The purpose of the clause is to allocate costs and responsibilities for obtaining, transferring, and surrendering greenhouse gas emissions allowances for ships operating under an emissions scheme, such as the EU Emissions Trading System (ETS).
The basis of the clause is that the party providing and paying for the fuel under the time charter is the party that is responsible for providing and paying for emissions trading allowances. The owners must monitor the ship’s emissions and provide the relevant emissions data and the basis of calculations to the charterers. Using this information, the charterers transfer the appropriate allowances to the owners monthly. The clause addresses the adjustment of allowances due to offhire events and what happens if the charterers fail to transfer allowances when due.
Notwithstanding any other provision in this Charter Party, the Owners and the Charterers (the "Parties" and each individually a “Party”) agree as follows:
“Emission Allowances” means an allowance, credit, quota, permit or equivalent, representing a right of a vessel to emit a specified quantity of greenhouse gas emissions recognised by the Emission Scheme.
“Emission Scheme” means a greenhouse gas emissions trading scheme which for the purposes of this Clause shall include the European Union Emissions Trading System and any other similar systems imposed by applicable lawful authorities that regulate the issuance, allocation, trading or surrendering of Emission Allowances.
(a) The Owners and the Charterers shall co-operate and exchange all relevant data and information in a timely manner to facilitate compliance with any applicable Emission Scheme and enable the Parties to calculate the amount of Emission Allowances in respect of the Vessel that must be surrendered to the authorities of the applicable Emission Scheme for the period of the Charter Party.
(b) The Owners shall monitor and report the relevant greenhouse gas emissions of the Vessel for verification by an independent verifier in accordance with the applicable Emission Scheme.
(c) (i) Throughout the Charter Party period the Charterers shall provide and pay for the Emission Allowances corresponding to the Vessel’s emissions under the scope of the applicable Emission Scheme:
(1) Within the first seven (7) days of each month, the Owners shall notify the Charterers in writing of the quantity of Emission Allowances for the previous month; and
(2) No later than fourteen (14) days prior to the expected date of redelivery the Owners shall notify the Charterers in writing of the estimated quantity of Emission Allowances for the final month or part thereof.
(ii) The Owners’ notifications in subclause (c)(i) shall include the relevant calculations and the data used to establish the quantities.
(iii) Within seven (7) days of notification under subclause (c)(i), the quantity of Emission Allowances notified by the Owners above shall be transferred by the Charterers and received into the Owners’ nominated Emission Scheme account. If the estimated quantity of Emission Allowances for the final month or part thereof is higher or lower than the actual quantity calculated by the Owners as at the time and date of redelivery, any difference in Emission Allowances shall be transferred by the Charterers or returned by the Owners, as the case may be, and received into the nominated account of the receiving Party within seven (7) days of written notification from that Party.
(iv) During any period of off-hire, the Charterers shall have the right to offset against any Emission Allowances due or require the Owners to return a quantity of Emission Allowances equivalent to the emissions that the Charterers would otherwise have been responsible for, had the Vessel remained on hire.
(d) If the Charterers fail to transfer any of the Emission Allowances in accordance with subclause (c), the Owners shall, by giving the Charterers’ five (5) days’ notice, have the right to suspend the performance of any or all of their obligations under this Charter Party until such time as the Emission Allowances are received in full by the Owners. Throughout any period of suspended performance under this subclause, the Vessel shall remain on hire and the Owners shall have no responsibility whatsoever for any consequences arising out of the valid exercise of this right. The Owners' right to suspend performance under this Clause shall be without prejudice to any other rights or claims they may have against the Charterers under this Charter Party.
Emission trading systems (ETS) are “cap and trade” schemes that permit the emission of greenhouse gases in exchange for allowances. Over time the quantity of allowances available to industry are reduced as an incentive to reduce emissions through increased efficiency and the use of alternative fuels.
The world’s largest ETS is operated by the European Union who have recently added the shipping industry to their scheme as part of the “Fit for 55” package. In the absence of a “global” scheme, other countries may also develop their own ETS soon.
The ETSA Clause follows the “polluter-pays” principle by ensuring the pass-through of ETS costs to the commercial operators of vessels – in this case, the time charterers.
