Emission Schemes are “cap and trade” schemes that cap the total amount of greenhouse gases to be emitted by certain vessels covered by the system.  Over time, this cap is reduced as an incentive to reduce greenhouse gas emissions through increased efficiency and the use of alternative fuels.

In the context of the world’s largest Emission Scheme - the European Union Emissions Trading System (EU ETS) – the cap is expressed in emission allowances, where one allowance gives the right to emit one tonne of carbon dioxide (CO₂) equivalent.  For each year, shipping companies must surrender enough emission allowances to fully account for their emissions. In the absence of a uniform global Emission Scheme, other countries and/or groups of countries may develop their own unique Emission Scheme in the future and this clause is designed to be broad enough to cater for not only the EU ETS but for any other similar Emission Schemes that are imposed.

Drafting Team

The BIMCO ETS – Emission Scheme Transfer of Allowances Clause for Voyage Charter Parties 2023 is the result of a collaborative and consensual process between owners, charterers, a FDD Club and legal experts. BIMCO is grateful to the following individuals:

Peter Eckhardt, F. Laeisz (Chairperson)

Panos Zachariadis, Atlantic Bulk Carriers Management Ltd.

Takaaki Hashimoto, NYK

Harry Fafalios, Union of Greek Shipowners

Kyriakos Kourieas, Interorient Marine Services Limited

Simon Spark, Oldendorff Carriers

Ann Shazell, Cargill Ocean Transportation

Alessio Sbraga and Joseph Malpas, HFW

Caroline Lindfors, Nordisk Defence Club

BIMCO representatives:

Stinne Taiger Ivø

Natalie Wong

Carl Lindahl

Explanatory Notes

These explanatory notes are intended to provide an insight into the thinking behind the BIMCO ETS – Emission Scheme Transfer of Allowances Clause for Voyage Charter Parties 2023. They also explain how the clause is intended to operate and the allocation of responsibilities and costs between the parties. If you have any questions about the clause, please contact us at contracts@bimco.org and we will be happy to assist.

Key Features of the Clause

Definitions

For ease of reading, the clause sets out three definitions – “Emission Allowances”, “Emission Scheme” and “Voyage(s)”.

“Emission Allowances” are the emission allowances issued by an authority under a “cap and trade” regulatory scheme that give the holder the right to emit an agreed volume of greenhouse gases. Under the EU ETS, each allowance entitles the holder to emit one tonne of CO2 equivalent.

“Emission Scheme” refers to the applicable emissions trading scheme for greenhouse gases. This clause is designed to apply to future emissions schemes that may be implemented around the world, not just the EU ETS.

These two definitions are identical to those that appear in the ETS - Emission Trading Scheme Allowances Clause for Time Charter Parties 2022.

The definition of “Voyage(s)” encompasses the laden leg from the load port(s) to the discharge port(s), and the ballast leg from the ballast port or location to the load port(s), which are to be specified by the parties. The objective here is to give the parties the flexibility to define the voyage(s) which can be tailored towards specific business and commercial requirements. For instance, where parties agree to exclude the ballast port or location, "N/A" could be inserted in the corresponding box. Alternatively, the parties may decide that only a portion of the ballast leg should be included. In this case, a suitable location representing such proportion of the journey, such as "passing Gibraltar", can be inserted.

This definition will form the basis for the owners’ calculations referred to in subclause (b) where that subclause is engaged.  Here the owners are to calculate the estimated emission allowances required to cover the emissions expected/estimated to be released during the Voyage(s) (as defined). This definition will also form the basis for the post-voyage calculation of the actual emissions released during the Voyage(s). However, where the details mentioned above are not completed or left blank by the parties, then the default is that Voyage(s) will include any laden leg(s) between the load port(s) and discharge port(s), and any ballast voyage. It is important to note that this definition only applies if the parties choose not to use subclause (a) or a figure is not inserted by the parties in subclause (a)(i). 

Subclause (a)(i)

This subclause allows the parties to insert a mutually agreed quantity of Emission Allowances due under the charter party. The figure to be inserted would simply reflect the outcome of a commercial agreement between the parties on the quantity of Emission Allowances to be transferred by the charterers to the owners. At the end of the day, the figure is, for all intents and purposes, an estimate which may not necessarily reflect the actual number of Emission Allowances required for the Voyage(s). 

The agreed quantity of Emission Allowances is not subject to any adjustment with regards to an increase or decrease of the number of Emission Allowances actually corresponding to the performance of the voyage. The reason for this is that subclause (a) is simply a commercial clause and if the parties wish to deal with the actual number of Emission Allowances, then they should leave subclause (a) blank and rely on the provisions in subclause (b) which provides a reconciliation mechanism. The reasoning behind this is that the primary factor impacting the duration of a voyage, and consequently the number of Emission Allowances, is extended port stays. Such unforeseen delays are considered to be compensated by demurrage in the charter party, and the subcommittee was of the view that owners may in any event, provide for any additional exposure relating to Emission Schemes through an adjusted laytime regime and demurrage rate in the charter party. It should also be noted that if charterers were to issue alternative voyage orders leading to an extension of the voyage duration, this could be subject to agreement on a revised freight rate and a corresponding revised quantity of Emission Allowances to be inserted into subclause (a), depending on the parties' relationship and the terms of the relevant charter party.

