Maritime decarbonisation: five questions for 2025
Banks and financiers - question one
As we step into 2025 fast-paced regulatory, technological and contractual change continues to drive maritime decarbonisation, with numerous fresh challenges emerging day-to-day.
To assist you in navigating these changing times, by focusing on the practical issues likely to impact your business directly, the team is opening 2025 by illuminating one key maritime decarbonisation question each week for the next five weeks.
We start this week looking at the EU Emissions Trading Scheme (EU ETS) and asking: are you an EU ETS "shipping company" (without knowing it), and what could that mean for you?
Legal context
The EU ETS regime imposes regulatory obligations on the "shipping company", including an obligation to surrender EU allowances in connection with the greenhouse gas emissions of vessels calling in the EEA (regardless of a vessel's country of registration or flag state).
The default position is that the registered owner of the vessel will be the "shipping company" (and therefore responsible for surrendering allowances). Although there are provisions which enable the compliance obligation to be shifted to another party, provided that various regulatory requirements are fulfilled.
Why does is matter
In cases where a bank or financier SPV is the registered owner of a financed vessel, the default position is that the SPV will be the "shipping company" and, amongst other obligations, obliged to surrender EU allowances in respect of the vessel's greenhouse gas emissions. This will be the case notwithstanding that responsibility for the operation of the vessel may have been passed to bareboat charterers pursuant to the terms of the bareboat charterparty.
Meeting the obligations of the EU ETS regime entails not only a financial cost for the "shipping company", but also requires registration of the "shipping company" with an administering authority in the EU and the opening of a Maritime Operator Holding Account for holding and surrendering EU allowances (which must be purchased at auction or on the secondary market, or acquired via the charterparty chain), alongside compliance with obligations related to the monitoring, reporting and verification of a vessel's greenhouse gas emissions on an annual basis.
Investor SPVs are often not well placed to respond to the significant administrative and technical burden of these obligations and in some instances may not be aware of them. A risk of non-compliance and penalties, such as financial, reputational and potential detention of vessels in, or expulsion from, the EEA, may therefore arise where the compliance obligation has not been identified and transferred to another entity.
What should you do
If you are financing vessels trading to the EEA and likely to be the registered owner by way of an SPV, we recommend you:
- check which SPVs and vessels are concerned;
- check what steps have been taken to comply with the EU ETS regime obligations or transfer those to another entity in accordance with the regulatory requirements;
- if you have any queries or concerns, consult Stephenson Harwood's maritime decarbonisation experts who can advise and assist you further.
We look forward to supporting you with any queries, providing insight and offering guidance though this time of transition.
