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Nov 24, 2022
Lockton P.L. Ferrari

Renewal Bulletin No. 10/22 - Club Standard

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:

24th November 2022

  • A general increase of 10% for both P&I and FD&D mutual entries.
  • An increase of all deductibles by 10% for P&I mutual entries, subject to a minimum increase of USD 2,000 for crew and cargo claims.
  • There will be additional premium adjustments for any P&I mutual owners/members preferring to maintain their existing deductibles.
  • No changes to FD&D deductibles.

At the recent Board meeting, the Club has considered its financial position and decidedthe renewal requirements as above. In addition, the Club circular sets out the mainhighlights:

P&I and FD&D Mutual

  • The Club made positive progress at the last renewal towards its goal of breakevenunderwriting, and 2022/23 is forecast to show further improvement due tounusually low level of claims activity so far this policy year, both in respect of thefrequency and cost of Club’s own large claims, but also in respect of large claimsin the International Group Pool where to date only one claim has been reported.
  • Whilst the investment portfolio remains defensively positioned, all asset classeshave poorly performed this year, although these losses are largely paper losses.The Club’s capital remains in excess of the AAA capital requirement under S&Pmodel and Club retains the current S&P’s “A” rating.
  • Despite the unusually low level of claims in the current year, the board isconscious that with a more normal pattern of claims, premium levels would stillrequire to be further increased so as not to erode the Club’s capital strength infuture years.
  • The board is also mindful of the potential future impact of inflation on claims costs.
  • Any adjustment in cost in respect of the International Group excess of lossreinsurance programme will be passed to owners/members.
  • No call is expected in addition to Estimated Total Premium (ETP) for all openpolicy years and release call percentages will remain at the levels set by the boardearlier this year.

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.

Renewal Bulletin No. 10/22 - Club Standard
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