The Carbon Domino Effect:
Redefining Speed and Consumption Claims in the Green Shipping Era

Traditionally, a vessel’s underperformance cost charterers time and bunkers. Today, with the integration of EU ETS, FuelEU Maritime, and IMO’s CII regulations into standard charterparties, a drop in speed or a spike in consumption triggers a cascade of carbon liabilities, fundamentally transforming the anatomy of maritime performance claims.

Time charterparties typically include a performance warranty guaranteeing the vessel’s capability to steam at a specific speed on a specific fuel consumption under good weather conditions. Historically, when a shipowner breached this warranty, the compensatory damages awarded to the charterer were calculated by combining the value of the net time lost (wasted hire) and the cost of the net extra fuel consumed.

However, the maritime industry’s rapid pivot toward decarbonisation has fundamentally altered the anatomy of a speed and consumption claim. The International Maritime Organization (IMO) has adopted the 2023 GHG Strategy, setting a clear vision to reach net-zero greenhouse gas (GHG) emissions from international shipping by or around 2050. Concurrently, the European Union has integrated shipping into its carbon regulatory framework, imposing strict fuel standards, carbon pricing and penalties.

Consequently, modern charterers routinely incorporate the BIMCO CII, EU ETS, and FuelEU Maritime clauses into their standard NYPE 1946 contracts. In this new regulatory environment, an underperforming vessel no longer just burns excess fuel; it burns expensive carbon allowances and undermines regulatory compliance metrics.

The EU ETS Impact: The Carbon Surcharge

The EU Emissions Trading System (EU ETS) has been extended to the maritime sector since 1 January 2024, requiring shipowners (or their ISM managers) to surrender allowances for CO₂ emissions on voyages linked to EU ports. As emissions are determined by the charterer’s employment orders, the commercial response has been to allocate the cost of those allowances to the charterer contractually. The market leading standard clause, the BIMCO ETS – Emission Trading Scheme Allowances Clause for Time Charter Parties 2022, requires the charterers to “provide and pay for the Emission Allowances corresponding to the Vessel’s emissions” throughout the charter period.

In a traditional underperformance scenario, if a vessel overconsumed 100 metric tons of fuel due to a fouled bottom or an engine defect, the charterer claimed only the cost of those 100 tons. Burning 100 extra tons of heavy fuel oil generates roughly 311 tons of CO₂. Under the BIMCO ETS Clause, the charterer is liable to transfer the corresponding Emission Allowances to the owner’s nominated account. Today, a charterer who incurs the cost of these allowances as a result of the owner’s breach of the performance warranty will seek to claim that cost in addition to the traditional claim for the extra fuel consumed and the wasted hire.

FuelEU Maritime: Deficits and Ballooning Penalties

The financial exposure is further compounded by the FuelEU Maritime Regulation, which came into effect on 1 January 2025, setting progressively decreasing limits on the GHG intensity of energy used on board ships. Ships failing to meet these limits accumulate a “compliance deficit” and face a highly dissuasive FuelEU penalty designed to remove any economic advantage of non-compliance. The penalty framework is a complex one with a multiplier factor, pooling, borrowing and banking.

Again, the commercial response has been to allocate this cost to the charterer to the extent that it was caused directly by the charterer’s employment orders. The BIMCO FuelEU Maritime Clause for Time Charter Parties 2024 requires the charterer to pay a “Surcharge” essentially equivalent to the expected FuelEU Penalty incurred during the charter period as a result of the charterer’s employment orders.

If a vessel underperforms, consuming more conventional fossil fuel than warranted to complete a voyage, it will generate a larger GHG intensity. This translates into a higher compliance deficit and Surcharge. A charterer will seek to recover this back through its underperformance claim.

The CII Conundrum: The Compliance Cascade

The IMO’s Carbon Intensity Indicator (CII), which was implemented on 1 January 2023, introduces perhaps the most complex operational dilemma into traditional performance claims. The CII formula essentially divides the CO₂ emitted by the transport work (vessel capacity multiplied by the distance travelled). The MARPOL Carbon Intensity Regulations calculate vessels’ operational carbon intensity, resulting in an annual rating from A to E.

The BIMCO CII Operations Clause for Time Charter Parties 2022 requires the charterer to operate and employ the vessel in a manner that does not permit the “C/P Attained CII to exceed the Agreed CII”, which is “C” by default. Crucially, if the vessel’s trajectory deviates from the Agreed CII, the BIMCO CII Clause grants the owner the right to intervene. The owner can demand a revised written plan and, if an agreement is not reached, unilaterally refuse to follow charterer orders and instead “reduce the Vessel’s speed” to bring the CII back in line, all while the vessel remains on hire.

If a vessel underperforms—steaming slower but burning proportionally more fuel—its carbon emissions increase while its distance covered over time decreases, resulting in adverse carbon intensity. Thus, an initial breach of the speed and consumption warranty by the owner can trigger a negative CII trajectory, which empowers the owner to slow steam the vessel. The charterer is hit twice: first by the original underperformance, and second by the owner’s mandated speed reduction.

Here, the charterer will not only seek to make its claim for the extra fuel burnt and the time lost by the underperformance, but also to recover the additional financial losses suffered as a result of the owner invoking its contractual rights to slow steam to save the vessel’s CII rating.

Anticipating the Owner’s Defence: Who Bears the Carbon Risk?

An owner’s response to the new carbon head of claim within an underperformance dispute will be that, by incorporating the BIMCO clauses, the charterer expressly assumed the carbon risk and cannot use the breach of performance warranty route to claim back these losses. However, reading the popular time charter forms like the NYPE 1946 form and the three BIMCO clauses together, the charterer’s case for pushing back these carbon losses resulting from the vessel’s underperformance to the owners, appears very strong.

Insofar as the BIMCO CII Clause 2022 is concerned, it explicitly prevents owners from using the clause to extinguish charterer’s claim in respect of underperformance. Subclause (c)(ii) expressly stipulates that any “existing warranties as to despatch, speed and consumption … shall continue to apply to the Charter Party”. Crucially, it dictates that in the event of a breach of these warranties, the charterers “shall be entitled to pursue a separate claim against the Owners”.

BIMCO EU ETS and FuelEU Maritime clauses do not explicitly preserve underperformance claims. However, the BIMCO ETS Clause 2022 allows the charterer to offset or require the return of emission allowances equivalent to the emissions generated during off-hire periods. Similarly, the BIMCO FuelEU Clause 2024 excludes fuel and energy consumed during any undisputed off-hire periods from the calculation of the charterer’s FuelEU Surcharge. Absence of explicit preservation of underperformance claims is unlikely to affect a charterer’s ordinary contractual rights to claim damages for losses suffered as a result of the owner’s breach of the performance warranty, absent express waiver of such rights.

Conclusion

The days of simply measuring the time lost and fuel wasted are over. Speed and consumption claims have evolved into complex, multi-dimensional disputes where commercial losses are inextricably linked to carbon liabilities. As time charterers weave the BIMCO EU ETS, FuelEU, and CII clauses into their standard time charter forms, any underperformance by the owner triggers a domino effect of direct and indirect carbon costs.