Shipowners and ship managers who pay the bill for emissions under the EU Emissions Trading System (EU ETS) may not be able to recover those costs from the party that mostly drives those emissions through the ship’s operation, according to a new academic study from Erasmus School of Law, Erasmus University Rotterdam. The EU Directive provides that shipping companies are to have a statutory right to reimbursement from whoever controls fuel purchasing or vessel operation — typically a time charterer. The study titled “EU ETS payments in shipping: parties’ responsibilities towards authorities and within the commercial chain” finds that in practice, that right is close to a “paper tiger”: it rarely holds up once shipping’s contractual and jurisdictional realities are taken into account. What actually determines who pays is the charterparty, management agreement or bill of lading — not the statutory mechanism the EU built to guarantee it.

Why the statutory right falls short

Since 2024, shipping companies operating in and out of the EU must buy and surrender emission allowances under the EU ETS. The Directive places that obligation on the “shipping company” — usually the registered owner or the entity holding the ISM safety management certificate — even though that party often has very little say over fuel choice, routing or speed. To compensate, EU law requires Member States to give the shipping company a statutory right to reimbursement from whichever party does control those decisions.

The study finds three practical obstacles that undermine this right. First, in multi-layered charter chains, the Directive gives no clear rule for identifying which party must reimburse when responsibility for cargo, route, speed and fuel is split across several charterers. Second, most shipping contracts are governed by English law, and it remains uncertain whether a national reimbursement right can override that choice of law under the EU’s private international law rules (Rome I and Rome II). Third, disputes are typically referred to arbitration in London or Singapore, outside EU court jurisdiction — and English law does not provide for a reimbursement mechanism, whereas English courts can, in practice, block EU proceedings or refuse to recognize EU judgments. Together, the researchers conclude, these gaps leave the statutory pass-through mechanism with little practical value for the vast majority of the market.

“The EU ETS gives the impression that shipowners and managers who pay the carbon bill can automatically recover it from the party actually responsible for the ship’s operation or fuel purchase,” said Hannah Mosmans, co-author and PhD researcher at the Department of Law and Markets, Erasmus School of Law, and Erasmus UPT, Erasmus University Rotterdam. “Our research shows that this is largely an illusion once you look at how shipping contracts actually work. For most of the market, effective cost recovery still depends entirely on what is negotiated into the charterparty, not on the statutory right at all.”

What this means for contracts across the chain

The paper examines the contractual response that has emerged to fill this gap, in particular the standard clauses developed by BIMCO for time charters, voyage charters, contracts of affreightment, ship management agreements and bareboat charters. It finds these clauses to be a useful starting point but incomplete on their own — a limitation BIMCO itself acknowledges. They operate bilaterally, so each contract in a chain needs its own aligned clause; they leave gaps around issues such as price volatility, credit risk, off-hire and demurrage; and, because their use is optional, whether they are included at all depends heavily on the relative bargaining power of owners and charterers. Shipping lines have separately begun passing ETS surcharges to cargo interests through bill of lading and sea waybill terms. The result, the study finds, is uneven protection across the market, with better-resourced parties securing stronger terms than smaller operators.

“This is not just an academic point,” said Jolien Kruit, co-author of the study, endowed professor “Future of Maritime Law” at Erasmus School of Law and partner at Van Traa Advocaten. “If the statutory reimbursement right cannot be relied upon, parties throughout the shipping chain need to make sure their own contracts are watertight on carbon cost allocation. Expecting that the statutory mechanism will be sufficient is a risky strategy.”

For owners, managers and charterers, the practical implication is straightforward: carbon cost allocation should be checked and negotiated at every link in the charter chain — not assumed to follow automatically from the Directive — and existing BIMCO clauses may need to be supplemented with bespoke drafting on volatility, off-hire and dispute resolution.

Nishatabbas Rehmatulla, co-author and Principal Research Fellow and Co-Director of the Shipping and Oceans Research Group said: “By including the reimbursement right, the EU ETS Directive assumes that all emissions are the responsibility of the charterer. However, previous work shows that whilst most of the vessel’s emissions are based on its operational energy efficiency and mostly driven by the charterer, some portion of the emissions also relate to the vessel’s technical energy efficiency, where the investments are mostly by the shipowner. This indicates why there may be differences in private charter parties and statutory rights as not all emissions can be attributed to the charterer, especially when market premiums have been paid by charterers to compensate for more technically efficient ships.”

EC’s EU ETS amendment proposal

In its recent proposal for amendment of the EU ETS, the European Commission does not show awareness of the statutory reimbursement mechanism’s shortcomings. The EC considers the statutory mechanism a proper instrument to make corrections to the allowance reserve. Given the enforcement difficulties, the question is whether that would have the intended effect. As the commission indicated to regulate these aspects further in delegated acts, it may be a good moment to reconsider the reimbursement mechanism as such.

A test case for regulation beyond the EU

The authors argue the findings carry lessons well beyond the EU. The UK’s own domestic shipping emissions trading scheme, which took effect on 1 July 2026, does not include a statutory reimbursement right at all, leaving cost allocation entirely to charterparty drafting. And the IMO is separately working towards a global Net Zero Framework which would involve more complex carbon cost allocations due to the different levels of compliance and reward mechanisms. The study concludes that any future market-based measure for shipping — EU, UK, national or global — must be designed with the realities of private international law and the structure of the maritime supply chain in mind from the outset. Otherwise, these regimes risk repeating the same enforcement gap at a larger scale, whilst giving the impression that a contractual provision may not be necessary.

Source: UCL Energy Institute