Shipowners have a strong case for recovering emissions taxes: Association of Average Adjusters

Michiel Starmans, President, Association of Average Adjusters

Shipowners have a strong case for recouping emissions taxes during a deviation from the overall average to a port of refuge, Association of Average Adjusters President Michiel Starmans said in his May 2022 speech.

A warning that the shipping industry will soon face the potential impact on overall average recoveries from tougher rules on preventing emissions was delivered in the president’s address to the Association of Average Adjusters.

Starmans (chairman for the 2020-2022 term) called for increased awareness of what new levies planned as part of the green transition measures could mean for assessing compensation in the event of a ship accident. He devoted much of his speech to the Association’s annual conference in London on May 12, 2022, to examining such consequences of what he called “the greatest challenge facing humanity in the 25 coming years, which is the fight against climate change”.

High-level legal and insurance deliberations have yet to focus on whether air pollution and emissions from ships should be allowed in general average, the principle that all stakeholders in a ” maritime adventure” share the damage or loss resulting from the voluntary sacrifice of part of a ship or cargo to save all of these goods and/or the expenses incurred during the diversion to a port of refuge for the common safety ship and cargo. The need to account for air pollution and ship emissions had not been foreseen by leading experts in 1994 who, in a major review of GA, authorized pollution prevention costs environment, said Mr. Starmans, director of the legal department of the Amsterdam-based Spliethoff Group. .

The International Maritime Organization aims to reduce carbon intensity to 11% by 2026, followed by an overall reduction of 40% by 2030; while the more ambitious European Commission agreed to extend the European Emissions Trading Scheme (ETS) to the maritime transport sector in support of an interim target of 55% reduction in emissions of greenhouse gases by 2030.

The question arose, Mr. Starmans said: “Can new carbon taxes resulting from a general average law be allowed in GA?” His response was: “Based on cross-references of existing and future maritime legislation, I believe that carbon levies under ETS and IMO may be permitted in GA as a direct result of bunkers consumed and authorized in GA.” Mr Starmans conceded that some might see this finding as an opportunistic attempt to increase GA allowances, but it could also be viewed in the context of recent statements in court decisions by senior maritime judges.

Under the proposed legislation, CO2 emissions in shipping will no longer be “free”, Mr Starmans stressed. The aim is to incentivize the marine industry to invest in energy efficiency and switch to cleaner fuels with lower emissions.

The gradual lowering of an emission cap on total greenhouse gas emissions by participants, combined with the rising costs of purchasing carbon taxes, means that climate costs will increase year on year. year, and taxes could eventually exceed bunker costs for ships that have not switched to low-carbon fuels, Mr Starmans said.

The EU that wants to see zero emissions by 2050 has a set of measures that are subject to scrutiny by the European Parliament and require the approval of each member state. It includes an ETS, which would require shipping companies from 2023 to buy permits for ships over 5,000 gross tons to cover every ton of CO2 emissions. The emissions cap, which would be converted into tradable carbon permits, would increase in annual increments from 20% in 2023 to 100% in 2026.

An owner or time charterer would need to purchase permits covering 100% of emissions from voyages within the EU and 50% of emissions from international voyages beginning or ending in the EU.

If the company did not return the correct number of permits by April 30 of the following year, it would be fined 100 euros per tonne of CO2 not accounted for. Vessels can be refused entry to EU ports when the responsible shipping company has not surrendered a permit for two consecutive years.

Relevance to adjusters of these future carbon taxes could arise when a ship is retired for repair or when GA allowances are granted for fuel consumed while diverted to, or held in a port of refuge until that it resumes course under the applicable rules of York Antwerp, which regulate GA and are almost always incorporated into a charterparty or bill of lading.

At present, when deviating from General Average to a European port of refuge to carry out the repairs necessary for the safe continuation of the voyage, the emissions did not need to be compensated by the shipping company. , but as of January 2023, that “free ride” was about to change, Mr. Starmans said. The shipping company would have to settle the bill with the relevant EU Member State, which raised the question of whether the shipowner (or time charterer) could recover these additional costs in GA.

Regarding the EU fuel tax, Mr. Starmans does not foresee any problem in allowing in GA the gross price of fuel, including the EU tax, whereas currently the York-Antwerp rules allow the net price of fuel fuel.

Starmans hoped his review of whether additional costs could be recovered in GA would be a starting point for formal advice to be given by the Association’s Advisory Committee “once the legislation has been finalized and that experts will be confronted for the first time with the implications of emissions taxes.

Starmans is succeeded as President for 2022-23 by Sir Nigel Teare.

The Association of Average Adjusters promotes professional principles in the adjustment of marine claims, uniformity of adjustment practices and the maintenance of high standards of professional conduct. Regardless of the identity of the principal, the damage adjuster is required to act impartially and independently. The Association plays an important role in the London Insurance Market Committees and maintains strong relationships with international associations and insurance markets.

Sea News, May 24

Andrew B. Reiter