Heightened Risk in the Gulf of Oman, the Strait of Hormuz and the Persian Gulf

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 12 May 2019 four oil tankers were attacked at anchor off Fujairah. According to a press release from the Missions to the UN of the United Arab Emirates, the Kingdom of Norway and the Kingdom of Saudi Arabia of 7 June 2019, preliminary findings from that investigation indicate that the attacks were caused by limpet mines placed on the vessels by divers as “part of a sophisticated and coordinated operation carried out by an actor with significant operational capacity, most likely a state actor.”

In the aftermath the Joint War Committee included Oman, Persian or Arabian Gulf and adjacent waters including the Gulf of Oman west of Longitude 58°E, and United Arab Emirates in the “Listed areas”. Additional Premiums for entering these waters came into effect in the beginning of June.

On 13 June 2019, the two tankers Front Altair and Kokuka Courageous suffered explosion incidents in the Gulf of Oman causing major damage to the vessels. International tension has risen further since then. The United States and Saudi Arabia have suggested Iran is responsible, a claim Tehran has denied. On 20 June Iran shot down a US surveillance drone which they argued was in Iranian territory, pushing the conflict to the brink of war. The escalation has since decelerated.

After these incidents the threat towards shipping, and particularly to tankers, is perceived as high in this area. All vessels are advised to operate with a heightened level of security in the Gulf of Oman/Strait of Hormuz/Persian Gulf region.

Additional premiums for entering the area have increased significantly. Market sources suggest that AP rates range from 0.2% to 0.4%, and that certain Underwriters have given 7 days’ notice of cancellation on policies where “fixed rate” facilities have been arranged for the excluded areas added to the JWLA24 dated 17 May 2019, i.e. United Arab Emirates / Oman / Persian (Arabian) Gulf west of 58 ̊ East.

Sources:

https://www.norway.no/en/missions/UN/

Heightened Risk in the Gulf of Oman, the Strait of Hormuz and the Persian Gulf

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.