Renewal Bulletin No. 16/22

The European Union’s Emissions Trading System (EU ETS) was extended to cover emissions from shipping as of 1^st 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

The International Group has announced the reinsurance tariff rates for all Owners’ entries to take effect at renewal of 20th February 2023.

Tonnage category / 2022 rate US$/GT • Adj • Change US$/GT • 2023 rate US$/GT

Persistent Oil tankers / 0.6469 • 0.0194 • +3.00% • 0.6663

Clean Tankers / 0.3666 • 0.0385 • +10.50% • 0.4051

Dry / 0.5639 • 0.0352 • +6.24% • 0.5991

FCC* / 0.6586 • 0.0691 • +10.49% • 0.7277

Passenger / 3.8677 • 0 • +0.00% • 3.8677

FCCs* = Fully Cellular Container Ships

Notwithstanding a benign Pool Claims year during the 2022/23 Policy Year, there has been deterioration in prior year, mainly due to hurricane Ian and the Russia / Ukraine war. There is also wider market deterioration on other classes of reinsurance business which had significant impact on the International Group’s reinsurance partners. Nevertheless the IG has been able to renew its reinsurance programme with a relatively low increase in rates for the members of the IG. The Reinsurance Committee has analyzed the vessel categories, maintaining the same five as last year but adjusting the relative rates according to the historical claims performance.

The Individual Club Retention (ICR) for the policy year 2023/24 will remain unchanged at USD 10 million, as well as the Pool structure in excess of this, up to the attachment point for the GXL at USD 100 million. The GXL programme remains substantially unaltered: the main GXL placement (USD 2Bn in excess of USD 100m) has been returned to 3 layers, with the Collective Overspill (USD 1Bn excess of USD 2.1Bn) renewed with premium included within the overall rate per GT.

The excess War P&I cover will be renewed at the same extent of 2022 policy year. However due to the ongoing war between Russia and Ukraine, the IG’s excess war reinsurers require a territorial exclusion clause for vessels trading in these waters. The IG is negotiating availability of sub-limited cover for affected vessels and we will return on the matter with details of the cover in due course.

For the standard Excess War Risks P&I cover the limit remains USD 500 million. The cover will only respond to claims in excess of the proper value of the entered ship, deemed not to exceed USD 500 million, or whatever sum is recoverable from any other war risks policy of insurance, whichever is the greater.

For Malicious Cyber, Covid and Pandemic risks there is free and unlimited cover for claims up to USD 650 million excess of USD 100 million, covering almost all Clubs’ certificated risks. Excess of USD 750 million there is up to USD 1.35 billion of annual aggregated cover in respect of these three risks. Excess of that the Group has decided to pool between Group Clubs the unreinsured risks, resulting in no change to Members’ cover.

The diagram below illustrates the layers and participation structure of the GXL programme for 2022/23. Download the complete pdf to see the diagram

Should you have any queries regarding the above please do not hesitate to get in touch with your usual P.L. Ferrari contact or get in touch via our website at www.plferrari.com

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

Lockton P.L. Ferrari & CO S.r.l.

Lockton 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 and we cannot be held liable for the omission of any information within the newsletter.

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Renewal Bulletin No. 16/22

The European Union’s Emissions Trading System (EU ETS) was extended to cover emissions from shipping as of 1st January 2024.

Renewal Bulletin No. 16/22

The European Union’s Emissions Trading System (EU ETS) was extended to cover emissions from shipping as of 1^st January 2024.