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Nov 2, 2022
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Lockton P.L. Ferrari

Renewal Bulletin No. 01/22 - Club Steamship

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:

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02003L0087-20230605

https://climate.ec.europa.eu/eu-action/transport/reducing-emissions-shipping-sector_en

https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/what-eu-ets_en

2nd November 2022

  • General increase of 7.5% in premium ratings for all classes of business.
  • 10% increase in Class 1 P&I deductibles to apply to all deductibles which are US$50,000 or less.

The recent Board meeting has concluded by setting a +7.5% general increase to be applied onexpiring P&I and FDD mutual premiums at 20th February 2023. In addition, and as always, rateswill be adjusted where necessary to reflect any changes in the cost of the International Groupreinsurance programme.

The Club renewal circular sets out the main highlights from the Clubs operating environment whichwere considered when deciding the general increase requirements:

  • The Club’s own claims for the 2022/23 policy year at six months are less than budgetedwith no material / major claims arising from Covid -19.
  • There were no International Group (IG) Pool claims reported for the 2022/23 policy year inthe period to 20 September.
  • The overall development of the Club’s prior year claims is greater than projected, primarilydue to deterioration in Pool claims.
  • As a result of the favourable claims projections the 2022/23 financial year combined ratiois better than expected at six months.
  • The Club recorded a loss in investment amounting to a loss of US$ 51 million. Thisrepresents an impact of interest rate increases in the United States and market volatilitymore generally.
  • Owned tonnage has increased by approximately 3.5% in the year to 20 September.
  • The Club decided to maintain the level of release calls.
  • The Club’s Standard & Poor’s (S&P) rating has been reaffirmed at A, but with a negative outlook.

This Newsletter, and our information archive, can also be accessed at www.plferrari.com

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

Renewal Bulletin No. 01/22 - Club Steamship
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