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 emission 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 Surcharge Clause for Voyage Charter Parties 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 Surcharge 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 “Emission Scheme Surcharge”.

“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.

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

“Emission Scheme Surcharge” means the agreed costs corresponding to the Vessel's emissions under the scope of the applicable Emission Scheme as set out in subclause (a).

Subclause (a)

This subclause allows the parties to insert a mutually agreed Emission Scheme Surcharge which is expressed as a cash amount (in the currency of choice, for example, EUR or USD). The figure to be inserted would simply reflect the outcome of a commercial agreement between the parties which is designed to compensate the owners for the Emission Scheme-related costs associated with surrendering the required Emission Allowances in respect of the charter party. For this clause to operate, the currency and amount must be inserted as there is no default if left blank. 

The subcommittee was of the view that the Emission Scheme Surcharge shall generally not be subject to any address or brokerage commission.

Subclause (b) 

This subclause deals with the timing of the payment of the agreed Emission Scheme Surcharge to the owners.  The payment 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 then the default shall be 14 (fourteen) days.

Subclause (c) 

This subclause underlines the fact that once the owners receive the full payment of the Emission Scheme Surcharge, 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 violating 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 pay the Emission Scheme Surcharge 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.

Optional Subclause (g)

This optional provision allows for a price adjustment where the spot price of an Emission Allowance has changed over time. It can assist parties in mitigating the risk of agreeing an Emission Scheme Surcharge that does not reflect the market position by the time it comes to be transferred in accordance with subclause (b). The rationale for including an optional adjustment for price fluctuations is to counter the potential volatility in the emission allowances market, mirroring how a bunker adjustment factor addresses the fluctuations in bunker markets, for example. Therefore, the wording of the price adjustment mechanism is very similar to that of a bunker adjustment clause and follows a well-recognised concept which is already accepted by the industry.

This price adjustment mechanism only caters for the increase or decrease in the spot price of Emission Allowances and is not designed to allow for an adjustment in the actual quantity of Emission Allowances which underlies the surcharge. If parties wish to deal with the actual quantity of Emission Allowances, they may wish to use subclause (b) of the ETS - Emission Scheme Transfer of Allowances Clause for Voyage Charter Parties 2023 instead of this clause.

The reasoning behind this approach 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 Emission Scheme Surcharge 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.