Maritime emissions set to be included in EU ETS: implications for Norwegian shipping sector – Commentary

Introduction
How is the EU ETS relevant to the Norwegian shipping sector?
What do Norwegian shipping companies need to be aware of?

Introduction

As part of its “Fit for 55” regulatory package, on 14 July 2021 the European Commission presented a proposal to include maritime emissions in the EU emissions trading system (EU ETS) (for further details, see “Maritime emissions set to be included in EU ETS”). After extensive negotiations with the European Parliament and the European Council, an agreement was finally reached on 18 December 2022. Although the directive is yet to be formally approved and the press releases outlining the agreement are brief, the fact that emissions from shipping will be included in the EU ETS from 1 January 2024 has finally been confirmed. This article outlines the implication of this development for the Norwegian shipping sector.

How is the EU ETS relevant to the Norwegian shipping sector?

The EU ETS is the first regulation that will impose a price on Norwegian shipping companies’ emissions on voyages to or from an EU or European Economic Area port. The directive is flag neutral, meaning that it applies to all relevant ships, regardless of flag or where the shipping company is incorporated. For instance, if a Marshall Islands-flagged vessel owned by a Norwegian company trades between Rotterdam and Shanghai, the shipping company is required to submit allowances for 50% of its carbon dioxide emissions for that voyage. As the costs associated with the scheme will likely be passed down the supply chain and ultimately to the end consumer, the legislation will, to a certain extent, impact the entire Norwegian value chain.

What do Norwegian shipping companies need to be aware of?

Norwegian ship owners, charterers and ship managers should consider carefully whether and how the new directive may impact them. Further, it is advised that these parties look carefully at how to achieve compliance and review commercial relationships to adequately account for any increased cost or risk. Norwegian ship owners or ship managers that wish to hold other entities responsible for penalties and other losses that may occur in connection with the EU ETS will therefore need to ensure that this is clearly specified in their contracts. In this regard, the Baltic and International Maritime Council’s (BIMCO’s) newly published Emission Trading Scheme Allowances Clause for Time Charter Parties 2022 will provide a good starting point. BIMCO is also currently revising its Shipman form, which will include a dedicated ETS allowance clause.

For further information on this topic please contact Fredrik Roald Brun at Wikborg Rein by telephone (+47 22 82 75 00), fax (+47 22 82 75 01) or email ([email protected]).The Wikborg Rein website can be accessed at www.wr.no.