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Feb 15, 2022
Lockton P.L. Ferrari

Newsletter 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:

15st February 2022


Economic sanctions imposed by governments against self-governing states, legal entities andindividual persons are intended to be punitive methods which seek to promote foreign policyobjectives. They have been proven to be a popular and effective framework adopted by intra- andsupra-national governing authorities given the potential for fast and wide application.

There are numerous sanctions frameworks currently in effect, but those key to the maritime industryare those imposed by the USA, the European Union (‘EU’) and the United Nations (‘UN’) againstthe following states:

  • - Belarus
  • - Cuba
  • - Crimea
  • - Democratic Republic of Korea
  • - Iran
  • - Syria

The enforcement agencies of those sanctions and regulatory frameworks are increasing focus onthe maritime community to abide by, and thus give practical effect to, those sanctions. Given that90% of world trade involves the carriage of goods by sea, one could argue that this is unsurprising. Navigating the various sanctions frameworks in force at the time of fixing a vessel and / or performinga trade to ensure a lawful operation has become a routine requirement for vessel operators.However, that is not to say that it has been simple. The changing geopolitical landscape has caused numerous amendments, creations and – in somecases – dissolutions of the applicable sanctions frameworks. Key events include the establishment of the Joint Comprehensive Plan of Action in July 2015 whichprovided for the lifting of some sanctions against Iran, and the subsequent withdrawal from the sameby the United States of American (‘USA’) in May 2018. This resulted in the consequent passing ofthe EU Council Regulation EC No. 2271/96 (known as the ‘EU Blocking Regulation’) which soughtto counter the effect of the reinstatement of sanctions by the USA against Iran. The fluidity of the regulations and the potential for immediate effect is not just what causes vesseloperators difficulties. The inherent nature of international trade involves multiple parties in multiplejurisdictions with multiple financial and proprietary interests – many of which either change during avoyage or are not known until during or after the voyage has been completed. These factorsinevitably require detailed and strenuous due diligence procedures to maintain compliance.

The consequences of failing to comply with the applicable sanctions can be severe. The punishmentfor breaching sanctions – intentionally or unintentionally – can be served against individuals by wayof criminal fines and / or custodial sentences. But punishment can also be served against the legalentity that performed the trade; this includes being sanctioned itself which would prevent many thirdparties from being able to trade with that entity lawfully.

It is therefore of utmost importance not just to implement rigorous due diligence protocols, but alsoto review those protocols regularly to ensure that they are up to date with any and all applicablechanges.

It seems that the uncertainty in the regulatory framework is also likely to continue and the complexityof regulations compounded given recent political events.

Potential upcoming changes: Russian Federation

Whilst not yet in force, the increase in deployment of army and naval troops by Russia to performmilitary exercises surrounding Ukraine has caused governments worldwide to prepare for theapplication of additional financial sanctions against Russia to deter any further, similar deploymentsor potential invasion.

The Senate for Foreign Relations Committee of the USA has authored the ‘Defending UkraineSovereignty Act 2022’ which seeks to authorise financial sanctions being imposed by the USAagainst Russia in the event that hostilities against Ukraine are escalated.

If the bill is passed, the financial sanctions intend to target Russian government officials, financialinstitutions, entities involved in constructing or operating the Nord Stream 2 project and / or entitiesinvolved in the Russian resource extractive industries.

As has been the case in the past, the implication and expectation is that these sanctions would alsoextend to those assisting such operations, including vessel operators and those entities providing,inter-alia, financial and insurance services for the same.

If this comes to pass, this will once again raise concerns regarding pre-existing contractualobligations in light of any new sanctions as well as those in the future.

Enforcement and technology

The increased focus on the maritime community has also extended to the technology on whichmaritime industry relies, even if it was not for the purpose of enforcing sanctions; the primaryexample is the Automatic Identification System (AIS).

Under the international convention for the Safety of Lives at Sea (SOLAS), all ships irrespective ofsize are obliged to have a global navigation satellite system or a terrestrial radionavigation systemfor use at all times throughout any voyage to establish and update the vessel’s positionautomatically. The original purpose of this obligation was to ensure that the position of vessels isknown to other vessels, shore-side entities and maritime authorities for safety purposes, such asavoiding collisions.

Whilst AIS should always be in operation, there are exceptions such as when the Master believesthat the operation of the AIS may compromise the safety of the vessel and / or its crew. For example,when transiting waters where there are known pirate operations or armed robbers, the vessel islawfully entitled to disable the AIS whilst sailing through such an area to avoid detection andattempted hijacking. Thereafter, the Master is obliged to enable AIS again.

However, maritime authorities and governments alike are looking to AIS signals given by ships toindicate the trade which the vessel may be performing. Disabling the AIS can and has beeninterpreted by authorities to be a method of intentionally avoiding detection and, therefore, anintention to perform a sanctioned trade.

Whilst the entitlement to disable AIS pursuant to the exceptions under SOLAS has not been revokedor amended, increased attention is being paid to when, where and why detection is being avoided.

Therefore, not only are there likely to be changes on the scope of incumbent sanctions, but also apotential expansion on the obligations of vessel operators and the use of tools available to the same.P.L. Ferrari urges all of its client to review and, where necessary, update its due diligence protocolswith regards to sanctions and be aware of the changes which may come into effect in the comingmonths.

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

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

P.L.Ferrari – A Member of the Lockton Group of Companies

This newsletter is intended solely as an overview of the marine market and does not constitute any form of advice. It is based on sources believed to be accurate at the time of printing andwe cannot be held liable for the omission of any information within the newsletter.

Newsletter 02-22
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