Co-authored with Grace Durnall

The EU Emission Trading Scheme (ETS) has been extended to cover the maritime sector from 2024. 

The amendments to the EU ETS (“the Directive”) require compliance by the “shipping company”. The Commission Implementing Regulation (EU) 2023/2599 provides that the shipping company shall be the shipowner by default and therefore responsible for EU ETS compliance. Shipping companies will need to open an operator account in the Union Registry. Via this account, shipping companies will need to surrender their allowances by 30 September each year with the first deadline for surrendering being 30 September 2025. 

EU ETS Introduction Timeline

What do ship owners, managers, bareboat charterers, time charterers and voyage charterers need to do to prepare for the incoming regulatory changes?

Firstly, consider who will be the “shipping company”. As per the recent Commission Implementing Regulation,  a ship manager or bareboat charterer may be mandated to be the “shipping company”, subject to them being responsible for duties imposed by the International Management Code for the Safe Operation of Ships and Pollution Prevention and meeting documentary requirements. The role of a “shipping company” should not be undertaken lightly, noting the right of Member States to issue an expulsion order for all vessels within the responsibility of the shipping company in the event of non-compliance for 2 or more consecutive years.

Secondly, consider who will purchase and pay for allowances. In line with the “polluter pays” principle, the Directive provides that the shipping company should be entitled to claim reimbursement for the cost arising from the surrender of allowances or the operation of the vessel. 

Thirdly, ensure contracts are updated to include reference to EU ETS. Charterparties, COAs and ship management agreements should provide for EU ETS. BIMCO has provided a draft clause for EU ETS in the context of time charters whereby the obligation to provide and pay for allowances rests on time charterers. With respect to voyage charterers, whilst not responsible for purchasing fuel, they will likely see changes in freight rates in light of the EU ETS costs.

Charterparty clauses need to take into account the updated MRV (updated in line with EU ETS), see Regulation (EU) 2023/957 amending Regulation 2015/757 and EU ETS.

Lastly, consider EU Member State law. EU Member States should take national measures to implement the Directive, including applicable penalties and providing recourse for shipping companies to claim reimbursement with respect to the cost of the allowances.