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May 2022

Poseidon Principals for Marine Insurance (PPMI) Coming Into Force

The European Union’s Emissions Trading System (EU ETS) was extended to cover emissions from shipping as of 1st January 2024.

The EU ETS is limited by a 'cap' on the number of emission allowances. Within the cap, companies receive or buy emission allowances, which they can trade as needed. The cap decreases every year, ensuring that total emissions fall.

Each allowance gives the holder the right to emit:

  • One tonne of carbon dioxide (CO2), or;
  • The equivalent amount of other powerful greenhouse gases, nitrous oxide (N2O) and perfluorocarbons (PFCs).
  • The price of one ton of CO2 allowance under the EU ETS has fluctuated between EUR 60 and almost EUR 100 in the past two years. The total cost of emissions will vary based on the cost of the allowance at the time of purchase, the vessel’s emissions profile and the total volume of voyages performed within the EU ETS area. The below is for illustration purposes:
  • ~A 30.000 GT passenger ship has total emissions of 20.000 tonnes in a reporting year, of which 9.000 are within the EU, 7.000 at berth within the EU and 4.000 are between the EU and an outside port. The average price of the allowance is EUR 75 per tonne. The total cost would be as follows:
  • ~~9.000 * EUR 75 = EUR 675.000
  • ~~7.000 * EUR 75 = EUR 525.000
  • ~~4.000 * EUR 75 * 50% = EUR 150.000
  • ~~Total = EUR 1.350.000 (of which 40% is payable in 2024)
  • For 2024, a 60% rebate is admitted to the vessels involved. However, this is reduced to 30% in 2025, before payment is due for 100% with effect from 2026.
  • Emissions reporting is done for each individual ship, where the ship submits their data to a verifier (such as a class society) which in turns allows the shipowner to issue a verified company emissions report. This report is then submitted to the administering authority, and it is this data that informs what emission allowances need to be surrendered to the authority.
  • The sanctions for non- compliance are severe, and in the case of a ship that has failed to comply with the monitoring and reporting obligations for two or more consecutive reporting periods, and where other enforcement measures have failed to ensure compliance, the competent authority of an EEA port of entry may issue an expulsion order. Where such a ship flies the flag of an EEA country and enters or is found in one of its ports, the country concerned will, after giving the opportunity to the company concerned to submit its observations, detain the ship until the company fulfils its monitoring and reporting obligations.
  • Per the EU’s Implementing Regulation, it is the Shipowner who remains ultimately responsible for complying with the EU ETS system.

There are a number of great resources on the regulatory and practical aspects of the system – none better than the EU’s own:

‍https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02003L0087-20230605

‍https://climate.ec.europa.eu/eu-action/transport/reducing-emissions-shipping-sector_en

‍https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/what-eu-ets_en‍

To the attention of our esteemed business partners,

In addition to the aims of IMO, also known as the marine department of United Nations, targeting to reduce carbon emissions caused by the vessels, one of the prominent and important projects that has recently emerged, is the one that is being carried out by Poseidon Principals Assosiciation.

The above named Assosiciation has first aimed to implement their global targets in this respect first with marine finance providers and then with the marine insurers. There are several founding banks in the management of the Association among which we can name ABN Amro, BNP Paribas, Citi, Credit Agricole, Credit Suisse, Danish Ship Finance, Danske Bank, DNB, ING, Societe Generale, Standard Chartered and SumiTrust Bank. For more detailed information regarding the actions of Association you may visit www.poseidonprinciples.org .

In order to practice the Poseidon Principals in Marine Insurance, there are 3 membership categories and the existent members can be found below;

“Founding Signatories” : Swiss Re, Gard, Hellenic Hull, Scor, Victor, Norwegian Hull Club, Fidelis, Navium, Axa

“Founding Affiliate Member”: Willis Towers Watson, Cefor, EF Marine, Lockton International, Cambiaso Risso

“Supporting Partner”: IUMI – International Union of Marine Insurance

You may find hereunder the relevant informative circular of Gard, which is one of the founding signatories in PPMI being active in hull insurance and at the same time one of the International Group Clubs;

https://www.gard.no/web/news/article?p_document_id=33513841

With excess of the number 8 of insurers joining as Signatories as we lined above, the marine insurance department of the Association has given a start to its relevant activities. To summarize the activities of PPMI, we can say that if the shipowner’s claims leader in H&M policy is one of the Signatory insurers (to PPMI), then the same insurer, by adding a standard PPMI clause into the hull & machinery policy wording, will be able to demand the carbon emission notifications of Fuel Oil Data Collection System (DCS), i.e. the follow up of fuel consumption of the vessels of 5,000 GT & over, in frame of IMO DCS which came into force as of 1 March 2018.

Gard has stated that the relevant clause, the content of which has not been clarified yet, will be added to hull & machinery policies only and not to other policies like P&I, LOH, IV for the time being.

A question comes to mind; what will these data to be collected by Gard be of use? In another newsletter circulated by Gard, which can be accessed via below link, Gard has stated that they will be using these data to generate a report regarding the average carbon emission levels of the vessels entered with them for H&M insurance portfolio without specifically exposing the insureds and the insured vessels.

https://www.gard.no/web/news/article?p_document_id=32809152

For further detailed information regarding IMO DCS, you may visit below website;

https://www.imo.org/en/OurWork/Environment/Pages/Data-Collection-System.aspx

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