EU ETS will cost the shipping industry billions, says ITIC

The cost of the European Union’s (EU) new Emissions Trading Scheme (ETS) to the shipping industry could be in the billions, according to the forecasts from International Transport Intermediaries Club (ITIC).

The extended EU ETS, which comes into force on 1 January 2024, will set an annual absolute limit on emissions of greenhouse gases (GHG) for vessels of 5,000 gt and above calling at EU ports. However, its implementation is creating tensions between shipowners and charterers, particularly surrounding the language within charter agreements to ensure a fair distribution of costs and legal risks.

Robert Hodge, General Manager at ITIC, believes that it is vital that ship managers take necessary due diligence to ensure any of these risks are mitigated.

“Ship managers will have an important role in managing the scheme for their owners. It is, therefore, vital that ship management agreements set out the responsibilities and liabilities for doing so. The EU ETS is likely to cost the industry billions in extra fees so ship managers and charterers should assess every aspect of the costs and legal risks associated with the scheme to ensure they are not left in a financial precarious position,” Hodge noted.

ITIC’s warning comes on the back of the most recent meeting of BIMCO’s documentary committee, which includes ITIC and other shipping stakeholders. During the meeting, BIMCO adopted an ETS allowances clause for its ship management agreement, SHIPMAN, and three ETS clauses tailored for voyage charter parties.

 The clauses aim to facilitate collaboration and provide clarity and certainty between parties as new regulations come into force, changing the way the industry operates to achieve compliance and cut emissions.

“In less than one month, our industry will be included in the EU ETS, and in the future, we can expect similar emission schemes. The new ETS clauses have been developed to help parties meet the requirements of the EU ETS as well as any applicable emission scheme we may face in the future,” says Nicholas Fell, Chairperson of BIMCO’s Documentary Committee.

The most recent updates to the BIMCO SHIPMAN Emission Trading Scheme Allowances Clause 2023 ensure that the costs and responsibilities for obtaining, transferring and surrendering emission allowances for ships operating under an emission scheme in a ship management context.

“The purpose of the ETS clause for SHIPMAN is to allocate costs and responsibilities between owners and managers, thereby facilitating compliance with emission trading schemes. This includes the reporting of emission data, as well as the transfer and surrender of emission allowances for ships operating under an emission scheme,” says Stinne Taiger Ivø, Director, Contracts & Support at BIMCO.

In addition, a BIMCO subcommittee is currently working on the development of an ETS clause for Contracts of Affreightment.

The EU ETS comes as a result of the increasing regulatory landscape imposed by the International Maritime Organization (IMO) and the EU when it comes to reducing GHG for vessels transiting European waters and docking at European ports.