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Jan 10, 2022
Lockton P.L. Ferrari

Renewal Bulletin No. 18/21

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:

5th January 2022

The International Group has announced the reinsurance tariff rates for all Owners’entries to take effect at renewal of 20th February 2022.

Tonnage category / 2021 rate US$/GT • Change US$/GT • 2022 rate US$/GT

Persistent Oil tankers / 0.5625 • 0.0844 • 0.6469

Clean Tankers / 0.2619 • 0.1047 • 0.3666

Dry / 0.4028 • 0.1611 • 0.5639

FCC* / 0.4249 • 0.2337 • 0.6586

Passenger / 3.2624 • 0.6053 • 3.8677

FCCs* = Fully Cellular Container Ships

As already anticipated a deterioration of the P&I claims affected both the GroupPool and the Reinsurance partners and led the Group to pay an increase inpremiums to the market to renew its 2022 reinsurance programme. TheReinsurance Committee has analysed the vessel categories, leaving the same fiveas last year but adjusting the relative rates according to the historical claimsperformance.

The Individual Club Retention (ICR) for the policy year 2022/23 will remainunchanged at US$ 10 million, as well as the Poolstructure above that, up to theattachment point for the GXL at US$ 100 million. The GXL programme remainssubstantially unaltered: the main GXL placement (US$ 2Bn in excess of US$ 100m)has been split in 4 layers, with the Collective Overspill (US$ 1Bn excess of US$2.1Bn) renewed with premium included within the overall rate per GT.

For Malicious Cyber, Covid and Pandemic risks there is free and unlimited coverfor claims up to US$ 450 million excess of US$ 100 million, covering almost allGroup Clubs’ certificated risks. The excess of the above US$ 550 million arecovered under an annual aggregate cover up to US$ 2.15Bn, while the excess upto US$ 3.1Bn is pooled between Group Clubs, resulting practically in no change toMembers’ cover.

The diagram below illustrates the layers and participation structure of the GXLprogramme 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 intouch with your usual P.L. Ferrari contact or get in touch via our website

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

Renewal Bulletin No. 18/21
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