BIMCO Documentary Work – An update on Emissions Trading Schemes

Published: 23 August 2023

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EU Directive (2003/87/EC) establishing a system of greenhouse gas emission allowance trading within the EU now includes maritime transport activities applicable from 1 January 2024. The directive differentiates between voyages between Member States and voyages from and into the EU. For ships performing voyages departing from a port outside the EU and arriving at a port within the EU or departing from a Member State port and arriving at a port outside the EU, the requirement for the shipping company is to surrender allowances equivalent to 50% of the emissions. For voyages performed within the EU, the requirement is 100% of the emissions.

The directive will apply to ships of 5,000 GT and above and be phased-in so shipping companies, operating ships within the scope of the Directive, are liable to surrender allowances for 40% of the verified regulated greenhouse gas (GHG) emissions reported for 2024 and for 70% of the GHG emissions reported for 2025. From 2026 and onwards the requirement is 100%.

The responsible party for surrendering the allowances in accordance with the Directive (article 3v) is the “shipping company.” The shipping company is defined as: “the shipowner or any other organisation or person, such as the manager or the bareboat charterer, that has assumed the responsibility for the operation of the ship from the shipowner and that, on assuming such responsibility, has agreed to take over all the duties and responsibilities imposed by the International Management Code for the Safe Operation of Ships and for Pollution Prevention.”

The EU Commission is expected to soon issue further clarification regarding the definition of the “shipping company”.  

All market players will need to familiarise themselves with the directive and what this potentially means for them. On the documentary side, BIMCO is assisting the industry by developing clauses which create more legal certainty for the parties.

In 2022 BIMCO published the ETS - Emission Trading Scheme Allowances Clause for Time Charter Parties 2022 which allocates rights and obligations between owners and charterers in a time charter party context. It is not limited to addressing the EU ETS allowances but caters for the possibility that other countries may introduce similar trading schemes and is therefore generic in its wording to ensure a wider scope and applicability.

Another clause, which is expected to be put up for adoption at the next Documentary Committee meeting in October, is a clause for use with BIMCO’s standard ship management agreement SHIPMAN addressing emission trading scheme allowances between owners and third-party ship managers. In an earlier article, we described the development of this clause. 

BIMCO is continuing its documentary work to develop other clauses that will assist the industry in handling emission trading allowances in the context of commercial contracts. The reference to the “operation of the ship” under the directive (article 3gaa) means “determining the cargo carried and/or the route and the speed of the ship.” This clearly encompasses time charterers, but it is debatable, depending on the circumstances, if this also would cover voyage charterers. For this reason, the subcommittee in charge of drafting relevant carbon related clauses has agreed that it would be beneficial for the industry to have a standard voyage charter clause available providing legal certainty and commercial flexibility. We have therefore established a subcommittee to develop a standard clause addressing ETS allowances in a voyage charter party context.

Also, parties entering into Contracts of Affreightment (COA) are already concerned with how to address the requirements to reduce carbon emissions including surrendering allowances under the EU ETS. To assist, BIMCO has established a subcommittee to embark on the development of relevant standard COA clauses, including one responding to ETS.

See next week’s newsletter for an update on BIMCO’s documentary work on planned contractual work for the offshore sector.