A new academic study has raised questions over whether shipping companies can reliably recover EU emissions trading costs from charterers under the EU Emissions Trading System, or EU ETS.

The EU ETS began applying to maritime transport in 2024, bringing many large ships calling at EU ports into a carbon pricing regime that requires regulated parties to surrender allowances for covered emissions. For shipping, that has made the allocation of emissions costs between shipowners, managers, charterers and cargo interests a live contractual issue rather than only a compliance matter.

The research argues that although the EU provides a statutory reimbursement right, commercial contracts rather than the law ultimately determine who bears carbon costs across the shipping chain, according to a report emailed by UCL on Friday.

The study, conducted by Erasmus School of Law at Erasmus University Rotterdam, found that the reimbursement mechanism faces significant practical obstacles. These include complex, multi-layered charter chains, uncertainty over the application of English law, and the widespread use of arbitration outside the EU, all of which can make the statutory right difficult to enforce.

“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,” Hannah Mosmans, co-author and PhD researcher at Erasmus School of Law, said.

“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.”

The authors said the findings underline the importance of negotiating clear carbon cost allocation clauses in charterparties and other shipping contracts, rather than relying on the EU directive.

While BIMCO’s standard ETS clauses provide a framework, the study said they may need to be supplemented to address issues including price volatility, off-hire, credit risk and dispute resolution. Those issues are significant because charterparties often separate technical ownership and commercial operation, while emissions exposure can shift with voyage patterns, fuel use and periods when a vessel is not earning hire.

The authors added that the findings could have implications beyond the EU, including for the UK’s new shipping emissions trading scheme and the IMO’s proposed Net Zero Framework, both of which will require effective mechanisms for allocating carbon costs.