number of EUAs available reducing year-on-year (see further below).  Companies have to purchase sufficient EUAs to offset their annual GHG emissions which are subject to EU-ETS. Each EUA gives a company the right to emit an amount of GHG equivalent to the global warming potential of 1 metric tonne of CO 2 .  Methane (CH 4 ) and nitrous oxide (N 2 O) will be included in EU-ETS from 2026. As methane has a global warming potential 28 times, and nitrous oxide 228 times, that of CO 2 ,   28 EUAs will have to be surrendered for 1 metric tonne of metha