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Dec 3, 2021
Lockton P.L. Ferrari

General Increase Bulletin No. 14/21

The European Union’s Emissions Trading System (EU ETS) was extended to cover emissions from shipping as of 1st January 2024.

The EU ETS is limited by a 'cap' on the number of emission allowances. Within the cap, companies receive or buy emission allowances, which they can trade as needed. The cap decreases every year, ensuring that total emissions fall.

Each allowance gives the holder the right to emit:

  • One tonne of carbon dioxide (CO2), or;
  • The equivalent amount of other powerful greenhouse gases, nitrous oxide (N2O) and perfluorocarbons (PFCs).
  • The price of one ton of CO2 allowance under the EU ETS has fluctuated between EUR 60 and almost EUR 100 in the past two years. The total cost of emissions will vary based on the cost of the allowance at the time of purchase, the vessel’s emissions profile and the total volume of voyages performed within the EU ETS area. The below is for illustration purposes:
  • ~A 30.000 GT passenger ship has total emissions of 20.000 tonnes in a reporting year, of which 9.000 are within the EU, 7.000 at berth within the EU and 4.000 are between the EU and an outside port. The average price of the allowance is EUR 75 per tonne. The total cost would be as follows:
  • ~~9.000 * EUR 75 = EUR 675.000
  • ~~7.000 * EUR 75 = EUR 525.000
  • ~~4.000 * EUR 75 * 50% = EUR 150.000
  • ~~Total = EUR 1.350.000 (of which 40% is payable in 2024)
  • For 2024, a 60% rebate is admitted to the vessels involved. However, this is reduced to 30% in 2025, before payment is due for 100% with effect from 2026.
  • Emissions reporting is done for each individual ship, where the ship submits their data to a verifier (such as a class society) which in turns allows the shipowner to issue a verified company emissions report. This report is then submitted to the administering authority, and it is this data that informs what emission allowances need to be surrendered to the authority.
  • The sanctions for non- compliance are severe, and in the case of a ship that has failed to comply with the monitoring and reporting obligations for two or more consecutive reporting periods, and where other enforcement measures have failed to ensure compliance, the competent authority of an EEA port of entry may issue an expulsion order. Where such a ship flies the flag of an EEA country and enters or is found in one of its ports, the country concerned will, after giving the opportunity to the company concerned to submit its observations, detain the ship until the company fulfils its monitoring and reporting obligations.
  • Per the EU’s Implementing Regulation, it is the Shipowner who remains ultimately responsible for complying with the EU ETS system.

There are a number of great resources on the regulatory and practical aspects of the system – none better than the EU’s own:

3rd December 2021

FDD Mutual Entries

  • A 7.5% general increase ordered.

In summarising the announced general increase the club notes that in recent years it hasseen some upward movement in claims levels which in 2020 and beyond was drivenlargely by IMO sulphur related issues. General charterparty related disputes continue todominate the underlying claims picture as do disputes relating to MOA and newbuildingcontracts. Inflation in claims costs is also noted as becoming more noticeable. The costsof arbitration or court proceedings are significant irrespective of the jurisdiction whereproceedings are taking place. At the present time claims costs inflation combined with ahardening reinsurance market, and an expectation of higher global inflation generally,means that combined loss ratios will almost certainly suffer as a result.

In view of this and noting that it is essential that the Club’s underwriting base andcombined ratio is maintained around breakeven levels over the medium term so that theClub can maintain its strong capital position rather than allowing it to deteriorate, theDirectors have decided that a general increase in premium of 7.5% is necessary in orderto achieve this aim. Premium adjustments will of course be subject to Members’ individualexposure and claims experience.

With regard to continuity credits, the club notes that this programme has operatedsuccessfully since 2014. It has been allocated between a full fleet credit of 2.5% for thoseMembers entering their full fleet with the Club, and a further amount depending on theClub’s overall financial position in any given year. This latter distribution is determinedannually in June and is then offset against the August premium instalment. The full fleetcredit of 2.5% will be maintained for the 2022/23 policy year.

This Newsletter, and our information archive, can also be accessed at

P.L. FERRARI & CO S.r.l.

General Increase Bulletin No. 14/21
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