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Nov 4, 2021
Lockton P.L. Ferrari

General Increase Bulletin No. 5/21

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:

4th November 2021

P&I Mutual entries

  • A minimum market adjustment of +10% for all mutual P&I tonnage regardless of performance

  • FDD Mutual entries

  • A minimum market adjustment of +10% for all mutual FDD tonnage regardless of performance

  • The recent Board meeting has concluded by setting requirements which the Board recognises as been necessary in order to secure the sustainability of the mutual portfolio and Skuld’s financial position. Whilst for recent years the club has abandoned the concept of general increases, due to continued under-performance of the mutual portfolio and growing concern from the rating agencies in relation to the overall performance of the mutual P&I market, the Board sees a need for rate rectification at this coming renewal using the terminology of “minimum market adjustment”, “regardless of performance”.

    In commenting further, they add,
    “Mutual rate adjustments at recent renewals have shown to inadequately cater for the significant increase in severity for pool and large claims. In addition, the negative effects of general inflation and Covid-19, such as increased costs due to repatriation, quarantine, and substitution of crew, are not reflected in current mutual rates. Furthermore, the overall levels of global investment volatility and outlook of more modest returns highlight the need for securing a more balanced underwriting result for the club.”

    In addition to the “minimum market adjustment” that will be applied to expiring mutual P&I and FDD premiums the club will make,

    • Additional individual adjustments for members with challenging records
    • Adjustment of any changes in the International Group reinsurance rates

    The renewal for entries based upon non-mutual premiums, P&I renewals will be subject to individual performance adjustments with an additional focus on increased large and attritional claims exposures and increased reinsurance costs.

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

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

    General Increase Bulletin No. 5/21
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