Association of Average Adjusters warn on cost to shipping industry from net zero targets

 

The chairman of the Association of Average Adjusters has said that the shipping industry will soon face the potential impact on General Average recoveries of tighter rules on emission prevention.

Michiel Starmans called for heightened awareness of what planned new levies under green transition measures could mean for assessing allowances in ship casualties.

Answering the question as what carbon levies meant for General Average, Starmans said: “Based on cross references of existing and future maritime legislation, I believe carbon levies under ETS and IMO can be allowed in GA as a direct consequence of bunkers consumed and allowed in GA.”

Under proposed legislation, CO2 emissions in shipping will no longer be “free of charge,” emphasised Mr Starmans. The goal is to spur the maritime industry to invest in energy efficiency and switch to cleaner fuels with fewer emissions.

The phased lowering of an emission cap on total greenhouse gas emissions by participants, combined with the rising costs of purchasing carbon levies means that climate costs will rise year on year, and the levies might eventually exceed the costs of bunkers for vessels which have not switched to low carbon fuels, said Mr Starmans.

The EU which wants to see zero emissions by 2050 has a package of measures which is subject to review by the European Parliament and requires approval by each member state. It includes an ETS, which would compel shipping companies as from 2023 to buy permits for ships of over 5,000 gross tons to cover each ton of CO2 emission. The cap on emissions, which would be converted into tradable carbon permits, would rise in annual stages from 20% in 2023, to 100% in 2026.

An owner or time charterer would need to buy permits covering 100% of the emissions from voyages inside the EU and 50% of the emissions from international voyages starting or ending in the EU.

If the company does not surrender the right number of permits by April 30 of the following year, it would be fined 100 euros per ton of CO2 not accounted for. Ships can be denied entry to EU ports where the responsible shipping company has failed to surrender permits for two consecutive years.

The relevance for adjusters of these future carbon levies could arise when a vessel is removed for repairs or when GA allowances are made for fuel consumed during deviation to, or detention at a port of refuge until regaining course under the applicable York Antwerp Rules, which regulate GA and are nearly always incorporated in any charterparty or bill of lading.

At present, in a General Average deviation to a European port of refuge to carry out necessary repairs for the safe prosecution of the voyage, emission did not need to be compensated by the shipping company, but from January 2023 this “free ride” was about to change, said Mr Starmans. The shipping company would have to settle the bill with the relevant EU member state, which posed the question whether the shipowner (or time charterer) could recover these additional costs in GA.

On the EU tax on fuel Mr Starmans did not foresee any problems in allowing in GA the gross fuel price, including the EU tax, where at present the York Antwerp Rules allowed the net fuel price.

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