Climate clause

Incentivising Fuel Efficiency Investments In Time Chartered Vessels [New]

Ariel's Clause

An optional mechanism for time charterparties, to share the cost (between owners and charterers) of upgrades which improve the fuel efficiency of time chartered vessels.

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Why use this?

This clause gives time charterers the option to expressly agree to share the costs of the shipowner’s investment in fuel-saving technologies or operational improvements, benefitting the charterer with long term savings on fuel costs and the shipowner by making such improvements affordable where they would otherwise be commercially unattractive.

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The clause

Additional Definitions

Costs-Sharing means the mechanism described at clause [1.5] whereby the Charterer bears a portion of the cost of installing the Energy Saving Device.

[EEOI means the Ship Energy Efficiency Operational Indicator, calculated in accordance with the EEOI Guidelines.] [Drafting note: Include if referencing EEOI in clause [1.11].]

EEOI Guidelines means the International Maritime Organisation’s (IMO) Guidelines for Voluntary Use of the Ship Energy Efficiency Operational Indicator (EEOI) (MEPC.1/ Circ.684) published 17 August 2009.

Energy Saving Device means any device, hardware, software, technology or other energy saving solution that, when fitted to the Vessel, materially improves its Fuel Efficiency.

Energy Saving Notice has the meaning given to it in clause [1.1].

Fuel Efficiency means the ratio of mass of [carbon dioxide] emitted per unit of transport work, calculated in accordance with the EEOI Guidelines. [Drafting note: Consider if this should reference GHG emissions rather than just CO2 (see TCLP Glossary: Greenhouse Gas (GHG) Emissions for definitions and explanatory notes). This would involve amending this definition to accommodate differing calculations as the EEOI only references CO2.]

Vessel means the vessel time chartered by the Owner to the Charterer under [this Agreement][this Charterparty][the charterparty dated [], of [name/ IMO number]].

 

Additional Clause 

1. [Fuel Efficiency of the Vessel]

1.1 The [Parties agree to][Owner agrees to], wherever [practicable][possible], consider whether the Fuel Efficiency of the Vessel could be improved by installing an Energy Saving Device. The Owner may at any time serve written notice (an Energy Saving Notice) to the Charterer, notifying it of its plans to install one or more Energy Saving Device(s). [Drafting note: Users of this clause may consider expanding this to create a mutual right, enabling the Charterer to request installation of an Energy Saving Device.]

1.2 An Energy Saving Notice must contain all relevant information about any Energy Saving Device that is proposed to be installed on the Vessel (including likely timing of installation, if known) that is reasonably required for the Charterer to decide whether to provide consent to Costs-Sharing. [If the Owner chooses, the Energy Saving Notice may invoke Costs-Sharing in relation to any Energy Saving Device that is installed on the Vessel between fixture and delivery, for which the Owner incurs capital expenditure.]*

* [Drafting note: See ‘Notes for users’ section of Ariel’s Clause – Essential notes and guidance for alternative compensation mechanisms to costs-sharing that could be added here.]

1.3 Within [●] days of receipt of any Energy Saving Notice, the Charterer must provide the Owner with a written response either: (i) accepting the Costs-Sharing; (ii) requesting further information; (iii) rejecting the Costs-Sharing (explaining, in reasonable detail and in good faith, the grounds for such rejection); or (iv) where the Energy Saving Notice details the installation of more than one device, a combination of (i), (ii) and (iii) as relevant.*

* [Drafting note: See ‘Notes for users’ section of Ariel’s Clause – Essential notes and guidance for alternative compensation mechanisms to costs-sharing that could be added here.]

1.4 For the avoidance of doubt, the Owner shall not require the Charterer’s consent to install an Energy Saving Device and altering the Vessel by installing any Energy Saving Device shall not constitute a breach of the Vessel’s description under this Charterparty, regardless of whether the Charterer has provided its prior written consent. [Following delivery of the Charterer’s written response under clause [1.3] above the Owner shall have the discretion whether or not to proceed with the installation of the Energy Saving Device(s).]

