Climate clause

Green Fuel Requirement and Termination for Greener Carrier or Shipper (Maritime)

Levi's Clause

Allows a customer to exit a shipping transportation agreement without incurring exit-related liability, unless the incumbent carrier/shipper can match the 'green' improvements of a competitor.

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Why use this?

This clause gives customers the right to terminate a long term contract for the transportation of goods for a greener carrier or shipper. It encourages green competition between incumbent and competitor carriers or shippers, while incentivising appointed carriers or shippers to continuously improve their green performance.

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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 Recital

(A) [Insert Eddie’s Recitals (climate recitals) here]. 

 

Additional Definitions

Carbon Footprint means the total annual GHG Emissions of [a carrier/ shipper] [the Services].

[Drafting note: The defined term ‘Carbon Footprint’ is used in Levi’s Clause to describe the total annual greenhouse gas emissions of (a) the Carrier/ Shipper as defined (see the defined term Information) and (b) the Greener Carrier/ Shipper as defined (in clause 1.1.1 and 1.2.1). This is why the defined term  ‘Carbon Footprint’ refers to small c ‘carrier’ and small ‘shipper’.]

[Carbon Footprint Standards means internationally recognised standards that measure, manage and demonstrate the carbon credentials of[:

(a) organisations (including BEIS’ Voluntary Reporting Guidelines and the GHG Protocol Corporate Accounting and Reporting Standard); and]* 

(b) projects, products and services (including PAS 2050:2011, ISO 14001 and the GHG Protocol Product Life Cycle Accounting and Reporting Standard).]

* [Drafting note: Include only if part (a) in the definition of Information is included.]

Green Baseline means [insert clause number of preliminary obligations.] 

Green Improvement means the extent to which a Greener [Carrier/ Shipper] exceeds the Green Baseline.

Greenhouse Gases (GHGs) means the gases that trap thermal radiation in the earth’s atmosphere. They are specified by the United Nations Framework Convention on Climate Change (UNFCCC) in Annex A to the Kyoto Protocol and may be updated periodically.

GHG Emissions means emissions of GHGs related to this agreement classified as [Scope 1, 2 and 3 Emissions/ primary and secondary effects]* by the [GHG Protocol**][, expressed as a total in units of carbon dioxide equivalent (CO2e)]

* [Drafting note: Parties that use the GHG Protocol’s inventory methodology (which is used in the GHG Protocol’s Corporate Standard and Scope 3 Standard) should select ‘scope 1, 2 and 3 emissions’ and parties that use the methodology in the GHG Protocol for Project Accounting should select ‘primary and secondary effects’.]

** [Drafting note: Insert the GHG accounting standard used by your project. This may be a standard provided by a different body to the GHG Protocol.]

Information means the information provided by the [Carrier/ Shipper] before the start date of this agreement relating to the [Carrier/ Shipper]’s:

(a) GHG Emissions[; and

(b) Carbon Footprint],*  

[each] determined under the [Carbon Footprint Standards]. 

* [Drafting note: Include the text in square brackets if the Customer wants the [Carrier/ Shipper] to include the [Carrier/ Shipper’s] organisational emissions in the green baseline as well as the [Carrier/ Shipper’s] emissions relating to the performance of the contract only. Including the [Carrier/ Shipper’s] organisational emissions gives the Customer the right to terminate for a Greener [Carrier/ Shipper] whose organisational emissions are lower than the incumbent’s.]

Notice of Greener [Carrier/ Shipper] has the meaning given to it in clause [1.1]. [Drafting note: Select ‘Carrier’ or ‘Shipper’ as appropriate. This party should be the entity responsible for transporting the goods, either directly as a carrier or indirectly by procuring or subcontracting the carriage of goods.]

Scope 1, 2 and 3 Emissions means the three classifications of emissions in [The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition 2015/ The Greenhouse Gas Protocol for Project Accounting] as updated periodically. [Drafting note: Insert the GHG accounting standard used by your project. Scope 1, 2 and 3 emissions are defined on page 27 of the GHG Protocol.]

[Drafting note: Capitalised terms relate to either a defined term in this clause or a defined term in the main agreement that this clause is designed to be inserted into.]

 

Additional Clauses

Add this clause to the preliminary obligations:

The Information is the baseline on which the [Carrier/ Shipper] will be compared to third party suppliers for the purposes of clause 1 (Termination for Greener [Carrier/ Shipper]) (the Green Baseline). 

The parties can amend the Green Baseline by written agreement or otherwise as provided by this agreement. 

The [Carrier/ Shipper] will give the Customer evidence of its performance against the Green Baseline at the Customer’s reasonable request. The [Carrier/ Shipper] shall provide such evidence [within [●] days of the Customer’s reasonable request].

