BIMCO’s documentary experts have begun preparing charter party clauses to assist owners and charterers comply with complex new carbon regulations due to come into force in 2023.
An impact study by BIMCO and several key stakeholders to identify the commercial and contractual implications of impending International Maritime Organization (IMO) carbon regulations has highlighted a raft of contractual challenges. BIMCO’s documentary experts have begun preparing charter party clauses to assist owners and charterers comply with the new regime. Charter parties that extend beyond 2023 are already being negotiated and agreed, so this task has been given top priority by the organisation.
The main driver for this initiative is the amendments to chapter 4 of MARPOL Annex VI, due to come into force in 2023, which will tightly regulate the energy efficiency and carbon intensity of ships. The future regulatory framework is complex and challenging and may require shipowners to reduce engine power and speed to comply with the Energy Efficiency Existing Ship Index (EEXI). The carbon intensity index (CII) requirements may also see shipowners having to reduce cargo intake in addition to routeing and slow speeding measures. Compliance with the new regime may mean that shipowners are at risk of being in breach of their obligations in performing the voyage under standard charter party terms.
An essential part of this process is bringing owners and charterers together to find practical and commercial solutions to issues that are fair to both parties. BIMCO’s impact study has indicated that the commercial implications of CII will be as equally challenging as the contractual issues. Compliance will involve cost. This may take the form of capital costs installing new equipment to make the ship more efficient; or it may be costs related to cargo shutout and longer voyage durations. A fair allocation of costs and responsibilities will be at the heart of the new BIMCO clauses to ensure that neither party is unduly disadvantaged by the carbon regulations.
Is it a tax?
BIMCO will also look closely at emission trading schemes currently under discussion and how they be dealt with in charter parties. Although carbon levies could be considered a “tax” for the purposes of charter parties and therefore covered by existing clauses in standard forms, it may be that a more prescriptive approach is called for.
As with the industry’s transition to low sulphur fuels in 2020, the carbon clauses will require owners and charterers to closely cooperate on technical and operational activities. On this aspect BIMCO has been encouraged by the willingness of several dry cargo and wet charterers to work together with shipowners and BIMCO to find contractual solutions.
BIMCO’s Documentary Committee will discuss the draft carbon clauses over the summer and review then for possible adoption in September.