Climate clause

Energy Efficiency in Shipping

Otto's Clause

A contractual duty in charterparties for both parties (charterers and owners) to take all reasonable steps to maximise energy efficiency.

This is a net zero clause

This clause aligns with Paris Agreement goals, Race to Zero requirements and the Oxford Principles for Net Zero Aligned Carbon Offsetting. For tools and support to use this clause, use our toolkit or join one of our events.

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Why use this?

To put in place contractual mechanisms that incentivise and drive use of fuel and energy efficiency in shipping with corresponding reductions in greenhouse gas emissions.

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The clauses on this website have been prepared in good faith on a pro bono basis and are free to download and use. The clauses have been drafted and edited by a variety of lawyers and, as such, the approaches to drafting may not conform to any particular drafting norms. We acknowledge this as a consequence of the collaborative drafting process.

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The clause

Additional Recitals

[Insert Eddie’s Recitals (Climate Recitals) here.]

 

Additional Definitions 

EEOI shall have the meaning given to it in clause [1.3].

EEOI Guidelines shall mean the Guidelines for Voluntary Use of the Ship Energy Efficiency Operational Indicator (MEPC.1/Circ.684) published by the IMO on 17 August 2009.

[Fuel Efficiency shall mean the ratio of mass of carbon dioxide emitted per unit of transport work (including but not limited to laden voyages, ballast voyages, docking and berthing services), calculated in accordance with the EEOI Guidelines.]

Fuel Efficiency Fee shall have the meaning given to it in clause [2.3].

GHG Emissions means a party’s emissions of GHGs from all sources (including voyage operations, and value and supply chains) categorised as scope 1, 2 and 3 emissions by The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition 2015 as updated from time to time. [Drafting note: Scope 1, 2 and 3 emissions are defined on page 27 of the GHG Protocol.]

Greenhouse Gases (GHGs) means the natural and anthropogenic gases which trap thermal radiation in the earth’s atmosphere and are specified in Annex A to the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) [or otherwise specified by the UNFCCC at the date of this Charterparty], as may be amended from time to time[, which include carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3)]. [Drafting note: See TCLP Glossary: Greenhouse Gases (GHGs) for definition options and explanatory notes.]

Net Zero Target means both a reduction of GHG Emissions and a removal of GHGs associated with Offsets acquired to address the Residual Emissions by [INSERT DATE/ 2050 or sooner] to achieve a balance between the party’s’ sources and sinks of GHGs in a calendar year and for each subsequent year thereafter, and to achieve the goals of the Paris Agreement.

Offset means the purchase of carbon credits from a project:

(a) that has been verified in accordance with [insert name of voluntary standard] or under the United Nations Framework Convention on Climate Change (UNFCCC) clean development mechanism (CDM) [or [successor/ equivalent] UNFCCC mechanism];

(b) where the emissions of GHG avoided, reduced or removed by the project are additional;

(c)  that, in relation to GHG removals, employs long-lived storage methods that have a low risk of reversal over millennia; 

(d) that prioritises the removal of GHG from the atmosphere rather than avoids or reduces third party emissions of GHG; and

(e) that takes account of a just transition and addresses wider social and ecological goals. 

Residual Emissions means the GHG Emissions, that are emitted after all reasonable efforts have been made by a party to [maximise fuel efficiency to] reduce GHG Emissions from all voyage operations [and value and supply chains].

 

Additional Clauses

[Drafting note: This clause deliberately only imposes requirements in relation to GHG emissions relating to the Charterparty. If considered appropriate, users of the clause could add ambition by including organisational requirements of the parties in relation to their own Net Zero Targets, as suggested in TCLP’s Net Zero Drafting Checklist, using other TCLP Climate Clauses for template wording.]

1. Fuel Efficiency Clause

1.1 Each party agrees to take all reasonable measures to maximise the Fuel Efficiency of the Vessel during the term of this Charterparty. [The Parties shall [jointly] Offset the Residual Emissions associated with this Charterparty and encourage each other in the achievement of their respective Net Zero Targets. The Parties shall [share the costs equally]/[agree their respective shares of the associated costs in writing within [[] days] of the date of this Charterparty]/[share the costs as follows: [insert cost sharing provisions as agreed between the Parties]].]

1.2 The measures taken by the Parties under clause 1.1 shall be agreed before the commencement of this Charterparty [and set out at Schedule []] and shall include but not be limited to:

1.2.1 using all reasonable efforts to ensure the Vessel slow steams when travelling pursuant to this Charterparty;

1.2.2 cooperating [with each other and the other Party’s relevant representatives and contractors] to promote the fuel efficient operation of the Vessel, such as collaborating with respect to weather routing, speed optimisation, and other measures as proposed by the EEOI Guidelines; and

1.2.3 cooperating and liaising with relevant third parties such as port operators, agents and cargo interests in order to maximise Fuel Efficiency.