1. Termination for Greener [Carrier/ Shipper]

[Drafting note: Select ‘Carrier’ or ‘Shipper’ as appropriate. This party should be the entity responsible for transporting the goods, either directly as a carrier or indirectly by procuring or subcontracting the carriage of goods.]

1.1 Without affecting any other right or remedy available to the Customer, the Customer may serve written notice (Notice of Greener [Carrier/ Shipper]) on the [Carrier/ Shipper] that a third party supplier (the Greener [Carrier/ Shipper]): 

[1.1.1 has a lower Carbon Footprint than the [Carrier/ Shipper];]

1.1.2 can [perform/ procure/ deliver] [the Services]* with lower emissions of GHGs than the [Carrier/ Shipper]; and

1.1.3 can deliver the Green Improvement.

* [Drafting note: Refer here to the scope of the [Carrier/ Shipper’s] obligations as defined in the underlying agreement, for example the carriage or the procurement of the carriage of goods by sea. This may not be defined in the main agreement as ‘the Services’.]

1.2 The Notice of Greener [Carrier/ Shipper] must be supported by written evidence: 

[1.2.1 that the Greener [Carrier/ Shipper] has a lower Carbon Footprint than the [Carrier/ Shipper] [on average per [insert unit of measurement (size/ profit) so that the Customer cannot just choose a smaller Carrier/ Shipper]; 

[1.2.2] that the Greener [Carrier/ Shipper] can deliver [the carriage of goods/ Services/ other] with lower emissions of GHGs than the [Carrier/ Shipper]. Such written evidence may include that: 

(a) for the [remainder of the agreement], [per voyage] the Greener [Carrier/ Shipper] will produce less emissions of GHG measured as grams of CO2 per tonne nautical mile [gCO2 /tnm] when compared with cargo shipped on an equivalent route by the [Carrier/ Shipper] [in accordance with the Poseidon Principles and Sea Cargo Charter, as updated periodically]; or

(b) [on all voyages], the Greener [Carrier/ Shipper] uses fuels (including ammonia and hydrogen) or batteries that emit less GHGs than fuels used by the [Carrier/ Shipper];

1.2.3 of a Green Improvement;

1.2.4 that the Greener [Carrier/ Shipper]’s services are at least equivalent to [the Services];*

1.2.5 that the price of the Greener [Carrier/ Shipper]’s services are at least equivalent to the price of [the Services].*

* [Drafting note: Refer here to the scope of the [Carrier/ Shipper’s] obligations as defined in the underlying agreement, for example the contract for carriage or the procurement of the carriage of goods by sea. This may not be defined in the main agreement as ‘the Services’.]

1.3 The [Carrier/ Shipper] has [21*] days from the date of the Notice of Greener [Carrier/ Shipper] to notify the Customer that: 

1.3.1 it can deliver the Green Improvement on terms no worse for the Customer than those set out in the Notice of Greener [Carrier/ Shipper]; and

1.3.2 it will achieve the Green Improvement within [●] months of the date of the Notice of Greener [Carrier/ Shipper].

* [Drafting note: Although this clause is likely to be used in long term supply contracts, the notice period suggested here is deliberately short. The gravity of the climate emergency and the urgency of reducing emissions means that customers need accelerated solutions for an exit for a Greener [Carrier/ Shipper].]

1.4 If the [Carrier/ Shipper] meets the requirements of clause 1.3 to the reasonable satisfaction of the Customer,* the parties have a further [21] days to use all reasonable endeavours and act in good faith to amend:

1.4.1 [the Services] to deliver the Green Improvement (the Amended Services); and 

1.4.2 the Green Baseline (the Amended Green Baseline). 

* [Drafting note: Consider linking this clause to a clause-specific or contract dispute resolution mechanism for dealing with disputes over ‘reasonable satisfaction’.]

1.5 The Customer may terminate this agreement if: 

1.5.1 the [Carrier/ Shipper] does not respond to the Notice of Greener [Carrier/ Shipper] within the period specified in clause 1.3; 

1.5.2 the [Carrier/ Shipper] notifies the Customer that it cannot comply with clause 1.3; 

1.5.3 the parties cannot agree the Amended Services and the Amended Green Baseline within the required period in clause 1.4.

1.6 The Customer will give the [Carrier/ Shipper] not less than [●] [days’/ months’] written notice of terminating the agreement. 

1.7 Notwithstanding anything to the contrary elsewhere in this agreement, the Customer is only liable to pay the [Carrier/ Shipper] for [the Services] provided up to the date of termination. No further payments will become due to the [Carrier/ Shipper] as a result of the Customer terminating the agreement under this clause.

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