February 2023

Sanctions: Recent Deceptive Practices

The European Union’s Emissions Trading System (EU ETS) was extended to cover emissions from shipping as of 1^st 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 business partners;

Please be informed that IG P&I Clubs have recently published a circular on ‘’Sanctions: Recent Deceptive Practices in sanctions’’ to draw the attention of the members to some of the deceptive practices employed by the parties engaged in activities that offend the sanctions regimes operated by national governments and supranational bodies such as the UN.

The increasing trend detected over the past months in trade of sanctioned cargoes shed a light over the deceptive practices employed by the parties, which can be summerized as below. These practices are mainly for disguising the identity of the ship, the location and navigational activities of the vessels. That being said, these practices include the following;

Manipulating vessel’s AIS
Changing vessel’s physical appearance
Falsifying vessel and/or cargo documentation
Multiple ship to ship operations / STS to disguise the fact that the cargo is from a sanctioned country

Results of breach of sanctions

We must say that those shipowners and or the other parties, who were alleged to be involved in such activities (sanctions breaches), have been seen declined access to ports, denied from banking services and removed from flag registries.

As known well, P&I covers do not respond to unlawful trading. Moreover, the cover can be terminated where there is a risk to Club and the provision of insurance may place Club at risk of, or in breach of sanctions, even if the underlying trade is lawful.

Please be informed that all Clubs in IG have issued similar circular to inform the members. For further details & reading, please visit following links;

https://www.skuld.com/topics/legal/sanctions/sanctions-recent-deceptive-practices/

https://home.treasury.gov/system/files/126/05142020_global_advisory_v1.pdf

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948299/OFSI_Guidance_-_Maritime_.pdf

Omni

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