Mr Collier, Clyde & Co Clasis Singapore Pte Ltd partner opened the discussion of Riviera Maritime Media’s " How CO2, CII and EU ETS will change shuttle tanker operations in the North Sea " webinar (held in 15 May) by addressing the legal and charterparty implications of the EU ETS and CII regimes.
Mr Collier noted that from 1 January 2024, shipping companies must surrender emissions allowances for greenhouse gas emissions. He explained, "The shipping company is typically the registered owner, but these obligations can be transferred to a bareboat charterer or ship manager via a mandate."
The EU ETS applies to voyages within the EU and 50% of voyages that start or end in the EU, excluding UK calls. This creates complexity for North Sea operations, as UK emissions trading schemes are not yet in place.
Mr Collier stressed the penalties for non compliance, including fines and potential expulsion orders, urging clarity in charter party agreements to avoid disputes.
"Owners could argue that the costs of ETS, even if not explicitly covered in the charter party, should be borne by the charterers under an implied indemnity for complying with charterers’ orders," he said.
Altera Infrastructure’s shuttle & storage sustainability manager Christian Fjell provided a practical perspective on the regulations’ impact, highlighting the importance of addressing the complexities of the EU ETS, noting it has significantly increased the administrative burden. "The cost and administration of implementing this in a ship organisation is huge, involving IT consultants, lawyers and tax advisors," he stated.
Mr Fjell shared Altera’s approach, which includes setting up clear internal processes and involving multiple departments, such as chartering, performance analysis, treasury and finance.
He illustrated this with a flowchart detailing Altera’s EU ETS management, stressing the need for comprehensive planning and interdepartmental co-ordination.
Mr Fjell touched on CII and its impact, particularly highlighting the correction factor achieved for North Sea shuttle tankers. "Our fleet in the North Sea is in good shape, but the same cannot be said for Brazil, where trade characteristics negatively impact CII ratings," he observed.
This disparity underscores the need for region-specific strategies.
The discussion then shifted to the Fuel EU Maritime regulation, which mandates compliance with stringent greenhouse gas intensity requirements for various fuels starting in 2025.
Mr Fjell cautioned, "This will catch many by surprise, as even LNG-powered ships with modern engines will not be fully compliant."
A key theme was the need for innovative contractual arrangements and collaborative efforts between owners and charterers.
Mr Collier suggested drafting clauses that clearly define the responsibilities and cost allocations for emissions allowances. "The greater the clarity, the reduced scope for dispute," he reiterated.
Mr Fjell echoed this sentiment, advocating for a more collaborative approach. He shared Altera’s experience of engaging in detailed discussions with charterers to explore mutually beneficial investments in energy-saving technologies. "Having a collaborative relationship with your customers is crucial. It allows for discussions on practical initiatives and funding arrangements," he emphasised.
Webinar poll results
The results of the Riviera opinion poll provide significant insights into the current state of shuttle tanker operations and the industry’s response to evolving environmental regulations.
A substantial majority (68%) of respondents are already implementing vessel modifications to comply with CII regulations. This indicates a proactive approach within the industry to enhance energy efficiency and meet regulatory standards.
Despite this emphasis on CII, 56% of respondents have not observed changes in voyage orders due to concerns about vessel ratings. This suggests that while modifications are being made, operational practices may not have fully adapted yet.
Regarding emissions allowances, no respondents are currently obtaining EUAs for 2024 emissions, with 56% planning to wait until closer to the September 2025 deadline. However, 44% are taking a mixed approach, balancing immediate and future acquisitions. This indicates a cautious approach to managing compliance costs amid market uncertainties.
The decarbonisation investment dilemma highlights a clear preference (73%) for fuel saving benefit sharing clauses over stricter requirements or ad hoc investments. This underscores the industry’s inclination towards collaborative and mutually beneficial solutions with charterers. Such an approach can help align incentives and promote long-term sustainability investments.
When considering the impact of ETS on the shuttle tanker landscape, the largest group (47%) believes it will incentivise investments in energy-saving devices, reflecting a positive outlook towards technological advancements as a means to compliance. Meanwhile, 40% think charterers will merely absorb the ETS costs without changing operational behaviors, highlighting a potential area for further engagement and education.
Looking ahead, Fuel EU Maritime is seen as the most impactful future regulation (53%), likely due to its comprehensive approach to fuel efficiency and emissions reduction. This focus points towards a broader industry shift towards sustainable fuel options and practices.
Full results
Are you effecting any vessel modifications due to CII?
Yes: 68%
No: 32%
Are you seeing any changes in voyage orders due to concerns with a vessel’s CII rating?
Yes: 44%
No: 56%
Are you obtaining Emissions Allowances (EUAs) in respect of ongoing 2024 emissions now or are you planning on waiting until closer to the September 2025 surrender deadline?
We are obtaining EUAs now in respect of current 2024 emissions: 0%
We are planning on waiting until closer to the surrender deadline before acquiring EUAs: 56%
Mixture: we are obtaining some EUAs now and will acquire more closer to the surrender deadline: 44%
What will unlock the decarbonisation investment dilemma in the shuttle tanker space?
Stricter requirements from charterers: 14%
Fuel saving benefit sharing clauses: 73%
Ad hoc investment initiatives negotiated individually with charterers: 13%
How will ETS change the shuttle tanker landscape?
Incentivising shift to lower-carbon fuels: 13%
Incentivising investments in energy-saving devices: 47%
Charterers will just pay the ETS price and continue as usual: 40%
Which regulations in the coming years do you think will impact shuttle tankers the most?
IMO CII: 35%
EU ETS: 12%
Fuel EU Maritime: 53%
Source: Riviera Maritime Media