Connect with us

Business

Gard: Emission trading schemes and international shipping

ETS application to shipping is still under discussion but owners and charterers should start thinking about how they are going to deal with it once it is in force, says Louis Shepherd.

Admin

Published

on

Photoholgic on Unsplash

Norwegian maritime insurance company Gard on Tuesday (31 May) published an insight discussing interest in the expansion of existing emission trading schemes to also cover international shipping in the EU, China and Japan, as well as urging owners and charterers to think ahead before its implementation:

By Louis Shepherd, Senior Claims Adviser, Lawyer, London

On a nation state level, governments can impose taxes on the sources of pollution at the point of production or sale, e.g. on petrol, with the aim that the taxes generated will cover the cost of dealing with the resulting pollution and incentivise reduced consumption. The difficulty in international shipping is that if just a few governments took this approach for bunker fuel, the buyers would likely adjust their arrangements so that they avoided bunkering at the taxed ports. For a sales tax on bunker fuel to be effective, governments of all the major bunkering ports around the world would need to coordinate and agree to tax bunker fuel in the same way. With such cooperation looking very unlikely in the near term, governments are now looking at imposing costs on emissions, rather that at the point of sale.

An emission trading scheme (ETS) is a tool that governments and regulators are expected to use increasingly often in the fight to reduce the pollution created by international shipping. The central idea behind an ETS is to have a market mechanism to ensure that “the polluter pays” – the payment being for the environmental and social cost of pollution, its clean up cost and potentially also research into technology that will reduce or remove it. Of course, increasing the cost of pollution also creates an incentive to create less of it.

For this reason there has been increasing interest in expanding existing ETS to include international shipping, including in the EU, China and Japan. The basic idea of an ETS is that a capped number of emission permits are bought and sold on the market, with emitters having to purchase and surrender enough allowances to cover their emissions. The price of the allowances will change over time to reflect the balance of supply and demand, and emitters then are incentivised to find the cheapest (ie. most efficient) ways to reduce emissions.

The EU Emission Trading Scheme 

Launched in 2005, the EU’s ETS works as a “cap and trade” scheme where emitters of CO2 in certain sectors have to purchase allowances to cover their carbon emissions during the relevant trading period. 

The number of allowances at any one time are fixed, but they reduce each year, so that emissions within the EU also fall.

How the scheme will be applied to shipping is still under discussion, but if current proposals are adopted, the key features will be:

  • Application to all vessels over 5,000 GT trading within EU waters, irrespective of flag
  • Start date 1 January 2024 (pushed back from 1 January 2023)
  • Full implementation right away, with no phase-in (originally suggested phase-in until 2026)
  • 100% of intra-EU voyage emissions to be covered by the scheme
  • 50% of EU in-bound/out-bound voyage emissions will be covered, increasing to 100% from 2027
  • The ‘shipping company’ (defined as owner, manager or bareboat charterer) will be responsible for surrendering the allowances
  • The ETS will cover carbon dioxide, methane and nitrous oxide
  • 30 April deadline for surrender of allowances for previous calendar year (ie. 30 April 2025 deadline for 2024 emissions)
  • Non-compliance can lead to penalties and expulsion orders

Several parts of the scheme are still unclear, and questions have been raised about two particular areas relating to shipping. First, in the Special Rapporteur’s report of 24 January 2022, it says that where a ship is on charter and the owner is not responsible for purchasing fuel or making decisions about the vessel’s speed, cargo or route, then:

“… a binding clause should be included in such arrangements for the purpose of passing on the costs so that the entity that is ultimately responsible for the decisions affecting the CO2 emissions of the ship is held accountable for covering the compliance costs paid by the shipping company under this Directive.”

Whilst many vessel owners would support the motivation behind this, it is far from clear how EU law would impose such a clause in private contractual arrangements between parties that may not be based in EU states. What happens if the charterparty contains no such clause? Could the owners rely on EU law to seek recovery from the charterers in the EU even if there was no such clause in the charterparty? Might it result in some voyage-charterers being forced to pay for EU ETS allowances even though they did not supply the fuel?

A second area of discussion is how voyages into or out of the EU are to be determined, and if operators may seek to evade the full application of the EU ETS. For example, if a vessel calls at an intermediate port just outside of the EU shortly after leaving EU waters, that may result in the out-bound voyage being assessed as much shorter than one from/to the actual next load port. The change of routing may cause the operator extra costs, but the benefit of the avoided allowances could be greater, depending on the assumptions made. We would expect this issue to be covered by the scheme once implemented, but at the moment it is an area that needs more thought.

