Background

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 Actual Allowances Clause for COAs 2024 is the result of a collaborative and consensual process between owners, charterers, a P&I Club and legal experts. BIMCO is grateful to the drafting team for their considerable time, effort and commitment in producing the ETS – Emission Scheme Transfer of Actual Allowances Clause for COAs 2024:

• Nicola Ioannou, Oceanfleet (Chairperson)
•  Daniel Carr, Stolt-Nielsen
• Henning Babiel, ADM
• Kelly Vouvoussiras, Rio Tinto
• Claire Weustenraed, Pacific Basin
• Lisa-Marie Perrella, Fednav
• Annie Choquette, CSL Group
• Rachel Hoyland, Stephenson Harwood
• Helen Barden, North Standard

BIMCO Secretariat:

• Stinne Taiger Ivø
•  Natalie Wong
• Carl Lindahl

As part of the development work, the subcommittee consulted a group of stakeholders engaged in COAs. BIMCO would like to thank them all for their support and valuable input to the process.

Explanatory Notes

These explanatory notes are intended to provide an insight into the thinking behind the ETS – Emission Scheme Transfer of Actual Allowances Clause for COAs 2024. 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 key definitions – “Emission Allowances”, “Emission Scheme” and “Voyage”.

“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 as well as the ETS – EMISSION SCHEME TRANSFER OF ALLOWANCES CLAUSE FOR VOYAGE CHARTER PARTIES 2023.

The definition of “Voyage” in this clause encompasses the laden leg from the Load Port to the Discharge Port, and the parties may choose to either include or exclude the ballast leg from the Ballast Location to the Load Port. The parties are required to specify in Annex A the Ballast Location, Load Port and Discharge Port. The objective here is to give the parties the flexibility to define the “Voyage” which can be tailored towards specific business and commercial requirements. For instance, where parties agree to exclude in its entirety the ballast port or location, "N/A" could be inserted in the first column of Annex A. Alternatively, if the parties decide that only a portion of the ballast leg should be included, they could insert an agreed ballast port or ballast location. For example, a suitable location representing such proportion of the journey, such as "passing Gibraltar", could be inserted as the Ballast Location in the first column of Annex A.

Subclause (a)

This subclause states that the charterers are the ones to procure the transfer of Emission Allowances.

Subclause (b)

This subclause requires the owners to inform the charterers about the actual amount of Emission Allowances for the completed Voyage (as defined) and provide the relevant calculations and validated data which has been used to calculate the figure. The parties can choose to insert a specific number of days after completion of the Voyage into this subclause and if the parties fail to do so, then the default shall be 7 (seven) days.

The subcommittee was of the view that it was important to understand and distinguish between validated as opposed to verified data. The EU ETS regime requires verification of data and provides for verification to be undertaken by specific entities. Validated data on the other hand is intended to refer to data which has been checked by any independent third party and not necessarily by a third party specified by the EU ETS regime or any other emissions trading scheme.

Subclause (d)

This subclause deals with the timing of the transfer of the Emission Allowances. The transfer must be made within a certain number of days from the date in the notice given pursuant to subclause (b). If nothing is inserted by the parties, then the default shall be 7 (seven) days.

Subclause (e)

This subclause underlines the fact that once the owners receive the full quantity of Emission Allowances set out in the notice given pursuant to subclause (b), this releases the charterers from any responsibility for costs arising from the surrender of Emission Allowances for the Voyage(s) performed under the COA. However, this is always subject to subclause (f).

Subclause (f)

This subclause addresses a scenario where the vessel may release more emissions than anticipated due solely to the charterers’ breach of the COA. For example, the vessel may be detained solely due to the charterers being in breach of the COA. 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 (g)

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.

Subclause (h)

This subclause makes it clear that if the charterers fail to transfer the Emission Allowances as required under this 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 COA.

Subclause (i)

In addition to subclause (h), if the charterers fail to transfer the Emission Allowances as required under this clause, the owners shall be entitled to suspend performance of any or all of their obligations under the COA by giving a certain number of days’ written notice to the charterers until the full quantity of Emission Allowances are received by the owners. If nothing is inserted by the parties, then the default shall be 7 (seven) days.  Finally, this right to suspend is without prejudice to any other rights or claims under the COA.

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.

Copyright and Availability

Copyright in the ETS – Emission Scheme Transfer of Actual Allowances Clause for COAs 2024 is held by BIMCO.