In 2019, the European Commission proposed that the EU Monitoring, Reporting and Verification (EU MRV) Regulation should be revised to further align with the IMO Data Collection System (IMO DCS). Their aim was to reduce the administrative burden on companies who submit data to both systems, while still preserving the EU MRV’s ability to support the EU policy objectives.
In September, the European Parliament adopted a substantial number of modifications to the European Commission’s proposed revisions to further strengthen the Regulation’s ability to support the EU Green Deal and ambitions for climate-neutrality in 2050. These modifications will be the European Parliament’s negotiating position when the final text of the revised Regulation is developed.
Included within the text adopted by the European Parliament is an extension of responsibility for compliance with the Regulation to time charterers. In particular the definition of “company” has been updated to read “‘company’ means the shipowner or any other organisation or person such as the manager; the time charterer, the bareboat charterer, which has assumed the responsibility for the commercial operation of the ship from the shipowner and is responsible for paying for fuel consumed by the ship.” Further relevant elements of the European Parliament’s position include:
- A 40% carbon intensity reduction by 2030 for ships subject to the Regulation, with failure to meet in-year targets resulting in dissuasive financial penalties. The baseline is expected to be derived from the emissions reports data in the THETIS MRV database;
- Introduction of a performance rating system for ships from 2022;
- A requirement for all ships to be zero-emissions at berth by 2030;
- Expansion of the potential scope of monitoring, reporting and verification to methane (from 2022) and an intent to further increase the scope to other emissions and discharges;
- Greater transparency in the information available about ships and the companies operating them; and
- Amendments to the EU Emissions Trading Scheme Directive (EU ETS) to include shipping in the EU ETS from 2022. The European Commission has already indicated its willingness to include shipping in a revised EU ETS, both from the perspectives of climate neutrality and an EU recovery from COVID-19 and is doing the work to develop legislative proposals for amendments to the EU ETS Directive already. .
In the short-term, these revisions could result in time charterers becoming responsible for both the monitoring, reporting and verification of emissions from ships they hire and the compliance of those ships with carbon intensity reduction targets. This would be a new regulatory risk for time charterers, particularly in the presence of dissuasive financial penalties. If the proposed definition of “company” also translates into a revised EU ETS Directive that includes intra-EU and inter-EU shipping, then time charterers would likely become responsible for obtaining emissions allowances for ships they hire and which call at an EU port.
In the long term, time charterers could need to ensure that ships they charter for EU port calls are capable of being zero emissions at berth, and could also incur increasing monitoring, reporting and verification obligations. Equally, if the policy proposals emerging from the FuelEU Maritime initiative are pursued through future revisions to the EU MRV Regulation then charterers could be required to ensure that ships they hire comply with controls on fossil fuel use or absolute emissions limits when on voyages involving EU port calls.
The final text of a revised EU MRV Regulation remains subject to negotiation but is expected to be finalised in Q1 2021 and is expected to take effect from 1 January 2022. Work to assess the impacts of a revision of the EU ETS Directive by the European Commission is expected to be finalised shortly, but if shipping is to be included, work on the implementing details will follow at pace. Time will tell if either result in significant impacts on charterers.
If you require further information about these proposed revisions, please get in touch with Matthew Williams, our Principal Specialist for Strategic Regulatory Projects, at MatthewJ.Williams@lr.org
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