Carbon

EU ETS and CII in charterparties

Published 18 October 2026

Two rules now put carbon into a fixture. The EU Emissions Trading System (EU ETS) makes a shipping company buy and hand over an allowance for each tonne of greenhouse gas its ship emits on voyages linked to Europe. The IMO Carbon Intensity Indicator (CII) gives each ship a yearly rating from A to E. Neither rule is written for charterers, but the charterer usually decides the route, the speed and the fuel. So the charterparty has to say who pays and who is responsible.

The EU ETS for shipping

Since 1 January 2024 the EU ETS covers carbon dioxide from ships of 5,000 gross tonnage and above that call at ports in the European Economic Area (EEA), whatever their flag. From 1 January 2026 it also covers methane and nitrous oxide, counted as carbon dioxide equivalent.

Voyage or stay	Share of emissions covered
Between two EEA ports	100 per cent
Into or out of the EEA	50 per cent
At berth in an EEA port	100 per cent

The cost was phased in. For emissions in 2024 the company hands over allowances for 40 per cent of the covered emissions, for 2025 it is 70 per cent, and from 2026 it is the full amount. Allowances are surrendered by 30 September of the year after the emissions, so the 2024 emissions were paid for in 2025. One allowance (an EUA) covers one tonne.

The party that must surrender is the "shipping company". This is the shipowner, or the manager or bareboat charterer that has taken over operational responsibility for the ship under the ISM Code. It is not the time charterer or the voyage charterer. The penalty for a shortfall is 100 euros for each missing tonne, and the missing allowances must still be surrendered. A company that fails in two or more years in a row can have its ships refused entry to EU ports.

The rules expect the shipping company to recover the cost from the party that makes the decisions that cause the emissions. In practice that is done through the charterparty.

Passing the cost on: time charters

Under a time charter the charterer buys the fuel and gives the sailing orders. BIMCO's Emission Trading Scheme Allowances (ETSA) Clause for Time Charter Parties 2022 follows that logic. The charterer must "provide and pay for" the allowances for the ship's emissions during the charter. The owner monitors and reports the emissions and gives the charterer the data behind the calculation. The charterer then transfers allowances to the owner, rather than paying cash, so neither side carries the risk of the allowance price changing between the voyage and the payment.

Passing the cost on: voyage charters

Under a voyage charter the owner buys the fuel and runs the ship, so the cost is usually priced into the deal. In December 2023 BIMCO published three clauses for voyage charters, so the parties can choose the method that fits the trade:

Freight clause. The cost of the allowances is part of the freight. It is simple and clear, but the amount may then attract brokerage like the rest of the freight.
Surcharge clause. The charterer pays a separate agreed amount on a set date, for example with the freight or a number of days after the ship leaves the load port.
Transfer of allowances clause. The charterer transfers allowances directly to the owner. This suits charterers who already hold an account for allowances. The parties can fix the number in advance or reconcile it against the actual emissions after the voyage.

Port delays matter here. A ship waiting at anchor in an EEA port still emits, and that emission is covered at 100 per cent. If the owner carries the carbon cost, the demurrage rate should reflect it.

The CII rating

The CII measures how much carbon dioxide a ship emits for each unit of cargo capacity carried over each nautical mile. It applies to cargo, RoPax and cruise ships of 5,000 gross tonnage and above trading internationally. Ships have reported since 2023 and the first ratings were given in 2024, from A (best) to E (worst). A ship rated D for three years in a row, or E for one year, must submit a plan showing how it will reach C or better.

The rating belongs to the ship and is answered for by the owner, but a time charterer can damage it. Long waits at anchor, slow ballast legs and short voyages all raise the figure. A charterer who trades a ship badly for a year can leave the owner with a D or E rating and a corrective plan.

The BIMCO CII clause

BIMCO's CII Operations Clause for Time Charter Parties 2022 shares the work between the two sides. The owner must keep the hull and engines efficient, measure fuel and distance and share the data, and warn the charterer if the ship is heading above the agreed figure. The charterer must employ the ship so that the yearly figure does not exceed an agreed CII value, and must provide a plan within two working days if the owner asks for one. If the charterer does not provide a plan, the owner may refuse orders that were not agreed and slow the ship while it stays on hire. The parties agree a number for each year, not a letter. BIMCO says it is not a compliance clause: the parties still have to understand the MARPOL rules themselves.

What to check before fixing

Does the voyage touch an EEA port, and which share of its emissions is covered?
Which ETS clause is in the charter, and does it say who pays for time at anchor and at berth?
Under a voyage charter, is the carbon cost in the freight, in a surcharge, or transferred as allowances, and is it in the estimate?
Under a time charter, what CII value has been agreed for each year, and does the trade the charterer plans fit it?
Do the speed and consumption warranties still apply alongside the CII clause? Under the BIMCO clause they do.

Carbon is now a line in the voyage cost, beside bunkers and port charges, and it is the line most often left out of a quick estimate.

References

European Maritime Safety Agency, ETS extension to maritime. emsa.europa.eu
Clyde & Co, EU ETS for marine transport explained, executive summary, 2024. clydeco.com
UK P&I Club, BIMCO: ETSA Clause for Time Charter Parties 2022, 2022. ukpandi.com
BIMCO, BIMCO adopts portfolio of four ETS clauses, 2023. bimco.org
Clyde & Co, BIMCO's new ETS clauses, 2024. clydeco.com
BIMCO, CII Operations Clause for Time Charter Parties 2022, 2022. bimco.org
International Maritime Organization, EEXI and CII, ship carbon intensity and rating system, FAQ. imo.org

Emission control areasTen areas where the fuel a ship may burn has a stricter limit than the global one. Which lines are exact, which are traced, and which do not apply yet. The MARPOL annexesSix annexes, six different things a ship may not put into the sea or the air. Which are optional, which need record books, and which cost freight. Charterparty formsNobody writes a charterparty from a blank page. People name a printed form, change it, and then disagree about which part of the document applies. Voyage charter vs time charterHow the two main charter types split the risk, what each side pays for, and which terms exist in only one of them. The ISM Code and the DOC holderEvery ship has one company legally responsible for running it safely. Knowing which company that is tells you more than the registered owner does. Bunkers and fuel gradesTwo fuel grades, sometimes three, each with its own price. The largest number on a voyage estimate is also the one nobody guarantees.

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