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Mar 25, 2022
Lockton P.L. Ferrari

N&I 02-22

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:

March 2022


The escalating con!ict between Ukraine and Russia has led shipowners, charterers and operators of vessels toexercise extreme caution when calling within or in close proximity to those regions recently designated by theJoint War Committee (JWC) as having an elevated likelihood of war, piracy or terrorism. While the situationcontinues to evolve, at present, the designation encompasses: certain waters in the Sea of Azov and the BlackSea, all inland waters of Ukraine, and certain inland waters of Russia and Belarus (see JWC Circular JWLA-028and JWLA-029). This is the !rst time in the 21st Century that European waters have been designated by the JWC.This designation requires shipowners to notify their underwriters in advance of a voyage to a designated area(s),typically resulting in a supplemental (breach) premium.


Most marine insurances expressly exclude cover for war risks and P&I insurance provided by the International Groupof P&I Clubs is no exception. This coverage speci!cally excludes liabilities, costs and expenses : war, civilwar, revolution, rebellion, insurrection or civil strife arising there from, or any hostile act by or against a belligerentpower (unde!ned), or mines, torpedoes, bombs, rockets, shells, explosives or other similar weapons of war.

As highlighted in the preceding paragraph, for the War Risks exclusion to be triggered, the P&I liability must beproximately caused by war or similar events noted above. Indeed, even if a ship was in or near a JWC-designatedarea, the War Risks exclusion would only be triggered if the incident occurred as a result of a listed War Risk. Forexample, if a ship allied with a berth as a result of navigational error and the berth happened to be in a war zone, ordinary P&I cover would likely respond. The incident would not trigger theWar Risk exclusion simply because it occurred in a designated area.

Normally, shipowners procure standalone war insurance (Primary Warcover) that provides cover for war related perils that are otherwiseexcluded from standard Hull & Machinery (H&M) and P&I placements. ThisPrimary War cover typically has a War P&I limit of the lesser of either theagreed to value of the vessel or US$500M.

In excess of the vessel’s value/US$500M, all P&I Clubs in the InternationalGroup provide Excess War Risks P&I cover with a limit of US$500M eachvessel, any one event. It is important to note that this cover is always inexcess of the value of the vessel/US$500M; where an owner does notpurchase Primary War cover, the Excess War limit provided by the Clubswill attach at the value of the vessel/US$500M (with the underlying valuetreated as a Self-Insured Retention).

It is also important to note that certain risks are excluded from Primaryand Excess War cover, such as loss or damage caused by nuclear, chemical,biochemical or electromagnetic weapons. However, the InternationalGroup provides a supplemental cover insuring this type of risk with anaggregate limit of US$30M.

For all the above War Risk policies, there is an automatic termination ofcover upon the outbreak of war (whether there be a formal declarationof war or not) between any of the following countries: UK, USA, France,Russian Federation, People Republic of China – the so-called FivePowers War Exclusion. At this juncture, however, it is unclear whether thistermination would be triggered by a con!ict between Russia (or anotherof the Five Powers) and another NATO ally, given NATO’s policy that anattack on one NATO member is an attack on all.

Given the volatility of the situation in Ukraine and the surrounding
region, we recommend that shipowners ensure that they have obtainedWar Risk cover with separate limits for primary H&M War and P&I War.

As mentioned above, P&I War Risk cover provided by the Clubs sit excessof the value of the vessel (or US$500M). Accordingly, where a shipownerhas only one aggregate primary war limit, combined hull and third partydamages may not be suf!cient to cover all damages and claims. Our teamat P.L. Ferrari and Lockton remain ready to assist and clarify any P&I orH&M aspect related to this particular situation.


  1. This insurance is also to cover such Protection and Indemnity risks which are excluded from the marine insurance by reason of the operation of the War Exclusion (and S.R. & C.C. & M.D. etc. and Sabotage and Vandalism, where applicable) clause or clauses in the rules of the Club covering Protection and Indemnity risks or in the policy of the insurance covering such risks and current at the time of happening of the accident or occurrence giving rise to the claim. In the event that Protection and Indemnity risks are not insured against Marine Perils this insurance shall be construed as if such insurance had been covered by the United Kingdom Mutual Steamship Assurance Association (Bermuda) Limited.
  2. This insurance is also to cover liability for contractual repatriation expenses of any crewmember as a result of any of the risks set forth in the preceding clauses.
  3. Claims for which these Underwriters are liable under these clauses shall not be subject to any deduction and/or franchise.
  4. The Liability of Underwriters under these clauses in respect of any one accident or series of accidents arising out of the same casualty shall be limited to the sum hereby insured.
  5. These Underwriters agree to accept the same percentage interest under these clauses as accepted on Hull War Risks.
  6. Provided always that for the purpose of ascertaining if a claim is recoverable hereunder, the Rules of any Protection and Indemnity insurance and/or entry as mentioned above shall be deemed to exclude the so-called Omnibus Rule.
  7. Should the vessel at the natural expiry time of this policy be at sea, and provided the Automatic Termination Clause in the Hull War Risk Policy have not by that time been brought into operation, this insurance shall be extended, provided previous notice be given to the Underwriters at a premium to be mutually agreed, until midnight G.M.T. of the day on which the vessel is moored at the next port to which she proceeds and 24 hours thereafter.
  8. This Protection and Indemnity insurance shall terminate automatically at the same time as the Hull Insurance against War Risks and upon the terms and conditions provided for in the Automatic Termination Clause of the Hull War Risks Policy.
N&I 02-22
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