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Decarbonisation and shipping: EU Emissions Trading Scheme

SSM Roundel

Published: July 27, 2022

This article updates Hill Dickinson’s article on decarbonisation and shipping published on the Club’s website on 18 January 2022, which included comments on the EU Emissions Trading Scheme (EU ETS).

On 22 June 2022 the EU brought forward its third proposal to include shipping’s emissions within the EU Emissions Trading Scheme. The first and second proposals not having been agreed by the EU Member States.

If the Members States can agree this third proposal, it will come into force from 1 January 2024, giving the industry welcome time to prepare pursuant to the earlier proposed start dates of 1 January 2022, then 1 January 2023.

What emissions will be included?

Carbon dioxide, methane and nitrous oxide emissions will all fall within the scheme (not only carbon dioxide emissions as previously proposed) and allowances must be submitted as follows:

From 1 January 2024, for

  • 100% of emissions on voyages within the EU or at berth in ports within the EU; and
  • 50% of emissions on voyages into and out of the EU (unless the distance is less than 300 nautical miles, in which case 100% of emissions)

produced by ships of 5,000GT or over.

From 1 January 2027, for:

  • 100% of emissions on voyages within the EU or at berth in ports within the EU; and
  • 100% of emissions on voyages into and out of the EU unless certain conditions apply (i.e. the voyage is from or to a port outside the EU which is subject to an equivalent emissions trading scheme, or a port within a Least Developed Country or Small Island Developing State);

produced by ships of 400GT or over.

In tandem, the related EU MRV Regulation will apply to ships of 400GT and over from 1 January 2024 and will be expanded to cover methane and nitrous oxides emissions.

Who will pay the costs?

The party responsible for submitting allowances covering the emissions falling within the scheme is, as previously, the ‘shipping company’, defined as:

“the shipowner or any other organisation or person, such as the manager or the bareboat charterer, that has assumed the responsibility for the operation of the ship from the shipowner and that, on assuming such responsibility, has agreed to take over all the duties and responsibilities imposed by the International Management Code for the Safe Operation of Ships and for Pollution Prevention, set out in Annex I to Regulation (EC) No 336/2006 of the European Parliament and of the Council [the ISM Code].”

However, a new provision requires that, where another party not the shipping company is ultimately responsible for purchasing fuel or the operation of the ship (for example, taking decisions in relation to the cargo carried, choice of route and speed), the “costs arising from compliance” shall be the responsibility of that other company pursuant to the contractual arrangement between it and the shipping company. A definition of the “costs arising from compliance” is not included and it is likely this will be a hotly debated topic between Owners and Charterers.

Additionally, Member States are required to ensure the shipping company has an appropriate and effective means of recovering the costs arising from compliance.

The Ocean Fund

75% of the revenues generated will go to an Ocean Fund to support the decarbonisation of maritime transport. 

Shipping companies can also use the Ocean Fund to ease the administrative burden of dealing with allowances by paying an annual membership to the Fund. The price of membership will be the highest primary or secondary market settlement price for allowances in the preceding year applied to the total emissions reported by the shipping company under the EU MRV Regulation in the preceding year and the Fund will submit allowances on behalf of the member shipping companies.


The latest proposal broadens the application and impact of the EU ETS for shipping.

The new provisions give Owners legislative backing for cost allocation clauses in charterparties, circumventing the time and costs which might have been spent arguing about which party would ultimately pay. However, whether Owners will be able to force such clauses into contracts not covered by EU law gives rise to interesting legal questions.

Notwithstanding such clauses, the parties will still need to work out how and by whom allowances are to be obtained and surrendered and whether the benefits of certainty of price, offered by membership of the Ocean Fund, will outweigh any detriment if that price is above market price.

As is a continuing theme in relation to decarbonisation, Owners and Charterers are likely to need to act in closer collaboration then previously in order to navigate and comply with emerging emissions and efficiency regulations.

We are grateful to Beth Bradley and Rachel Hoyland of Hill Dickinson ( for writing this article

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