Freight contracts will need to be amended to stipulate which party will pay for extra costs associated with shipping's phased-in inclusion in the EU emissions trading system (ETS).
Starting in 2024, shippers that call at an EU port will have to surrender allowances to cover the emissions on the voyage. But because of the EU's "polluter pays" principle, the liability could land on either side of the charter party.
The party that makes the operational decisions of a voyage, such as the type of bunker fuel to burn, is liable under that principle. For spot charters, it is typically the shipowner that covers the bunker fuels, whereas for time charters, the charterer makes that decision.
"Contractual amendments are required as the taxes on the vessels have traditionally been on the owner's account," said shipbroker SSY in its 2023 outlook earlier this month.
Shipping's inclusion in the ETS has endured a number of iterations following extensive negotiations among EU legislative bodies, but late last year an agreement was forged to phase in shipping starting in 2024.
The European Council and European Parliament "agreed on a gradual introduction of obligations for shipping companies to surrender allowances: 40pc for verified emissions from 2024, 70pc for 2025 and 100pc for 2026," the European Council said on 18 December.
This was different from a more preliminary agreement on 17 May 2022 that would have also called for shipping's inclusion in the ETS starting in 2024, but with no phase-in.
"There is now agreement in the EU on how the EU's emission trading system will be applied to shipping from 2024. Owners and charterers should start to think about how they are going to deal with its requirements," said shipping protection and indemnity (P&I) club Gard.
"Preparation includes setting up contractual arrangements to suit their needs."
The extra costs are likely to an insignificant fraction of the value of the cargo, particularly in 2024 when only 40pc of emissions will require allowances.
The extra cost under the ETS for Brazilian iron ore arriving in Europe on a Capesize vessel would be less than 50¢/metric tonne and the extra cost for Mideast crude arriving on an Aframax tanker would be about 10¢/bl, according to SSY, considering the discount for international voyages, the 40pc phase-in and added costs on the ballast leg.
Gard encourages shipowners to consider building such costs into the freight and demurrage rates stipulated in charter parties.
