On 1 January 2018, subject to a few exclusions, ships over 5000 gross tonnage (“Relevant Ships”) will be subject to monitoring and reporting requirements on carbon dioxide emissions (CO2), fuel consumption and cargo carried. By 31 August 2017 a Monitoring Plan must be submitted to an accredited shipping verifier setting out how ship efficiency and carbon data is to be collected. The upcoming changes are requirements under the EU Regulation on monitoring, reporting and verification of carbon dioxide emissions from maritime transport (Regulation (EU) No. 757/2015 as amended) ( “EU Regulation”) which came into force in April 2015.

Until 15th February 2017 the Department for Transport is consulting on the proposed enforcement and penalties aspects of draft UK Regulations implementing the EU Regulation. These include potential detention of Relevant Ships. Owners, charterers, managers and operators wishing to voice their views on the proposed penalty regime are encouraged to respond. Port owners and operators should also be aware of the forthcoming proposals. Similarly trade and industry which relies on Relevant Ships for transport might want to consider if and how such obligations (particularly risk of detention) are factored into any carriage agreements. Financiers of Relevant Ships should also give thought to how risks of detention might be best addressed in loan agreements.

Background

It is estimated that Relevant Ships account for 55% of all ships calling into EU ports and 90% of related emissions. The monitoring and verification requirements are part of a staged process to understand GHG reduction potential prior to possible pricing of those emissions. There has been talk of including them within the EU ETS subject to any proposals for global agreements on the reduction of GHG from international shipping. The EU Regulation is therefore a key European measure designed to understand how to make shipping ‘greener’.

The EU Regulation

The EU Regulation establishes rules for monitoring, reporting and verifying CO2 emissions from Relevant Ships which make voyages that start or finish in an EU Member State port (for further details on the scope and exemptions see our previous Law-Now). The EU Regulation has been designed to be compatible with a global data collection system which is being developed by the IMO (effective from 2018). The duty holders directly affected are defined in the EU Regulation as “Companies” meaning “a shipowner or any other organisation or person, such as the manager or the bareboat charterer, which has assumed responsibility for the operation of the ship from the shipowner”.

Key compliance dates

By 31 August 2017, Companies will have to submit to the independent verifiers a monitoring plan indicating the method chosen to monitor and report emissions and energy efficiency related data for each Relevant Ship. Article 6 and a new Implementing Regulation (see below) sets out what the plan must cover by using a standardised template. The monitoring plan will have to be periodically reviewed to reflect any changes of ownership or operational changes and any modifications will have to be approved by verifiers.

From 1 January 2018, Companies will be required to monitor emissions for each Relevant Ship on a per-voyage and aggregate on an annual basis by applying the appropriate method chosen in their monitoring plan.

From 2019, by 30 April of each year, Companies will be required to submit to the Commission and to the authorities of the flag States concerned, an independently verified emission report concerning the emissions and other relevant information (such as distance travelled, time of journey, type of fuel used and cargo carried) during the annual reporting period for each Relevant Ship under their responsibility.

From 2019, by 30 June of each year all Relevant Ships having performed activities in the previous reporting period and visiting EU ports, must carry on board a valid Document of Compliance (“DoC”) issued by an accredited EU Regulation shipping verifier (.i.e. an independently accredited company appointed to assess the veracity of the emissions report). This might be subject to inspections by Member States’ authorities.

Implementing Regulations

Importantly, on 4 November 2016 the European Commission published the following pieces of legislation which specify (a) how cargo is to be calculated for different categories of Relevant Ships; and (b) which templates are to be used for monitoring plans, emissions reports and DoCs. Further details are contained in the following:

Implementing Regulation (EU) 2016/1928 on determination of cargo carried for categories of ship others than passengers ro-ro and container ships pursuant to Regulation (EU) 2015/757

Implementing Regulation (EU) 2016/1927 setting templates for monitoring plans, emissions reports and DoCs pursuant to Regulation (EU) 2015/757

UK consultation on enforcement of the EU Regulation

The EU Regulation is already in force and binding but the precise enforcement process is left to Member States. The UK Government has published the draft Merchant Shipping (Monitoring, Reporting and Verification of Carbon Dioxide Emissions) Regulations 2017 (the “draft UK Regulations”). The key point to note is that under the proposed UK Regulations a Company could be made criminally liable.

The potential fines should a Relevant Ship:

(1) enter or leave a port in the United Kingdom without a valid DoC; and/or

(2) fail to keep on board a valid DoC or to present a valid DoC upon inspection,

are unlimited in England and Wales and subject to the then statutory maximum in Scotland and Northern Ireland. For instance the current statutory maximum in Scotland is £10,000.

Importantly, under the draft UK Regulations there are wide powers of enforcement including the power:

To detain a Relevant Ship by serving it with a ‘detention notice’ if anyone attempts to navigate it out of a port without a valid DoC; and

Where a Member State has informed the Secretary of State that it has issued an expulsion order, refuse entry for the particular Relevant Ship to any port in the UK.

The draft UK Regulations make provision for arbitration in the event that a Company alleges that a Relevant Ship was improperly detained. In the event that an arbitrator finds in favour of the Company following detention of a Relevant Ship, compensation will be payable in respect of any loss suffered in consequence of the detention of the Relevant Ship as the arbitrator thinks fit.

If approved the draft UK Regulations are due to enter into force on 1 April 2017. Details on the consultation are available here (link kindly provided by IMarEST)

Source: CMS Cameron McKenna