Member Article

The EU ETS is a good step in the right direction towards reducing the EU’s total GHG emissions by 55% by 2030. The EU legislators have worked hard on this. But the respective IMO and the EU portals are still not aligned. And the EU ETS reporting starts in a few weeks. So, how does EU identify all applicable vessel operators that will be responsible for compliance and reporting the data?

The (hopefully interim only) solution which the EU hastened to introduce seems somewhat desperate and last minute, but we have to make it work:

EU ETS responsible: who?

So, pursuant to the Commission Implementing Regulation (EU) 2023/2599 of 22 November 2023 (published 23 November 2023), the EU Commission settles who the EU ETS obligation shall fall upon, namely the registered shipowner. This will at least be the solution until a better one, perhaps with IMO portals’ integration, becomes possible. The Regulation does however allow for the registered owner to delegate the EU ETS compliance to another entity, as further described in the Regulation.

Registered owners who are not handling the vessel operations, and have not assumed the ISM Code compliance responsibility (i.e., are not the holder of the Document of Compliance «DOC»), whether because their vessel(s) is on lease (operational or financial), in pool employment, under third party management, or under similar contractual structure, will want to ensure that the delegation is made timely and in accordance with the requirements imposed by the EU.

Likewise: operators of vessels, who are not the registered owners but are handling the vessel operations, and have assumed the ISM Code compliance responsibility (whether as lessees, pool managers, third party managers or similar) will want to ensure that the EU ETS compliance is in their control and properly discharged.

So, the interest of the commercial/operational parties in the various shipping ventures are aligned in assigning both the control and the obligation of the EU ETS compliance on the right party. But alas, EU resorted in an ungainly way: absent a  writtenmandate , the registered owner is liable.

Delegation of EU ETS responsibility: to whom?

The Regulation does not specify whether the entity which is to be mandated by the registered owner with the EU ETS responsibility (let’s call it, the «Mandated Company») has to be either the technical or pool manager, or a bareboat charterer. But it does state that such Mandated Company must have also agreed to assume all the duties and responsibilities imposed by the ISM Code, which points to the relevant DOC holder for each vessel. The person or entity responsible under the EU ETS must be the same as the responsible under the MRV Regulation.

Delegation of EU ETS responsibility: how?

The Mandated Company will have to provide its administering authority (see below section) with a document (let’s call it the «Mandate») clearly indicating that the responsibility has been duly mandated by the registered owner to comply with the ETS obligations.

The Mandate shall be signed by both the registered owner and that EU ETS compliance responsible party, being the DOC holder for the relevant vessel (be it the lessee, the technical manager, or similar).

In a somewhat anachronistic fashion, even for the conservative shipping community, EU suggests that if that Mandate is a copy, it shall be certified as a true copy by a notary public or other similar person specified by the administering authority in respect of a shipping company. If the certified copy is issued outside the Member State of the administering authority in respect of a shipping company, the copy shall be legalised, except where otherwise provided for by national law. We are yet to see which solution the Norwegian authorities would propose in this respect.

The Regulation stipulates the parties and vessel details that need be included in the Mandate, so the guidance on that will encourage some uniformity in the forms of such Mandates.

EU ETS administration authority: which?

Pursuant to the EU ETS Directive (Consolidated June 2023) preceding the Regulation, and while the EU Commission is also expected to publish a list which will attribute each shipping company (that is, the Mandated Company) to a Member State by 1 February 2024, it defines that the administering authority will be:

• in respect of a Mandated Company registered in an EU Member State, the EU Member State in which the shipping company is registered. The Regulation states that this shall be determined by using the country of registration for the Mandated Company in THETIS-MRV, the system used for reporting emissions under the EU MRV regulations.
• in the case of a Mandated Company that is not registered in an EU Member State, the Member State with the greatest estimated number of port calls from voyages performed by that shipping company in the preceding four monitoring years. The Regulation prescribes that data from SafeSeaNet shall be used to attribute non-EU Mandated Companies to Member States based on port calls.
• in the case of a Mandated Company that is not registered in an EU Member State and that did not carry out any voyage falling within the scope set out in the Directive in the preceding four monitoring years, the Member State where a ship of the Mandated Company has started or ended its first voyage falling within the scope of the EU ETS.

Apprehensive Conclusion

While Member States are prohibited from obscuring the direct effect of EU regulations, it is common practice to pass national legislation dealing with consequential matters arising from the coming into force of an EU regulation. Any improvements here will be most welcome.

We are assisting our clients with tailor-made clauses for incorporation into new or existing leases, charters, management or pool agreements, and with the drafting of the Mandate document. The effective delegation and mandate is both bureaucratic and critical – if not made, every registered shipowner, and every syndicated or fund-backed project-owner, will be expected to register, and maintain a maritime operator account, and collect and report on emission and allowances data.

At the time of this publication, Bimco is reported to be preparing a clause specifically for this latest development in the EU ETS legislation, but we expect it to be largely generic, and requiring fine tuning.

Does the noble goal and intention of the EU ETS legislator help in the community overlooking this last minute and poorly facilitated transition, about to cause so much bureaucratic administration? Likely not. But it is a fact that must be addressed, and can be addressed relatively swiftly.