EU ETS - bare confusion

EU ETS - bare confusion

By Robert Hodge, General Manager, ITIC

ITIC advised that managers should only become the responsible entity under the system if they were entirely comfortable with the liabilities and risks arising from the European Union Emissions Trading System (EU ETS). This is not just because the liabilities are high for non-compliance – such as fines and penalties – but because the legal position is still uncertain at the time of writing.

The contracted/responsible entity is responsible for reporting emissions and surrendering EU Allowances to the Authorising Authority. The responsible entity under the EU ETS is considered to be the shipping company, which is defined as “the shipowner or any other organisation or person, such as the manager or the bareboat charterer, that has assumed the responsibility for the operation of the ship from the shipowner…”.

The EU Commission’s advice differs from what has been drafted in the law. The Commission has clearly stated that in the context of EU ETS, the responsible entity can be either the registered owner or the company that has taken on the responsibility for International Safety Management (ISM) compliance. The registered owner can transfer the responsibility for compliance by a written mandate, which must be provided to the Authorising Authority. Without such a mandate, the registered owner will, by default, be the responsible entity.

It is highly recommended that you read the “FAQ – Maritime transport in EU Emissions Trading System” page on the EU Commission website. Here, they clearly state they do not allow a bareboat charterer to become the responsible entity if they are not also the ISM Company. In one example, an ITIC ship manager member advised that an oil major who was the bareboat charterer (not the registered owner) demanded that their ISM manager arrange to transfer the Monitoring, Reporting and Verification (MRV) reporting and the responsible entity function to them. This is understandable as a large bareboat charterer may want to keep the compliance of the EU ETS in-house for their whole fleet. According to the EU Commission, this is simply not possible, and if they tried to mandate the bareboat charterer, it may not be legal, and it will simply snap back to the registered owner.

However, some Authorising Authorities are rumoured to be taking a different position. Some may accept the bareboat charterer as the responsible entity even if they have transferred ISM compliance to a third-party manager.

Consequently, if you, as a manager, are asked by a bareboat charterer whether they can become the responsible entity, you suggest they speak directly to the Authorising Authority to find out if it is possible.

ITIC recommends that ship managers should not give direct advice to an owner or a bareboat charterer on how to comply with the EU ETS; it is complex, and the legal position remains uncertain. Owners and charterers should liaise directly with their own lawyers and EU ETS experts.

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