Shifting Emissions Trading System responsibility from shipowners to ship charterers in EU scheme
 The European Union's Emissions Trading System (ETS) is now an accomplished fact, as simply reporting ship emissions will no longer do as Europe moves to full taxation of CO2 "pollution".
However, legal difficulties have since arisen in determining responsibilty for such emissions - the shipowner say the current rules, though some would argue that should be the ship charterer instead.
The European Commission has set the shipowner as the responsible entity, copying the arrangement in the EU Council position of October 2019 in the matter of Monitoring, Reporting and Verification Regulation (MRV) revision.
Since ships are often leased out, the charterer makes decisions that affect the day-to-day emissions of the ship. This means that a large part of what determines the number of allowances, and so the ETS compliance cost, of a shipowner is in the hands of the charterer.
In line with the polluter pays principle, the shipping company could, by means of a contractual arrangement, hold the entity that is directly responsible for the decisions affecting the CO2 emissions of the ship accountable for the compliance costs. This entity would normally be the entity that is responsible for the choice of fuel, route and speed of the ship.
Published by Long Beach-based CleanTechnica, environmental lobby, Dublin-based Opportunity Green legal teams, said its proposed amendments would be a closer reflection of the polluter pays principle in EU law.
Under which the shipowner would remain the "responsible entity" under the EU directive, but the shipowner will be legally assured the right to reclaim the costs incurred under the ETS and have available remedies as required.
The legal analysis was conducted by a Brussels-based environmental NGO lobby, the European Federation for Transport and Environment, commonly referred to as Transport & Environment (T&E), which describes itself as a European umbrella for non-governmental organisations working in the field of transport and the environment, promoting sustainable transport in Europe.
This analysis holds that the polluter pays principle is foundational to EU and wider international environmental law but with imposition of liability solely on the shipowner for ETS compliance, a gap is created between the polluter and the payer.
While the relationship between the shipowner and the charterer is a private one, the power is often on the side of the charterer, which makes passing along the liability difficult for the shipowner.
"Thus, the question this analysis addresses is whether the suggestion in the recital of using contract law to shift the liability can be made mandatory. Private vs public law EU law is largely a system of public law. ie, law governing relations between companies or individuals with state institutions. Private law sets obligations between two private parties, companies and individuals," the brief said.
The ETS is an instrument of public law in that it sets regulations between the companies that emit the regulated gases and the state institutions from which those companies must buy allowances.
"By requiring the charterer to accept responsibility for the compliance costs through a contractual arrangement, the EU would be imposing a private law obligation," said the brief.
The purpose of the Unfair Contract Terms Directive (UCTD) is to harmonise national laws relating to unfair terms in contracts between a seller or supplier and a customer with a view to protecting the consumer against abuse of power by the seller or supplier. Under the UCTD contract terms are unfair if they cause significant imbalance in the parties' rights and obligations to the detriment of the consumer.
Examples of this are making an agreement binding on the consumer whereas provision of services by the seller or supplier is subject to a condition whose realisation depends on his own will alone, or providing for the price of goods to be determined at the time of delivery or allowing a seller of goods or supplier of services to increase their price without in both cases giving the consumer the corresponding right to cancel the contract.
This is a parallel to the shipowner and charterer, where the actions of the charterer would dictate how many allowances the shipowner will have to purchase under the ETS.
Under the UCTD, EU member states are under an obligation to ensure there is an effective means under national law for the consumer to enforce their rights and prevent the continued use of unfair terms.
Consumers are also given explicit rights not to be bound by unfair terms as defined in the UCTD. This is directly parallel to the ETS where the directive requires member states to put in place a system of penalties which are effective, proportionate and dissuasive, while the nature of the penalties is largely left to member state discretion.
The exception is that the requirement that they pay an excess emissions penalty of EUR100 for every tonne of CO2 emitted without a corresponding surrendered allowance. The name of the non-compliant entity is also made public.
The Environmental Liability Directive (ELD) works to make the polluter pay. The directive imposes strict liability for all environmental damage on entities that carry out certain types of activities.
It provides an example of imposing liability on the basis of the activity carried out (those in Annex III). Liability is only imposed on persons other than the operator, ie, the owner of the relevant land and/or assets where the operator (polluter) cannot be found.
It imposes private law rights as certain groups are enabled to enforce the liability against the entity carrying out the activity and the liability cannot be excluded or reduced through a contractual arrangement.
This is directly relevant to the case of shipping where imposing the obligation on the charterer is not necessarily a preferred regulatory option as tracing the charterer can be difficult.
There is no international registry of such charterers that could be consulted. Therefore, the solution would be to impose the main obligation in the legislation on the shipowner but create a private law obligation for the charterer to be liable for the costs to the shipowner.
But if these proposed amendments were implemented along with the rest of the ETS proposals for international shipping, there will be a closer reflection of the polluter pays principle in EU law.
The shipowner would still be the "responsible entity" under the directive, but the shipowner will also have the right to claim compliance costs from charterers and have available remedies as required. |