It is the view of the subcommittee that this aligns with the prevailing principle of voyage chartering, whereby owners bear the risk for any delay resulting from, for example, adverse weather conditions on the sea passage, whilst compensation for delays in ports are provided for by demurrage.

Subclause (a)(ii) 

This subclause deals with the timing of the transfer of the agreed quantity of Emission Allowances to the owners.  The transfer must either be made on: (1 the date of the initial freight payment if freight is due in instalments; or (2) the date freight is due if freight is not payable in instalments; or (3) within a specified number of days after the vessel's departure from the load port. Note in relation to (3) above that if the parties fail to insert a specific number of days in this subclause, then the default shall be 14 (fourteen) days.The subcommittee was of the view that the transfer of Emission Allowances under this clause shall generally not be subject to any address or brokerage commission.

Subclause (b)

This subclause will be applicable in situations where the parties leave subclause (a)(i) blank and do not specify a quantity of Emission Allowances to be transferred. In light of this, subclause (b)(i) stipulates that the owners are to (no later than the first day of the laycan) provide the charterers with an estimate of the Emission Allowances relating to the vessel’s expected/estimated emissions for the Voyage(s) (as defined). 

Subclause (b)(ii)

This subclause deals with the timing of the transfer of the estimated quantity of Emission Allowances, and mirrors the wording of subclause (a)(ii). The transfer must either be made on: (1) the date of the initial freight payment if freight is due in instalments; or (2) the date freight is due if freight is not payable in instalments; or (3 within a specified number of days after the vessel's departure from the load port. Note in relation to (3) above that if the parties fail to insert a specific number of days in this subclause, then the default shall be 14 (fourteen) days.

Subclause (b)(iii)

This subclause requires the owners to inform the charterers about the actual amount of Emission Allowances for the completed Voyage(s) (as defined) together with relevant calculations and data which has been used to calculate the figure. The parties can choose to insert a specific number of days into this subclause and if the parties fail to insert a specific number of days in this subclause, then the default shall be 14 (fourteen) days.

Subclause (b)(iv)

This subclause contains the reconciliation mechanism where, in the event of a discrepancy between the estimated and the actual quantities of Emission Allowances, the owners are to return any excess to the charterers, or the charterers are to transfer the difference to the owners within a specified number of days after the owners provide the written notification under subclause (b)(iii). Note that if the parties fail to insert a specific number of days in this subclause, then the default shall be 14 (fourteen) days.

Subclause (c) 

This subclause underlines the fact that once the owners receive the full quantity of Emission Allowances set out in subclause (a) or (b) – whichever applies, this releases the charterers from any responsibility for costs arising from the surrender of Emission Allowances for the voyage(s) performed under the charter party. However, this is always subject to subclause (d).

Subclause (d)

This subclause addresses a scenario where the vessel may release more emissions than anticipated due solely to the charterers’ breach of the charter party. For example, the vessel may be detained solely due to the charterers being in breach of the charter party. In this case, this subclause allows the owners to recover any costs arising from the surrender of Emission Allowances for the emissions released during such period of detention. 

Subclause (e) 

This subclause makes it clear that if the charterers fail to transfer the Emission Allowances as required under the clause, this will be treated in the same way as non-payment of freight, meaning that the owners are entitled to take the same actions against the charterers in circumstances where the charterers have failed to pay freight under the charter party.

Subclause (f)

This subclause stipulates that the obligation for compliance with the applicable Emission Scheme rests solely with the owners. This is intended to clarify that charterers shall not be responsible for compliance with the relevant Emission Scheme.

Additional element(s) to consider:

Ship-to-ship Transfers

A “port of call” as defined under the EU ETS is a location where a vessel halts to load or unload goods, embark or disembark passengers, or where an offshore vessel stops to change its crew. However, there are a number of exceptions including:

• Stops solely for refuelling
• Stops to acquire supplies
• Crew changes (except for offshore vessels)
• Stops for dry-dock visits or ship and/or equipment repairs
• Stops in ports due to the ship requiring aid or being in distress
• Ship-to-ship transfers executed outside of ports
• Stops solely for sheltering from poor weather or those necessitated by search and rescue activities and
• Stops of containerships in neighbouring container transhipment ports, as listed in the implementing act to be adopted by the end of 2023.

Given that ship-to-ship transfers outside ports are excluded, it is vital for parties to consider the impact of this in their commercial negotiations.