EU ETS and charter parties: who pays for emission allowances?

Atlas Claims InsightsPublished 27 October 2026 · 8 min read

The extension of the EU Emissions Trading System (EU ETS) to shipping created a new cost line in every voyage touching Europe, and the UK has since followed with its own scheme, and a new question in every charter negotiation: who pays? The answer depends partly on EU law and partly on the contract. Where the contract is silent or unclear, the cost of allowances can become a significant dispute.

How the EU ETS applies to shipping

• Ships covered: cargo and passenger ships of 5,000 gross tonnage and above, whatever their flag, calling at EU/EEA ports. Offshore ships of 5,000 GT and above are due to be added from 2027.
• Emissions covered: 100% of emissions on voyages between EU/EEA ports and while at berth in EU/EEA ports, and 50% of emissions on voyages between an EU/EEA port and a port outside. Methane and nitrous oxide are covered from 2026, alongside CO₂.
• Phase-in: allowances must be surrendered for 40% of verified 2024 emissions, 70% of 2025 emissions and 100% from 2026.
• Deadline: allowances are surrendered by 30 September of the year after the emissions.
• Penalties: an excess emissions penalty for each tonne not covered, on top of the obligation to surrender, and, for repeated failures, the possibility of an expulsion order refusing the company’s ships entry to EU ports.

Emissions are monitored and verified under the EU MRV Regulation, so the verified emissions report is the starting point for any calculation. Our EU ETS cost calculator gives a quick estimate from fuel consumption.

Who is responsible?

The obligation to surrender allowances rests on the shipping company: the shipowner or any other organisation, such as the manager or bareboat charterer, that has assumed responsibility for operating the ship under the ISM Code. Time and voyage charterers are not shipping companies for this purpose, even though they usually decide the routing, speed and fuel, and so control the emissions.

The ETS Directive recognises that mismatch. It requires member states to ensure that, where under a contract another entity has ultimate responsibility for buying the fuel or operating the ship, the shipping company is entitled to be reimbursed by that entity for the cost of the allowances. In practice, though, the clearest and most enforceable route is a contractual clause.

ETS clauses in charters

• Time charters: BIMCO’s ETS – Emissions Trading Scheme Allowances Clause for Time Charter Parties 2022 requires charterers to transfer allowances to owners, or pay for them, for emissions during the charter period, with provisions on data, timing and security.
• Voyage charters: in 2023 BIMCO published three alternative clauses, allowing the cost to be built into the freight, charged as a surcharge, or met by a transfer of allowances.
• Ship management: BIMCO also published a clause for SHIPMAN agreements, allocating responsibilities between owners and managers.

Many fixtures use bespoke wording instead, or amend the BIMCO clauses. The details matter: how emissions are calculated, which party’s data prevails, when allowances or payments are due, what price applies if allowances are paid in cash, and what happens if charterers fail to deliver.

The UK ETS

The UK runs its own emissions trading scheme. Since 1 July 2026 it has applied to ships of 5,000 GT and above on domestic UK voyages and in UK ports, covering CO₂, methane and nitrous oxide, with offshore ships added from 2027. Allowances are surrendered by 30 April, and compliance rests on the “maritime operator”, usually the registered owner unless the ISM company has taken on the responsibility. International voyages to and from the UK are not currently covered, but partial coverage has been proposed from 2028. Charters for ships trading to the UK should make sure their ETS clause covers both schemes, not just the EU ETS.

Further changes to the EU rules have also been proposed, including bringing smaller ships into the scheme in the 2030s. These are not yet law, so check the current position when negotiating long-term charters.

Where disputes arise

• No ETS clause: charters fixed before 2024, or without an ETS clause, leave owners arguing that the cost is recoverable as an indemnity or expense, and charterers arguing that it falls within the hire.
• Emissions data: differences between noon reports, bunker figures and verified MRV data, and disputes over idle, ballast or off-hire periods.
• Late or missing transfers: allowances not delivered on time, leaving the shipping company exposed to penalties.
• Price and timing: which EUA price applies where the clause allows cash payment, and on which date.
• Deductions: charterers deducting disputed ETS costs from hire, or owners withholding cargo or performance pending payment.
• Chain contracts: costs passing between head owners, disponent owners and sub-charterers on different terms.

Practical steps

• Check every charter touching EU/EEA ports for an ETS clause, and agree one before fixing if it is missing.
• Agree the data source and calculation method in advance, and exchange figures regularly rather than once a year.
• Align back-to-back terms across the charter chain so that costs can be passed on in the same way.
• Keep a clear record of allowance transfers and payments.
• Remember FuelEU Maritime, which has applied since 2025 and imposes separate greenhouse gas intensity requirements, with its own contractual questions.

This guide is general information about the law of England and Wales as at October 2026. It is not legal advice and may not cover your situation. Atlas Claims is not a law firm; for advice on your legal rights or on litigation, consult a qualified solicitor.