Emission trading schemes and time charterparties 

Operating vessels under an ETS is a completely new situation for vessel owners and time charterers, so the learning curve will be steep. The issues under each scheme may be different, but the following points are likely to be of general relevance, not just the EU scheme.

In the first instance, the practical steps needed to comply with ETS requirements are likely to fall on vessel owners. This will include (i) registration with the scheme, (ii) recording, documenting and submitting the vessel’s emissions data needed for compliance, and (iii) opening an account to receive, hold and surrender the necessary allowances. It may be that some of these tasks can be handled by a third party, such as a vessel manager or broker.

How a vessel owner and charterer share the costs of complying with an ETS, i.e. purchasing the allowances, is more open to negotiation. The general view seems to be that as ETS costs will be directly linked to the fuel used by the vessel, as between an owner and a charterer, whoever is responsible for the cost of the fuel should also cover the cost of ETS compliance, e.g. buying allowances. This seems logical as the cost of ETS allowances could be seen as just part of the fuel cost and may in fact be included in bunker prices if bunker sellers decide to sell fuel and allowances together.  

New BIMCO clause

BIMCO is in the process of drafting/finalising a clause for use in time charterparties, which is expected to be published soon. The arrangement is likely to be that the charterer is responsible for purchasing allowances to cover vessel’s actual emissions used in ETS areas while on hire. The clause will also have to cover other issues, such as sharing data to enable compliance with an ETS, reconciliation between the allowances and actual consumption at the end of a charter, and the owners’ rights if allowances are not surrendered on time.

Ideally, the clause published by BIMCO will be wide enough to apply to any scheme around the world, and to cover any greenhouse gas that may be subject to a scheme, not just carbon.

Under most time charterparties, the vessel owner does what they can to reduce their credit risk to the charterer – for example by requiring hire to paid in advance, and bunkers arranged and paid for by the charterer. One issue that some vessel owners may also wish to consider is if they want similar principles to apply for ETS allowances – e.g. to avoid allowances being transferred in arrears, and instead require the charterer to transfer enough allowances up front to cover the bunker fuel to be used under the ETS, to be topped up as/when the vessel receives new fuel. From a time charterer’s point of view, it may also be necessary to consider how the reconciliation and accounting will be carried out for emissions, which are arguably for owners’ account, such as during off-hire or deviation for owners’ purposes.

These issues are unlikely to be relevant in the context of voyage charters, where the owner will generally be responsible for supplying the fuel, and hence the cost of any allowances that arise from using it. Voyage charter owners will need to build something into their freight/demurrage rates for ETS costs. The costs of ETS allowances may be relevant under some consecutive voyage charterers if they have clauses to adjust freight rates depending on bunker prices – e.g. if bunkers are sold includes of allowance cost, or as allowance prices change.

What to do now?

The application of the EU ETS to shipping is still under discussion, and we may not know the final details for several months. Even so, where time charterparties are being concluded that will run into 2023, 2024 and beyond, it would be wise for the owners and charterers to think about how to deal with ETS issues. The BIMCO ETS clause will be helpful once it has been published, but it is of course open to parties to come to alternative arrangements. Please contact your defence case handler for further information or guidance.

 

Photo credit: Photoholgic on Unsplash
Source: Gard
Published: 6 June, 2022

Continue Reading

Events

Singapore: OSEA set to take place between 19 to 21 November 2024

Event will bring together more than 500 exhibitors and around 18,000 visitors from 70+ countries.

Admin

Published

on

By

OSEA MT

OSEA is set to take place between 19 to 21 November 2024 at Marina Bay Sands Singapore, leading discussions in the offshore industry on decarbonisation, future of offshore platforms and new energies.

The event will bring together more than 500 exhibitors and around 18,000 visitors from 70+ countries. With a focus on showcasing the latest technologies and sparking insightful discussions, OSEA 2024 offers a platform for industry players to connect, explore, and create new business opportunities in the rapidly evolving offshore energy landscape.

Attendees including government and offshore industry experts will be welcomed by Mr Alvin Tan, Minister of State, Ministry of Culture, Community and Youth & Ministry of Trade and Industry, at the Opening Ceremony on 19 November 2024.