1.5 If Costs-Sharing was accepted by the Charterer pursuant to clause [1.3], at redelivery of the Vessel, the Charterer shall pay to the Owner [[]% of the market value of the volume of fuel saved as a result of each Energy Saving Device installed with the Charterer’s prior written agreement to Costs-Sharing pursuant to clause [1.3] above] [OR]* [an increased freight rate/ daily hire rate of [$][]].**

* [Drafting note: Choose which costs-sharing method shall apply here, or insert an alternative method. 

For example, the Charterer might invest up front in return for a set share of the savings over a specified period (which the Owner might also recoup from subsequent charters.) A hypothetical example might be:

  • $500,000 cost of Energy Saving Device (ESD); 5% saving per year; 2 year time charter; ESD saves 2.5 tonnes per day of fuel consumption; assumed cost of heavy fuel oil (HFO)/ tonne – $500.
  • Charterer invests 50% of ESD cost ($250,000) for a 50% share of the savings (therefore the remainder 50% of the savings available for the Owner to recoup its investment and more/ full savings in subsequent charters).
  • $500 x 2.5 tonnes = $1250/ day; $1250 x 700 days (2 year time charter) = $875,000; Charterer’s share of savings: $875,000 x 0.5 = $437,500; Net gain for Charterer: $437,500 – $250,000 = $187,500.

In a premium scenario all of the above can be used, except that the Charterer pays its $250,000 ESD investment as an additional day rate over 2 years: i.e. $357 extra per day for a saving of $625/ day ($1250 x 0.5).]

** [Drafting note: Consider also whether the second option may also apply in cases where the Charterer did not accept Costs-Sharing pursuant to clause [1.3] (which may be considered unfair to the Charterer). If using the second option, consider adding additional wording to clause [1.5] (or a new sub-clause) to clarify this point, such as: ‘For the avoidance of doubt, the Charterer [will not be liable for any Cost-Sharing or increased payment under [this] clause [1.5] if it does not consent] [OR] [will be liable for an increased [freight rate/ daily hire rate] pursuant to [this] clause [1.5] regardless of whether it consents] to Costs-Sharing pursuant to clause [1.3].’ Such an increased freight rate might alternatively be considered by the Owner in future charterparties, to help cover the cost of the investment where required.]

1.6 [The amount which the Charterer shall pay to the Owner under clause [1.5] above shall not exceed [$][] in respect of the fitting of any single Energy Saving Device] [OR] [The amount which the Charterer shall pay to the Owner under clause [1.5] above shall not exceed an overall total of [$][]].

1.7 Where multiple Energy Saving Devices are fitted to the Vessel pursuant to any single Energy Saving Notice, they will be treated as a single upgrade for the purposes of the calculation at clause [1.5] above.

1.8 [The volume of fuel saved shall be calculated by a third party performance monitoring company. Such third party performance monitoring company may be appointed by either [Party] provided that the appointment is approved by both the Owner and the Charterer in advance (such approval not to be unreasonably withheld).* The cost of the services provided by such third party performance monitoring company [will be split []%/ []% between the Parties] [OR] [will be for the [Owner’s][Charterer’s] account].]**

* [Drafting note: An alternative to this second sentence of clause [1.8] would be, “In circumstances where a third party performance monitoring company cannot be agreed, owners and charterers shall each appoint a third party performance monitoring company to calculate the fuel saved with the average of each of the third party appointed reports being calculated as the fuel saved.”]

** [Drafting note: To be deleted if the second method of calculation is chosen at clause [1.5].]

1.9 [The market value of the fuel for the purpose of clause [1.5] above shall be the market value of the fuel at the time and place of redelivery of the vessel [by reference to Platts].]*

* [Drafting note: To be deleted if the second method of calculation is chosen at clause [1.5].]

1.10 The Owner must [take all reasonable steps to] ensure that the installation of any Energy Saving Device takes place at a time [and location] that does not [materially] interrupt the Charterer’s use of the Vessel in accordance with this Charterparty.

1.11 Upon request, the [Parties] shall disclose to one another all information required to calculate the Fuel Efficiency [and EEOI] for any relevant period required by this Charterparty. This information is to be disclosed within [seven (7) days] after completion of the relevant voyage or within [seven (7) days] of the relevant information becoming available (whichever is earlier).

1.12 [The [Parties] shall ensure that the entirety of this clause [1] (save for amendments reasonably required) is 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 such obligations].

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