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Oct 21, 2021
Lockton P.L. Ferrari

General Increase Bulletin No. 2/21

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:

21st October 2021

P&I Mutual entries
• A +12.5% General Increase on expiring premiums

The recent Board meeting has concluded by setting a +12.5% general increase to be applied onexpiring P&I mutual premiums at 20th February 2022. In addition, rates will be adjusted to reflectany changes in the cost of the International Group reinsurance programme. Members with adverserecords will in addition have rates and terms increased to reflect as appropriate record and/or riskexposure.

The club renewal circular is synthetic and should be read in conjunction with the Autumn Statement2021 which provides more detail to the status of the club and the driving factors which have led tothe Board decision on general renewal requirements at 20th February 2022.

The pertinent sound bites from the Autumn Statement 2021 are set out below.

  • COVID-19
    COVID-19 continues to impact upon the Club’s results and does not appear to be a one-off cost. 2021 has been very different (to the 2020 experience) with a steady flow ofrelatively small Non-Cruise related claims amounting to approximately 5% of club mutualpremium.
  • International Group Pool Claims
    After six months the number of Pool claims was consistent with previous years, howeverthe estimated cost for these claims is the largest in history. UK Club’s share of those claimsexceed the Club’s own claims. After 6 months of 2021-22 policy year the cost of Pool claimsmade up over half the cost of club notified claims.
  • Non-Pool attritional claims by size.
    After 6 months of the 2021-22 policy year are in line with the low levels of recent year byfrequency but inflationary pressures remain as the average cost of claims continues to trendupwards.
  • Premium adequacy
    Mutual premiums continue to be insufficient to cover the associated claims and expenses. The pressure on policy year results is increasing as large claims and reinsurance costs increase. Action must be taken in order to restore premium levels and preserve financial stability going forward. The combined ratio for the first 6 months of the 2021-22 policy year was 115%.

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

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

General Increase Bulletin No. 2/21
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