Lawyers believe there could be serious disputes between shipowners and charterers when the European Union’s Emissions Trading System (ETS) enters into force.
Law firm Reed Smith said that as shipping gears up for January 2024, a key area of focus is negotiating the language in charter agreements.
The goal is to establish a fair allocation of costs and legal risks, but this process is not without its hurdles, the company warned.
Transportation partner Nick Austin said: “The EU ETS introduces a challenging dynamic within the shipping industry and has given rise to tensions between shipowners and charterers.”
He explained that disagreements could arise concerning the sharing of vessel emissions data, determining the carbon output that charterers should be responsible for and steering a course through the intricacies of compliance with the scheme.
“A particularly thorny issue is the potential fallout if a charterer fails to transfer emissions allowances to shipowners, potentially exposing them to penalties within the EU system,” he said.
“In extreme cases, the question arises: would shipowners consider suspending vessel services to prevent charterers from using the ship?”
Tensions can also escalate when one party insists on language geared towards encompassing future emissions trading schemes beyond the EU.
“Collaborative efforts between shipowners and charterers are underway to address these challenges,” Austin said.
TradeWinds reported on Friday that shipowners organisation Bimco has issued guidelines on how shipowners, managers and charterers could share the financial and administrative burden of shipping emissions.
Polluter pays, but how much?
The framework, which consists of four clauses, potentially applies to every shipping emissions trading scheme.
Attention is urgent in Europe, where the EU will include vessels in the ETS, for voyages to, from and between the bloc’s ports.
Last year, EU regulations appeared to chart a path to a “polluter pays principle”, suggesting commercial operators and charterers would ultimately be liable for emission costs estimated to reach billions of dollars.
But the small print puts the onus on shipowners, largely leaving any burden-sharing with other stakeholders as a matter of commercial agreement.
