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Oct 19, 2022
Lockton P.L. Ferrari

Newsletter 08-22

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:

19th October 2022

In March of this year, Standard P&I Club (‘Standard’) and the North of England (‘North’) (both of whichare P&I mutuals and members of the International Group (‘IG’)) issued a historic announcement: theirintention to merge to form NorthStandard P&I Club (‘NorthStandard’). The merger was overwhelminglyapproved by the membership of both Clubs in May 2022. We call this historic because, to the collectiveknowledge of P.L. Ferrari (‘PLF’), there has never been a merger or acquisition of a P&I Club where oneof the parties was not in distress or held a significantly different market share or product offering. Here,both Clubs are of considerable size, on solid financial footing and have a similar portfolio of bothmembers and product offerings. This merger is being proposed because both Clubs believe that theP&I model is changing and as increasingly complex claims continue to challenge performance acrossthe entire sector, scale is becoming increasingly important to ensure financial stability and resilience.

While much has been said in the press and within the P&I broking community about this historic event(both positive and negative), very little has been said about the mechanics of this merger from theperspective of the shipowner members of each Club. That being the case, we at PLF believe we areuniquely positioned, as the world’s largest and oldest independent P&I broker, to try and present someanswers to these niggling questions and shed some light on this exciting (and possibly mysterious)consolidation.

We do not take a position on whether the formation of NorthStandard, or further Club consolidation, is agood thing or a bad thing for the industry: the ultimate decision makers on consolidation are the P&IClub shipowner boards of directors and the shipowners themselves. We, as brokers who serve our shipowner clients, trust their judgment; our shipowner clients know better than anyone whether in their bestinterest to look at Club consolidation – and, if so, with whom. We do, however, anticipate that, with theapproval of this merger by the North’s and Standard’s respective memberships in the Spring of 2022and the continuing challenges faced by IG Clubs and the wider P&I market, as a whole, we can expectto see further, serious discussions about consolidation among IG Clubs going forward.

With that said, we hope that the below FAQs assist our clients and members of the IG as we navigatethrough the 2023 renewals.

North Standard Merger: FAQs

QUESTION: Is this a merger, acquisition, or newClub?
ANSWER: This is a merger of equals. No one Club is taking over the other. The goal is tocreate a combined Club, NorthStandard. The merger will not result in a new Club. Rather, NorthStandard, as agreed bythe IG, will be as if the North and Standard Club were always merged.Accordingly, existing members in both clubs will not be deemed ‘free’ businessand the rules of the International Group Agreement (‘IGA’) will continue to apply.

QUESTION: When will the merger be complete?
ANSWER: All key regulatory and competition approvals have been successfully obtainedahead of the original target date. From a legal perspective, the merger isexpected to be complete on February 20, 2023.

QUESTION: If a member of North or Standard wishto leave their Club at the February 20,2023 renewal, will they have to payrelease calls?
ANSWER: Yes; current IGA rules apply and release calls will be set as per the usual rulesand process. A link to our newsletter detailing types of premium calls can befound here:

QUESTION: If I am a member of one of themerging Clubs, who will handle their2023/24 renewal?
ANSWER: Terms will be provided separately by each Club to their respective members andthe renewal will be handled in the same way as any other renewal. P&I policieswill be renewed separately for the policy year at February 20, 2023 even if theClubs will no longer be legally independent as of that date. An integratedunderwriting process will be in place for the February 20, 2024 renewal.

QUESTION: What if I have ships entered in bothClubs?
ANSWER: See above. Terms will be provided separately by each Club for the relevantbusiness and the member will continue to have policies / certificates etc. issuedby each Club during the 2023/24 policy year.

QUESTION: If I have ships entered with both Northand Standard and choose tointroduce another IG P&I Club fromFebruary 20, 2023, how would thatwork?
ANSWER: Again, this would follow normal procedure under the IGA. Members retain thechoice to introduce other Clubs as they always have under the existing processand rules.

QUESTION: Are the two merging Clubs permittedto collaborate on the 2023/24renewal? If so, will there becollaboration?
ANSWER: Until legal completion of the merger, both clubs are obligated to continueoperating as separate entities. Should members with existing entries in bothClubs provide each Club with permission to share underwriting information, eachClub will be able to consider these for the purpose of their renewal terms andlook at how their respective renewal terms can be best aligned; however, eachClub will undertake its own renewal negotiations with the member or theirrespective broker and will ultimately make its own decision on the final terms.

QUESTION: Can we expect to see a rebalancingof rates in 2024/25 so they would beconsistent across the fleet?
ANSWER: PLF has been advised that no decision has been made at this point, but theexpectation is that the underwriting teams will be integrated for the 2024/25renewal and so we would expect that rebalancing will play a role there where itmakes sense to do so.

QUESTION: Can we expect to see a change inNorthStandard’s risk appetite orcollective underwriting philosophy in2024/25?
ANSWER: PLF has been advised that NorthStandard will take the same prudent approachto underwriting as both Clubs already do. While a P&I Club’s underwriting riskappetite evolves over time in response to claims experience and marketconditions, we anticipate that with NorthStandard’s size and scale (the combinedClub will be the largest IG Club by poolable tonnage and premium), we may seemore flexibility and commerciality in their approach to underwriting.

QUESTION: How will day-to-day account handlingbe managed during the 2023/24policy year?
ANSWER: PLF has been advised that day to day handling of each member will continueuninterrupted with a continued focus on excellent service.

QUESTION: What should NorthStandardmembers anticipate for the 2024/25renewal?
ANSWER: As noted above, an integrated underwriting process is expected to be in placefor the 2024/25 renewal. As such, we expect to see current members of eachClub renewed into a single combined Club with documentation reflecting this.

QUESTION: If I have recently moved mymembership from / to Standard orNorth, how will my record be affectedby the merger?
ANSWER: Movement of vessels between the Clubs prior to February 20, 2023 will not beretrospectively affected in any way by the merger. For example, if a fleet wasmoved from North to Standard at the February 20, 2019 renewal, only theStandard loss record will be considered by NorthStandard during subsequentrenewals.


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 08-22
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