Shipmanagers and owners ponder ETS contractual responsibilities
Published: 30 June 2022
Shipmanagers and owners, assisted by legal and insurance experts, are grappling with the complexities of drafting a clause for SHIPMAN that sets out the responsibilities for administering and surrendering emissions allowances under an Emissions Trading Scheme (ETS). Although the clause is being written to work with any ETS, the primary focus is on the EU ETS, which is the world’s largest carbon trading scheme, soon to embrace shipping.
The draft EU legislation, as it presently stands, identifies the DOC holder as the party liable for surrendering allowances. This puts shipmanagers who provide technical management services to shipowners, “on the hook” if annual allowances are not surrendered. The EU supports the passing of costs for emissions on to the operator of the ship by the use of a contractual clause. In many cases, the operator will be the time charterer of the ship who gives employment orders. However, the drafting team recognises that passing on costs to the operator is distinct from who is the liable party when allowances are not surrendered. Not surprisingly, shipmanagers do not want to be held liable for allowances when they are providing shipmanagement services on an agency basis on the shipowners’ behalf. Equally, some owners may feel uncomfortable with managers holding allowances on their account for a calendar year because of credit risk issues. So, the starting point for the SHIPMAN ETS Clause is that the owners remain responsible for surrendering allowances even though the managers will be gathering and reporting emissions data for verification purposes.
As an option, owners and managers under the draft clause can agree that the managers will administer and surrender allowances on the shipowners' behalf. Owners can choose which solution best suits their needs. The drafting team believes that this optional approach will provide a flexible solution to both parties when agreeing how to manage ETS allowances. The benefit of this being an add on clause for SHIPMAN is that it can rely on the existing tried and tested liability and indemnity provisions built into Clause 17 of the agreement.
The EU legislation is close to being finalised and the BIMCO drafting team will “park” this new SHIPMAN Clause pending further clarifications on how the shipping regime will operate.