[Drafting note: Users of this clause could consider whether it would be appropriate to require further general collaboration and knowledge sharing between the parties and other stakeholders to publicise their Net Zero Targets and promote their climate leadership/ collaboration in the shipping sector.]

1.3 For the purposes of this clause [1], Fuel Efficiency shall be measured by reference to the energy efficiency operational indicator as set out in the EEOI Guidelines (EEOI). 

1.4 Upon request, the [Parties] shall disclose to one another all information required to calculate the EEOI for the requested period. This information is to be disclosed within seven (7) [days] of completion of the relevant voyage or within seven (7) [days] of the relevant information becoming available (whichever is the earlier).

1.5 If a [Party] is in breach of clauses [1.1] or [1.4], the other [Party] may within [two (2)] [days] of becoming aware of the breach serve a notice identifying the breach and requiring rectification of it. If the breach is not rectified: 

(i) in the case of breach of clause [1.1] within [fourteen (14)] [days], and 

(ii) in the case of a breach of clause [1.4] within [two (2)] [days], 

the [Party] in breach agrees to pay liquidated damages in accordance with clause [2] below.

1.6 At no time should this clause [1] be construed as requiring the [Parties] to take any measures which [may compromise]/[conflict with any legal obligation relating to]: 

(i) the safety of the Vessel or its crew; 

(ii) assistance of vessels in distress; or 

(iii) attempts to save life or property at sea.  

1.7 The [Parties] shall ensure that clauses [1] and [2] (with minimal amendments to ensure that the objectives of those provisions are preserved) or equivalent clauses that are no less onerous than clauses [1] and [2] are included in all sub-charterparties concerning obligations under this Charterparty in a manner that binds any relevant third parties engaged to meet or facilitate the meeting of those obligations.

2. Fuel Efficiency Fee 

2.1 The [Parties] acknowledge and agree that, in respect of any breach of clause [1], the breaching Party may cause losses to the other Party that are wide ranging in nature and difficult to quantify with precision, including losses related to damage to the climate and the environment, consequential breaches of environmental laws, diminished standing with states, governments and regulators, and/ or damage to that Party’s reputation (all of which the Parties accept for the purpose of this Charterparty as being losses incurred by a breach of clause [1]). 

2.2 Without prejudice to the Parties’ right to damages, the Party in breach agrees to pay the Fuel Efficiency Fee as defined in and determined in accordance with clause [2.3] as liquidated damages for the relevant breach. The Parties agree that any Fuel Efficiency Fee payable under this Charterparty to provide compensation for damage caused by a Party’s breach of clause [1] is reasonable and proportionate to the legitimate interests of the other Party in the performance of obligations under clause [1] and the adoption of sustainable business practices, as well as mitigating, setting off, counteracting, and repairing that damage (and preventing future damage). Each Party agrees that it has been properly advised regarding the negotiation of this Charterparty, and in particular regarding the inclusion of the Fuel Efficiency Fee as a remedy for breaches of clause [1].           

2.3 If a Party fails to rectify its breach of clause [1]* in accordance with clause [1.5], the Party in breach shall pay, as liquidated damages, [£/$[]] for each [day’s] default for the period determined in accordance with clause [2.4], [up to a maximum of £/$ [●]] (the Fuel Efficiency Fee). 

* [Drafting note: The parties may wish to consider having different liquidated damages for breaches of Clause [1.1] and [1.4].]

2.4 The liquidated damages payable under clause [2.3] shall accrue from the calendar day after the last day of the remediation period specified in clause [1.5] and shall continue until the earlier of:

2.4.1 rectification of default by the Party in breach;

2.4.2 termination of this Charterparty in accordance with its terms; or

2.4.3 abandonment of this Charterparty by the Parties.

2.5 The non-breaching Party may invoice at any time for any amount of the Fuel Efficiency Fee that is payable by the breaching Party (including in circumstances in which the Fuel Efficiency Fee continues to accrue). The Fuel Efficiency Fee is to be paid within [fourteen (14)] [days] of the breaching Party’s receipt of an invoice under this clause [2.5] to [an initiative aiming to research low-carbon technologies for shipping*] chosen by the non-defaulting Party. The Party in breach shall provide the other Party with reasonable proof of permanent, unconditional payment to this [initiative]. 

* [Drafting note: The parties are to determine which project.]

 

[Schedule [●]: Measures to maximise the Fuel Efficiency of the Vessel]

[If using the optional Schedule [●] referred to in clause 1.2, insert here the fuel efficiency measures set out at clause 1.2.1 – 1.23 plus any additional measures as agreed between the Parties.]

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