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May 2015

PRC Regulations On the Prevention and Control of Marine Pollution From Ships - SPRO Contracts With QIANHE Group

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

Dear Sir/Madam,

Please kindly find in the following a circular received from International Group Clubs concerning problems with the Spill Response Organisation called QIANHE Group. The main advice is that the contracts with QIAHNE is still valid however if members wish test their respond service or cancel the contract they should first start a correspondence with this and check the notice of cancellation agreement under Article 5 of the contracts.  You may also contact us for assistance from your club.  Future contracts should not be signed due to uncertainty of the service of this company.

                                                                     

P&I clubs have been made aware that investigations are being conducted by the customs authority in China into the Qianhe Group, a consortium of Spill Response Organisations (SPROs).

The International Group is closely monitoring the situation through a lawyer in Beijing, who is in touch with the China MSA, local MSA and customs authorities.

As of today, Qianhe remains a qualified and approved SPRO and their status in this regard remains valid and has not been revoked. However, it appears they are not responding to communications and it is reported that Qianhe personnel and vessels have been detained for the purposes of the customs investigation, so it is unclear whether they would actually be able to respond to any spill.

No statement has been made by Qianhe, the customs authority or the MSA to clarify the position further.

Members with annual contracts with Qianhe may wish to consider contracting with an alternative SPRO. In this regard, unless they are in a position to give Qianhe the contractual 30 days' notice, they should first contact Qianhe to ascertain whether they are in a position to respond. If there is conclusive evidence that they are not, there may be a right to suspend or terminate the Qianhe contract and enter into an agreement with another SPRO straightaway, in order to mitigate the risk of non-compliance with PRC regulations and failure of Qianhe SPROs to respond.

Alternatively, members who have contracted with Qianhe on terms which follow the IG Sample SPRO Contract wording may have a right to terminate their contract with Qianhe by giving 30 days' notice under Article 5 of the contract, enabling them to enter into a contract with another SPRO. The contractual position will depend on the terms of individual members' contracts with Qianhe and we suggest that members take PRC legal advice in that regard. Members may also contact the Club for assistance.

Members who have not contracted with Qianhe SPROs, their consortium or their agencies are not recommended to do so by the Club, given the uncertainty regarding the ability of Qianhe to respond;

Further advice will be provided by clubs when PRC authorities provide a clear position. In the meantime, we will keep members updated with any further developments.

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