This year’s exhibition floor is a hub for the offshore energy sector, combining oil, gas, and renewable energy exhibitors. Attendees will experience the latest innovations first-hand across 500+ exhibits, engage with cutting-edge products, and explore business possibilities with industry leaders, government officials, and academic experts. OSEA 2024 is designed for meaningful knowledge-sharing, with over 70 speakers addressing critical industry themes.

The event’s agenda will address pivotal questions for the sector’s future, such as Asia’s advancements in carbon capture, utilisation, and storage (CCUS) technology, the role of automation in decarbonisation, and what steps the region must take to build a scalable green hydrogen industry. Fixtures will also tackle policy, supply chain, and development challenges faced by the regional offshore wind industry, as industry leaders, government representatives, and academics explore solutions to these pressing issues. Moreover, speakers will explore how the offshore oil & gas industry is delivering on decarbonisation, and how technological advancements help it to go further.

OSEA 2024 also centres on connecting offshore industry professionals through exclusive networking events, including the Executive Networking sessions, the ABS Breakfast Forum, and the OSEA Academy. The Country Hotspot programme will further enhance opportunities for attendees to forge international partnerships and build industry networks, while specific pavilions – TechX, ClimateTech Zone, New-to-Show zone, Institute Higher Learning and Talent & Development Zones – provide insights into emerging technologies and market-specific developments from across the region.

“OSEA has long been committed to fostering collaboration and innovation across the offshore energy sector,” said Prof. Chan Eng Soon, Chairman of OSEA Advisory Committee. "This year’s event focuses on crucial discussions about the future of energy and sustainability, while also offering unparalleled networking and business development opportunities for attendees from around the world.”

Commenting on the opportunities for attendees, Mr. Sukumar Verma, Managing Director, Informa Markets Singapore said, “OSEA 2024 provides a unique forum for attendees to evaluate a wide range of competitive products, source innovative solutions across the energy value chain, and discuss industry challenges with peers from around the globe. For three days, OSEA 2024 will be the central meeting place for the offshore energy industry in Asia and further afield, bringing insights, innovation, and collaborative opportunities to support the industry’s journey towards a more sustainable energy future.”

For more information on OSEA 2024, please visit www.osea-asia.com.

 

Photo credit: Informa Markets
Published: 11 November 2024

Continue Reading

Technology

Digital bunkering platform Ofiniti successfully spun out from DNV

DNV remains the largest shareholder of Ofiniti, with new investment led by a Nordic family fund and Singapore-based maritime venture capital firm ShipsFocus.

Admin

Published

on

By

FuelBoss to continue under new DNV company Ofiniti

Ofiniti, formally known as FuelBoss, a platform for managing marine fuel bunkering operations, has attracted investment from private and venture capital investors as part of its successful spin out from DNV.

With port authorities stepping up their requirements for “digital bunkering”, the new corporate structure will allow it to operate with more agility.

DNV remains the largest shareholder of Ofiniti, with new investment led by a Nordic family fund and Singapore-based maritime venture capital firm ShipsFocus.

“DNV has developed a pathway to progress digital business ideas into new enterprises and incentivise corporate founders.  The fact Ofiniti has attracted such interest from investors is an endorsement of the great service it provides and a vindication of our Venture strategy,” said Kjetil Ebbesberg, DNV Chief Financial Officer.

“ShipsFocus is very pleased to be part of DNV’s startup spinoff in Ofiniti as the choice VC investor. Ofiniti’s flagship FuelBoss bunkering platform has the DNV innate quality and accreditation with its dominance in the LNG market share. We believe the founders will bring it to great heights,” said Chye Poh Chua, Founder of ShipsFocus.

With over 3,000 liquefied natural gas (LNG) deliveries completed since 2021, Ofiniti is a market leader in digitising LNG bunker deliveries and have recently expanded to support digital delivery of all marine fuels on its platform.

By digitising bunker operations and providing electronic Bunker Delivery Notes (eBDNs) Ofiniti’s customers are able to increase the utilisation of their bunker vessels, provide live delivery insights to customers and significantly reduce the time to invoice.

This transformation results in safer, more efficient operations, cutting back-office work and reducing cost of credit.

Digitalisation is becoming increasingly important to the bunkering process as demonstrated by the Maritime Port Authority of Singapore’s plan to make “Digital Bunkering” mandatory from next year.

“Digitalisation of the bunkering industry is set to accelerate rapidly. By spinning out of DNV Ofiniti will be positioned to deliver an independent operational platform and a trusted, experienced partner to support both digital transformation and decarbonisation efforts at the pace that is required,” said Martin Wold, Founder of Ofiniti.

