Deep Dive into the World of EU ETS Clauses from BIMCO

The EU-ETS embracing shipping from January 1, 2024, has inundated the industry with questions about its commercial responsibilities. A deep dive into EU-ETS norms reveals that Owners/DOC holders are responsible for submitting EUAs. Timely payment of accurate EUAs stemming from EU ETS voyages underscores the importance of specific Charter party agreement clauses, functioning as a crucial component.

BIMCO clauses have been instrumental in maritime trade, reshaping operations for Ship Owners. BIMCO’s documentary committee has introduced new ETS clauses for SHIPMAN ship management agreements and voyage charter parties. These clauses seek to promote collaboration and bring clarity to the changing regulatory landscape, shaping the industry’s compliance efforts and emission reduction initiatives.

Let’s understand what are these clauses:

1. ETS – Emissions Scheme Freight Clause for Voyage Charter Parties 2023

Read in detail about the Emissions Scheme Freight Clause here.

This clause incorporates emissions costs into the freight rate, following the ‘polluter pays’ principle. As per this clause Charterers are responsible for paying Owners for the necessary emission allowances during the voyage. It also addresses additional emissions caused by Charterers’ breach of the charter party, but resolving disputes must precede settlement for such emissions.

2. ETS – Emissions Scheme Surcharge Clause for Voyage Charter Parties 2023

Read in detail about the Emissions Scheme Surcharge Clause here.

Under this Clause, the costs of surrendering Emission allowances for the voyage are paid by Charterers to the owners by way of an Emissions scheme Surcharge. The clause also includes an optional subclause (g) which allows for a price adjustment where the spot price for Emission allowances changes, rather like how a bunker adjustment factor addresses fluctuations in the bunker market. Charterers’ failure to pay this amount will be considered along the same lines as a nonpayment of freight.

A key aspect to reflect on is whether the revision of the agreed Emission surcharge (currency and amount ) due to a difference in Spot price from the ‘’ first day of loading ‘’ is sufficient to address the volatility of Price risk. It is likely that Emission Allowances for specific voyage claims may be delayed in payment from Charterers and this would result in a different spot price reference.

3. ETS – Emissions Scheme Transfer Allowances Clause for Voyage Charter Parties 2023

Read in detail about the Emissions Scheme Surcharge Clause here.

This is perhaps the most straight forward of the BIMCO clauses and could be utilized whereby both parties agree for transfer of Emission allowances. Under this clause the voyage charterer is to transfer the emission allowances to owners and the estimated Emission allowances sent to the Charterers for its efficacious recovery before the completion of voyage. The owners notify charterers in writing, by no later than the first day of the laycan, the estimated number of emission allowances for the voyage(s). The allowances are to be transferred by the date on which freight falls due (either in full or first initial payment if freight is payable by instalment) or within a specified number of days (default is 14 days) of sailing from the load port (whichever is earlier).

4. ETS – SHIPMAN Emission Trading Scheme Allowances Clause 2023

Read in detail about the SHIPMAN Emission Trading Scheme Allowances Clause here.

This is specifically designed to be used in tune with the SHIPMAN 2009 clause directly, and it will be incorporated into the updated BIMCO SHIPMAN contract due for publication in 2024.

The clause caters two situations: (i) that the owners are the party responsible for compliance under and ETS or, alternatively, (ii) that the managers are the responsible entity for compliance under the ETS. Since it puts the onus of responsibility on Ship Owners, it is imperative that scope of work from technical managers is defined clearly thereby making it easier for Owners to ensure compliance with EU ETS regulation obligation. The need for a single entity managing MRV and Emission allowances for ETS may prove to be crucial for Ship Owners in the long run.

While the above ETS Voyage Charter clauses do address some aspects of Emission allowance settlement, it fails to capture the actual methodology for calculation (World scale or Actual voyage or Lumpsum), practical timelines and options for settlement whether in Emission Allowance or type of Currency ( Euros or US $ ) between parties in one single clause thereby proving to be insufficient as a sole ETS clause in the Voyage Charter Party.

As we reflect and deep dive into ETS clauses with their importance on voyage exposure planning, the ongoing Security challenges in the Red Sea have resulted in a paradigm shift in trade via the Suez Canal as the change of voyage routes via COGH will result in at least 55% additional EUA exposure for Singapore to Rotterdam voyage. Likewise, water level challenges in the Panama Canal would result in an increase in at least 70% additional EUA exposure for an LA to Rotterdam voyage on a modern LR2 Tanker in a good weather scenario. This EUA exposure could escalate further for a conventional Vessel experiencing a few days of bad weather en route.