The fundamental principle behind the clause is that it requires both parties to the charter party to cooperate and collaborate.
The BIMCO ETSA Clause for Time Charter Parties 2022 is the result of a collaborative and consensual process between owners, charterers, P&I clubs and legal experts. BIMCO is grateful to the following individuals:
Peter Eckhardt, F. Laeisz (Chairman)
Panos Zachariadis, Atlantic Bulk Carriers Management, Ltd.
Takaaki Hashimoto, NYK
Lars Bagge Christensen, Navigare Capital
Harry Fafalios, Union of Greek Shipowners
Kyriakos Kourieas, Interorient Marine Services Limited
Ann Shazell, Cargill Ocean Transportation
David Sale, BP Shipping
Kelly Vouvoussiras and Divek Chinnadurai, Rio Tinto
Alessio Sbraga, HFW
Helen Barden, North P&I Club
Lasse Brautaset, Nordisk
BIMCO was represented by:
Lars Robert Pedersen, Deputy Secretary General (Technical)
Søren Larsen, Deputy Secretary General (Contractual)
Stinne Taiger Ivø, Director, Contracts & Support
BIMCO secretariat support was provided by the Standards, Innovation and Research team - Grant Hunter and Mads Wacher Kjærgaard.
These guidance notes are intended to provide an insight into the thinking behind the BIMCO Emissions Trading System Allowances (ETSA) Clause for Time Charter Parties 2022. They also explain how the clause is intended to operate and the allocation of responsibilities and costs between the parties. If you have any questions about the clause, please contact us at firstname.lastname@example.org and we will be happy to assist.
For ease of reading the clause sets out two definitions – “Emission Allowances” and “Emission Scheme”.
“Emission Allowances” are the allowances issued by an authority under a “cap and trade” regulatory scheme that give the holder the right to emit an agreed volume of greenhouse gases. Under the EU ETS, each allowance entitles the holder to emit one tonne of CO2.
“Emission Scheme” refers to the applicable emissions trading scheme for greenhouse gases. This clause is designed to apply to future emissions schemes that may be implemented around the world, not just the EU ETS.
An essential part of meeting the requirements of an emissions trading scheme under a time charter party is cooperation between owners and charterers. At the heart of this cooperation is the timely sharing of data and information. Charterers must receive from the owners the data they need to calculate the allowances required to cover their emissions.
Owners are obliged to follow mandatory reporting obligations such as the EU MRV to establish the ship’s emissions. The report of the amount of greenhouse gases emitted by the ship must be independently verified.
A list of approved verification bodies for the EU MRV can be found here:
This is the main operative part of the ETSA Clause. It establishes the time charterers’ responsibility to “provide and pay for” allowances corresponding to the ship’s emissions during the time charter period. It follows the principle that the party providing and paying for the fuel should also provide the emissions allowances to cover the greenhouse gases emitted by that fuel. The clause works on the principle of transferring actual allowances as opposed to reimbursing the owners for the cost of allowances to avoid complications with price fluctuations.
The charterers are obliged to transfer allowances to the owners’ emission scheme account monthly following receipt of the owners’ data and calculations showing the quantity of allowances due for that period.
When the ship is due to be redelivered and the remaining period is less than a month, the owners must provide the charterers with an estimated quantity of allowances. In the event of a discrepancy between the estimated and actual quantities, the owners are to return any excess to the charterers, or the charterers are to transfer the difference to the owners.
Under a conventional time charter party, the charterers provide and pay for the bunkers. The responsibility for the emissions produced by burning those bunkers is with the charterers. The cost of any bunkers used by the owners during offhire periods when the charterers are unable to use the ship must be repaid by the owners to the charterers. Similarly, the allowances to cover the emissions from the bunkers used by the owners during offhire must be returned to the charterers. This can be done either by deducting the amount of allowances from the subsequent months’ transfer of allowances or by the owners transferring the amount of allowances for the emissions they made back to the charterers.
If the charterers fail to transfer the required allowances, then the owners can exercise commercial leverage against the charterers by suspending performance. The ship will remain on hire during any periods of suspension and owners will not be responsible for any resulting consequences. This is an important safeguard for owners given the expected high value of allowances accumulated during a calendar year.
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