<p>The shipping industry serves as a major channel of global trade, while contributing increasingly to greenhouse gas (GHG) emissions. As a response to challenges with introducing a global policy to decarbonize international shipping, regional policies have emerged that aim to fill this regulatory gap. The EU emission trading system (ETS) as the first Market-based mechanism (MBM) in maritime transport governance has the potential to fundamentally change the sector and its governance. The paper argues that attention to the institutional context of maritime governance within which the EU ETS is embedded provides a broader understanding of the potential of the policy instrument to bring about decarbonisation. This paper therefore analyses how institutional attributes and barriers hamper the implementation of EU ETS. The analyses show three key challenges in EU ETS implementation: uneven participation of the maritime value-chain in decision-making related to EU ETS, lack of transparency and access to relevant information, and lack of coordination between EU and non-EU regulations and actors. These governance challenges emerge from two structural institutional characteristics of maritime transport governance, (1) the dominant role of shipowners in maritime governance and (2) the mismatch of scales in terms of EU decision making and global GHG emission. While addressing these institutional characteristics is challenging, opportunities exist for enhancing collaboration between maritime value chain actors (and the EU) and including GHG emission reduction measures and costs more explicitly in charter contracts.</p>