A new academic study suggests that shipping companies may not be able to depend on the EU’s statutory reimbursement mechanism to recover emissions trading costs from charterers, according to a report emailed by UCL on Friday and covered by Ship & Bunker.
The research, conducted by Erasmus School of Law at Erasmus University Rotterdam, argues that commercial contracts, rather than the law itself, ultimately decide who bears carbon costs throughout the shipping chain. According to Ship & Bunker, the study found that the EU ETS reimbursement mechanism faces several practical obstacles that can undermine its enforceability.
Practical Barriers to Enforcement
According to the report, these obstacles include complex, multi-layered charter chains, uncertainty over how English law applies in this context, and the widespread use of arbitration proceedings located outside the EU. Together, Ship & Bunker reports, these factors can make it difficult for shipowners to actually exercise their statutory right to reclaim carbon costs.
Hannah Mosmans, co-author of the study and a PhD researcher at Erasmus School of Law, was quoted by Ship & Bunker as saying that the EU ETS creates an impression that shipowners and managers who pay carbon costs can automatically recover them from the party responsible for the vessel’s operation or fuel purchasing. “Our research shows that this is largely an illusion once you look at how shipping contracts actually work,” Mosmans said, according to the report. She added that “for most of the market, effective cost recovery still depends entirely on what is negotiated into the charterparty, not on the statutory right at all.”
Contract Clauses in Focus
The study’s authors said the findings underline the importance of negotiating explicit carbon cost allocation clauses within charterparties and other shipping contracts, rather than relying on the EU directive itself, Ship & Bunker reports. While BIMCO’s standard ETS clauses offer a foundational framework, the study suggests they may require additional provisions to address price volatility, off-hire periods, credit risk, and dispute resolution mechanisms.
The researchers also noted that these findings could carry implications beyond the EU. Ship & Bunker reports that the study’s authors pointed to the UK’s newly introduced shipping emissions trading scheme and the IMO’s proposed Net Zero Framework as examples of systems that will similarly require robust mechanisms for allocating carbon costs.
Does This Matter to You?
This research may be relevant to those negotiating or reviewing charterparty agreements involving EU ETS exposure. The study indicates that reliance on the statutory reimbursement right alone may not guarantee cost recovery, meaning the specific wording of contractual clauses could determine financial outcomes. The report’s reference to the UK’s emissions trading scheme and the IMO’s Net Zero Framework also suggests that similar contractual considerations may extend to future regulatory frameworks beyond the EU.
Gulf Bunkering does not provide operational or security guidance. This article is for informational purposes only. Operators should consult flag state authorities, P&I clubs, and relevant advisories for decisions relating to transit planning.
Sources: Ship & Bunker
