The problem of ships ‘going dark’

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

By Tom Midttun, Head of Production Lockton Global Marine, and Stephen Hawke, Managing Director – London – Lockton P.L. Ferrari

The automatic identification system (AIS) is a tried and tested tool to reduce the risk of collisions. The insurance market should make it clear that its use, as mandated by the International Maritime Organization (IMO), is a pre-condition for cover and challenge clients that switch it off without valid reason or manipulate the data.

Recent press reports have suggested that vessels may be switching off the automated tracking system (AIS) to disguise the vessel’s location to cover up illegal fishing activity or to breach sanctions. Such actions present a safety risk for the marine sector.

The AIS displays other vessels in the vicinity with information on identity, type, position, speed, navigational status, and other safety-related information. It also enables the exchange of data with shore-based facilities as coast stations can use the AIS channels to send information on tides, notice to mariners (NTMs) and local weather conditions.

THE IMO RULES

Regulation on the use of AIS is very clear. The IMO Convention for the Safety Of Life At Sea (SOLAS) Regulation V/19 requires all vessels of 300 gross tonnage (GT) and upwards engaged on international voyages (500 GT for cargo ships not engaged on international voyages) and all passenger ships, irrespective of size, to carry AIS onboard.

Furthermore, the IMO Resolution A.1106(29) adopted on 2 December 2015 states that AIS should always be in operation when ships are underway or at anchor except where international agreements, rules or standards provide for the protection of navigational information.

This means that the AIS may be switched off if the master believes that the continual operation of AIS might compromise the safety or security of their ship or where security incidents are imminent. However, there are very few legitimate reasons for an AIS signal to ‘go dark’ —protection against piracy in notorious areas being one of them — and the master should restart the AIS as soon as the source of danger has disappeared.

Actions of this nature should always be recorded in the ship’s logbook together with the reason for doing so as well as passed on to the competent authority unless this could compromise the ship’s safety or security. Deliberately turning off the transmitter signal without legitimate reason represents a breach of SOLAS and puts the ship in breach of flag state regulations.

AIS IN INSURANCE POLICIES

The current Nordic Plan’s position is that AIS is a safety precaution and therefore usage is a requirement of cover. As a result, a separate warranty is not deemed required. However, insurers must prove that illegal activity was occurring at the time of an event to refuse a claim.

Inference of illegal activity from AIS usage remains untested in the courts. Unless criminality is proven, the cover remains in place for any claim where there is no causality between switching off the AIS and the claim.

Arguably, a UK style warranty would be more effective. But, this would still not address the issue of potentially providing coverage for criminal actors, rather than specific incidents of criminality, where of course, if proved, an insurance policy would not respond. Commercial expulsions from shipping registrations would facilitate broker and insurer client due diligence.

BREACHING THE RULES

The International Group of P&I Clubs has not only warned about the practice of turning off the AIS signal to breach sanctions but also about the ability to manipulate the AIS data. Whilst AIS transponders have built-in security features to prevent them from transmitting falsified data these can sometimes be circumvented for example to breach sanctions. Furthermore, a user can purchase multiple AIS transponders, creating more than one digital AIS identities for a single vessel.

Switching the AIS off or tampering with the AIS system impacts the safety of the maritime world. To end issues of illegal fishing and sanction breaches it may be necessary for the insurance industry to view switching off the AIS system itself as an illegal act, thus denying cover regardless of any loss causation unless the insured can offer a valid reason.

Ships that need to switch off the AIS system temporarily for legitimate safety and/or security concerns should be obliged to notify insurers as soon as practically possible with the justification thereof.

Tampering with the AIS system is not acceptable under any circumstances. AIS data is used for a variety of other purposes including the adherence to the sanction’s regime, but, also the calculation of CO2 emissions. In addition to promoting the safety of the sector, AIS also helps create transparency which is key to for the sector to earn the trust and the support of stakeholders.

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For further information, please contact:

Stephen Hawke, Managing Director – London – Lockton P.L. Ferrari

T: +44 (0) 207 933 2512

E: stephen.hawke@plferrari.com

Tom Midtun, Head of Production – Lockton Marine of global broker Lockton

T: +47 9825 0640(opens a new window)

E: tom.midttun@locktonedge.com

The problem of ships ‘going dark’

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.