Three DNV employees leave their jobs in DNV to join Ofiniti as full-time founders in addition to new hires in commercial and product development.

Related: FuelBoss to continue under new DNV company Ofiniti
Related: SIBCON 2024: Digitalised LNG bunkering process can help build trust among stakeholders
Related: DNV FuelBoss coverage expands to include conventional bunker fuels, whitelisting by MPA in process
Related: DNV Decarbonisation Insights: FuelBoss paves way into Singapore’s LNG and future marine fuels bunkering sector
Related: DNV GL launches ‘FuelBoss’ – an integrated hub for LNG Bunkering

 

Photo credit: Informa Markets
Published: 11 November 2024

Continue Reading

Alternative Fuels

New agreements inked to advance marine electrification in Singapore

Lita Ocean, SeaTech Solutions, Pascal Technologies, and Evoy will develop a fully electric passenger harbour craft, specifically for Singapore, while Yinson GreenTech and Evoy will develop electric vessels.

Admin

Published

on

By

New agreements inked to advance marine electrification in Singapore

Innovation Norway and Team Norway on Wednesday (6 November) announced two agreements aimed at advancing sustainable maritime solutions, signed at the Singapore Norway Innovation Conference (SNIC) 2024.

The first agreement—a Letter of Intent (LOI)—was signed by Lita Ocean Pte Ltd, SeaTech Solutions International (S) Pte Ltd, Pascal Technologies AS, and Evoy AS, to develop a fully electric high-speed harbour craft specifically designed for Singapore’s maritime landscape. The second agreement—a Memorandum of Understanding (MoU)—was signed between Yinson GreenTech and Evoy, aiming to foster collaboration in marine electrification across Asia. 

The LOI signed between Lita Ocean, SeaTech Solutions, Pascal Technologies, and Evoy marks a key milestone in Singapore’s ongoing efforts to decarbonize its maritime industry. 

The project will develop a fully electric passenger harbour craft, integrating cutting-edge technologies like advanced electric propulsion and air lubrication systems to maximise energy efficiency and performance. This new vessel will set new standards for sustainable harbour operations and support Singapore’s green transformation goals in maritime transportation. 

Evoy sign MOU in Norway Singapore agreement 02

The collaboration builds on previous advancements in electric harbour crafts in Singapore, positioning the project as a critical step toward achieving maritime decarbonisation and a cleaner, greener future for the region. 

Additionally, Yinson GreenTech and Evoy have signed an MoU that will combine their strengths to drive marine electrification in the region. Yinson GreenTech’s electrification solutions, paired with Evoy’s electric propulsion systems, will support the conversion of internal combustion engine (ICE) vessels to electric power and foster the development of new electric vessels. 

This partnership is aimed at advancing the transition to a more sustainable maritime industry, with the shared goal of exploring new opportunities, collaborating on upcoming projects, and playing a key role in the broader transition to greener shipping solutions in Asia. 

The MoU was signed by Jan-Viggo Johansen, Managing Director of marinEV at Yinson GreenTech, and Mads Roland-Glimsholt, Business Development Manager at Evoy. 

“As a proud partner in this Norway-Singapore initiative, Evoy is excited to bring our high-performance electric propulsion systems to Singapore’s maritime landscape. We are committed to setting new standards in sustainable harbour craft and working with our partners to support a greener future in maritime transport” Mads Roland-Glimsholt, Business Development Manager at Evoy. 

 

Photo credit: Evoy
Published: 8 November, 2024

Continue Reading
Advertisement
  • EMF banner 400x330 slogan
  • Consort advertisement v2
  • SBF2
  • Aderco advert 400x330 1
  • v4Helmsman Gif Banner 01
  • RE 05 Lighthouse GIF

OUR INDUSTRY PARTNERS

  • SEAOIL 3+5 GIF
  • Triton Bunkering advertisement v2
  • HL 2022 adv v1
  • 102Meth Logo GIF copy
  • Singfar advertisement final


  • Central Star logo
  • PSP Marine logo
  • E Marine logo
  • Synergy Asia Bunkering logo MT
  • Mokara Final
  • Uni Fuels oct 2024 ad
  • Auramarine 01
  • Golden Island logo square
  • endress
  • Cathay Marine Fuel Oil Trading logo
  • Headway Manifold
  • VPS 2021 advertisement
  • 400x330 v2 copy
  • Advert Shipping Manifold resized1

Trending