Digitalisation; What's New

The European Union’s Emissions Trading System (EU ETS) was extended to cover emissions from shipping as of 1^st January 2024.

The EU ETS is limited by a 'cap' on the number of emission allowances. Within the cap, companies receive or buy emission allowances, which they can trade as needed. The cap decreases every year, ensuring that total emissions fall.

Each allowance gives the holder the right to emit:

One tonne of carbon dioxide (CO2), or;
The equivalent amount of other powerful greenhouse gases, nitrous oxide (N2O) and perfluorocarbons (PFCs).
The price of one ton of CO2 allowance under the EU ETS has fluctuated between EUR 60 and almost EUR 100 in the past two years. The total cost of emissions will vary based on the cost of the allowance at the time of purchase, the vessel’s emissions profile and the total volume of voyages performed within the EU ETS area. The below is for illustration purposes:
~A 30.000 GT passenger ship has total emissions of 20.000 tonnes in a reporting year, of which 9.000 are within the EU, 7.000 at berth within the EU and 4.000 are between the EU and an outside port. The average price of the allowance is EUR 75 per tonne. The total cost would be as follows:
~~9.000 * EUR 75 = EUR 675.000
~~7.000 * EUR 75 = EUR 525.000
~~4.000 * EUR 75 * 50% = EUR 150.000
~~Total = EUR 1.350.000 (of which 40% is payable in 2024)
For 2024, a 60% rebate is admitted to the vessels involved. However, this is reduced to 30% in 2025, before payment is due for 100% with effect from 2026.
Emissions reporting is done for each individual ship, where the ship submits their data to a verifier (such as a class society) which in turns allows the shipowner to issue a verified company emissions report. This report is then submitted to the administering authority, and it is this data that informs what emission allowances need to be surrendered to the authority.
The sanctions for non- compliance are severe, and in the case of a ship that has failed to comply with the monitoring and reporting obligations for two or more consecutive reporting periods, and where other enforcement measures have failed to ensure compliance, the competent authority of an EEA port of entry may issue an expulsion order. Where such a ship flies the flag of an EEA country and enters or is found in one of its ports, the country concerned will, after giving the opportunity to the company concerned to submit its observations, detain the ship until the company fulfils its monitoring and reporting obligations.
Per the EU’s Implementing Regulation, it is the Shipowner who remains ultimately responsible for complying with the EU ETS system.

There are a number of great resources on the regulatory and practical aspects of the system – none better than the EU’s own:

‍https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02003L0087-20230605

‍https://climate.ec.europa.eu/eu-action/transport/reducing-emissions-shipping-sector_en

‍https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/what-eu-ets_en‍

On 9 November Lockton Edge’s Senior Broker Jens Ringefelt took part in a so-called fireside chat with Concirrus’ CEO Andy Yeoman arranged by Cannon Events. The conversation was digitally recorded, and the full chat can be seen by using the link provided at the bottom. Among the topics discussed were the short and long terms impacts of Covid on trade within the marine insurance industry, how underwriters in physical markets found their inboxes clogged up with volumes of such significance that processing it all became a problem, and a search for digital processing solutions began, not to mention how market interactions with the advent of Teams-calls were impacted. It was further noted, in a market that had not significantly changed its underwriting processes for 300 years, that whilst a limited number of leading markets had begun to take into account behavioural factors, the next 5 years would be focused on projectable behaviour.

On the obstructions that the quality and format of the existing data presented, it was noted that new technology could read unstructured data and that these data when properly analysed, and used well, should bring about new insurance solutions. As a further observation to this, and considering behavioural impacts, Andy Yeoman asked the rhetoric question “Why do policies need to be annual?”

On the social interaction, the relationship factor, it was envisaged that as much time would be used on introductory interpersonal exchanges, but that the second part of the conversation would go along the line of “Right, our system has gone through the data, and I need to ask you the following questions..”

Looking at the present state of play Jens Ringefelt observed that digitalisation efforts were largely focused on digitalising the existing processes, with client delivery being fundamentally ease of access to relevant insurance documentation and data.

Moving then to where technology meets ESG, where as an example there are now several suppliers using satellite and AIS tracking that can fairly accurately calculate a vessel or portfolio’s carbon footprint, it was noted that there were dilemmas. Some key reinsurers seemed highly driven towards developing the “greenest and meanest” possible vessel portfolios, but what happens when principles meet profit? What stance does one take when one’s favourite and most profitable client is found to be a bad ESG risk; does one write the business, or does one not write the business?

To watch Andy and Jens’ full fireside chat follow this link https://vimeo.com/770769584/2b33535336

Digitalisation; What's New

The European Union’s Emissions Trading System (EU ETS) was extended to cover emissions from shipping as of 1st January 2024.

The European Union’s Emissions Trading System (EU ETS) was extended to cover emissions from shipping as of 1^st January 2024.