The academic research questions whether the EU's statutory reimbursement right. File Image / Pixabay

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

The research argues that, despite the EU's statutory reimbursement right, commercial contracts, not the law, ultimately determine who bears carbon costs across the shipping chain, according to the report emailed by UCL on Friday.

The study, by Erasmus School of Law at Erasmus University Rotterdam, found the reimbursement mechanism faces significant practical hurdles.

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.”

Authors said the findings highlight 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 such as price volatility, off-hire, credit risk and dispute resolution.

They 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 to allocate carbon costs.