December, 2023 - BIMCO publishes suite of ETS clauses
- Date: 14/12/2023
On 8th December, 2023, BIMCO published four emissions scheme clauses: three clauses for voyage charterparties and a clause for use in ship management contracts. The purpose of the clauses is to allow parties to choose a mechanism for dealing with the costs of surrendering emissions allowances under the applicable emissions scheme. These clauses are drafted in wide enough terms so as to be capable of covering not only the EU Emissions Trading Scheme (which comes into force on 1st January, 2024) but also other similar schemes that may be imposed in the future.
1. Emission Scheme Freight Clause for Voyage Charter Parties 2023
The clause stipulates that the freight due under the charter party will include all costs arising from the surrender of emission allowances corresponding to the ship’s emissions for the voyages performed under the charter party. It is intended to reflect the outcome of a commercial agreement between the parties on the appropriate amount of ETS related costs associated with surrendering the required allowances for the voyage(s), which will be factored into the freight rate paid by the charterer to the owner.
Once the owner receives full payment of the freight, the charterer is released from any further responsibility for costs arising from the surrender of emission allowances for the voyage(s) performed under the charter party. However, this is without prejudice to the owner’s right to recover for additional emissions released as a result of the charterer’s breach of the charterparty, for example by the ship being detained as a result of the charterer’s breach.
One thing to be aware of, however, is that by including the costs arising from the surrender of emission allowances in the freight payable under the charterparty, it is likely that such costs will be subject to broker’s commission.
2. Emissions Scheme Surcharge Clause for Voyage Charter Parties 2023
This clause provides for the charterer to pay a pre-declared amount (a ‘surcharge’) to the owner which is based on the length of the voyage(s) and ports of call. The charterer is not allowed to make any deduction from this surcharge payment for whatever reason. On receipt of the payment the charterer is fully released from any responsibility for costs arising from the surrender of emission allowances for the voyage(s) performed under the charter party.
In addition, the clause provides that if the charterer fails to make payment in full and/or within a stipulated number of days, it shall be deemed as non-payment of freight under the charterparty. The owner also has the right to recover any additional emissions released as a result of the charterer’s breach of the charterparty.
3. Emissions Scheme Transfer of Allowances Clause for Voyage Charter Parties 2023
Under this clause the parties can agree to the transfer of a pre-determined quantity of emission allowances from the charterer to the owner’s nominated emission scheme account. After all, the figure is, for all intents and purposes, an estimate which may not necessarily reflect the actual number of emission allowances required for the voyage(s). The agreed quantity of emission allowances is not subject to any adjustment with regard to an increase or decrease of the number of emission allowances actually corresponding to the performance of the voyage. This is purely a commercial approach.
Alternatively, the parties can agree that the owner notifies the charterer of the estimated quantity of emission allowances before the first day of the laycan. The quantity of emission allowances are transferred into the owner’s nominated emissions scheme account on the date that freight is due or within a stipulated number of days of sailing from the load port. After final discharge, the owner is then required to notify the charterer in writing of the actual number of emission allowances for the voyage(s) performed. If the actual quantity of emission allowances notified by the owner is higher or lower than the estimated emission allowances provided before the laycan, any difference in the quantity shall be transferred by the charterer to the owner or vice versa as applicable.
The clause also provides that on full / final payment to the owner the charterer is released from any further responsibility for costs arising from the surrender of emission allowances. Again, however, this is without prejudice to the owner’s right to recover for additional emissions surrendered owing to the charterer’s breach of the charterparty.
4. SHIPMAN Emission Trading Scheme Allowances Clause 2023
The clause places an obligation on the owner to ensure compliance with the applicable emissions trading scheme throughout the duration of the relevant ship management contract at the owner’s expense. The ship manager then has an obligation to provide the owner with all the relevant ship emission data (either in a timely manner or at regular intervals as agreed) so as to allow the owner to comply with its obligations.
There is an optional element to the clause, however, which allows the parties to agree that the services provided by the ship manager will include performance of the services necessary for the owner to comply with its obligations under the applicable emission scheme, including (i) providing the emission data and calculations of the allowances to be surrendered, (ii) monitoring and reporting the emission data to the relevant authority under the applicable emission scheme, (iii) preparing and presenting to the owner the ship manager’s estimates of the emission allowances for the ship for the next month and (iv) surrendering the emission allowances to the relevant authority. The clause also provides for the owner to pay the ship manager a stipulated fee per port call in an area subject to an emission scheme or, alternatively, if no fee is stipulated, it is assumed that the fee is included in the annual management fee.
The above clauses offer the parties flexibility to choose a procedure suitable for their specific trade and business. At all times, however, the owner remains responsible for surrendering the appropriate number of emission allowances in accordance with the applicable emission scheme.
The BIMCO clauses, together with accompanying explanatory notes, are available here: BIMCO clauses
For detailed information on the EU Emissions Trading Scheme, Members can refer to the Club’s publication.
As always, if Members have any questions in relation to the above issues, they are invited to contact the Club for further information.