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Container Shipping & Trade

Container Shipping & Trade

IMO greenhouse gas agreement – what will be the impact on shipowners and operators?

Mon 02 Jul 2018 by Niels Bjørn Mortensen

IMO greenhouse gas agreement – what will be the impact on shipowners and operators?

A groundbreaking agreement was made in mid-April at the International Maritime Organization (IMO).

At its 72nd session, IMO’s Marine Environment Protection Committee (MEPC) adopted an initial strategy to reduce greenhouse gas (GHG) emissions from shipping by at least 50% by 2050.

Where did the agreement come from, and what are the goals?

GHG has been on IMO’s agenda for about three decades and other GHG reduction measures have been adopted previously. In 2011, IMO adopted the EEDI (Energy Efficiency Design Index) and the SEEMP (Ship Energy Efficiency Management Plan) and in 2016, the IMO GHG Roadmap was approved including the mandatory data collection system.

The newly adopted GHG strategy contains concrete targets to be achieved by fixed deadlines and combined with the above measures, means that shipping will be the first industry to be globally regulated on GHG.

The concrete targets, based on 2008 levels, in the IMO GHG strategy are:

  1. Reduce CO2 emissions per transport work (tonnes*miles) by at least 40% by 2030 aiming for a 70% reduction by 2050.
  2. Reduce total CO2 emissions from shipping by at least 50% by 2050.

These targets are believed to be consistent with the Paris Agreement, which was adopted by the United Nations Framework Convention on Climate Change in 2015. The overall IMO vision is in alignment with the Paris Agreement, to phase out GHG emissions from shipping as soon as possible within this century.

The Paris Agreement aims to reduce the global temperature increase to 2°C above the pre-industrial level, while pursuing efforts to limit the increase to 1.5°C.

The industry response and what comes next

The response to IMO’s GHG strategy from the affected players varied widely, from “unambitious”, “too little, too late” to “unrealistic and impossible to achieve”.

The majority, however, consider the GHG strategy as being visionary and a major achievement by IMO.

Appreciating the duration of the GHG debate in IMO during which targets and dates were all “pies in the sky”, it became clear that a concrete text to draw clear targets and clear deadlines was of utmost importance.

The GHG Strategy text is, however, just the first step – the real work is only just about to commence. Shipowners and operators are already asking themselves a number of questions, such as “How will this be implemented?” and “How will this affect my business?”.

IMO will convene another inter-sessional working group meeting later in 2018, tasked with developing a programme of follow-up actions to the strategy. Implementation will also feature prominently in future MEPC sessions.

What potential problems could arise during implementation?

Flag states and CBDR

One of the obstacles to be overcome involves whether the agreement can be implemented in a way that is flag neutral. When discussing GHG issues in IMO, as well as in other forums, developing countries claim their right to “common, but differentiated responsibilities” (CBDR), a concept which was adopted into the Kyoto Protocol in 1997.

The CBDR concept basically means that developed countries should lead the way on GHG reductions and be more committed than developing countries.

A primary argument used to justify the concept is that developed countries have been emitting massive amounts of GHG for centuries whereas developing countries only started recently.

Developed countries also have access to financial and technical resources outside the reach of developing countries. It is quite easy to acknowledge the arguments… when it relates to land-based emission sources.

When it comes to ships moving freely around on the oceans which can change flag overnight, the CBDR concept is unworkable.

If it is applied and results in fewer obligations on ships operating under flags of developing countries, one could anticipate the result of massive shift of flag from developed countries to developing countries.

Flag states will, via the data collection system, report to IMO which then can monitor shipping emissions. Will IMO then allocate allowable emission amounts based on the fleet size to the flag state?

Enforcement and emissions trading

The next big question that pops up: How to police emissions? Will ships, or shipping companies’ which emit more CO2 than is allocated based on flag state and fleet size be fined? And where would these fines go? Would they go into the treasury of individual flag states or be passed on to IMO? If IMO takes payment, the body would then need to set up a collection unit.

Could shipping companies purchase emission allowances from other companies across flags or even from other industries – in the way that carbon credits are traded – and what mechanisms would be put in place to control and regulate such trades?

If this aspect of the above scenario becomes a reality, it could essentially become an emissions trading scheme introduced on the back of this legislation. If this is indeed the way a global reduction in emissions will be handled, there is no need to make the process an afterthought. IMO could at least begin with a plan, a definition and a label.

Realistic targets?

Does shipping have to be specifically concerned with the targets agreed in IMO at MEPC 72? According to BIMCO deputy secretary general Lars Robert Petersen, the IMO targets are ambitious, yet achievable.

So, industry acknowledges that relative improvement is within reach.

It is important to recall that the targets need not be achieved by each and every individual ship, but by the industry at large. The general increase in ship sizes, in particular for container ships and bulk carriers, makes these ships far more efficient when measured on a miles per tonne basis.

Compared to 2008 (the base year), shipping is already far more efficient. Carbon efficiency improvements are also the tool that will help the industry reach the absolute objective of at least 50% reduction by 2050 compared to 2008.

With regards to this absolute target, it must be noted that 95% of the merchant fleet by 2050 will be ships not even designed today and the EEDI might be one of the tools to drive the increase in carbon efficiency of the future fleet.

Carbon efficiency can also be improved by looking at the total transport chain. Waiting time at anchorage outside ports is one element which increases the total CO2 emission from ships and finding ways to eliminate waiting time is important for realisation of the 2050 objective.

A wild card in the emissions picture in 2050 is how world trade will develop. One projection from IMO’s 2014 GHG study was a 250% increase in shipping’s emissions, a figure which Mr Petersen describes as unrealistic, mainly for the following reasons:

  1. This scenario assumes that the world would not agree to any of the Paris goals, and that oil and coal remain the primary energy source of the future. The temperature increase in the scenario would be about 5°C with shipping still emitting about 3.3% of total global CO2 by 2050.
  2. The projected growth in world trade in the study is considered overly optimistic, too. When accumulated over several decades the 3-5% range used as the starting point for global annual GDP growth is far too broad to provide accurate projections.

Finally, Mr Petersen emphasises that achieving the 50% absolute reduction by 2050 will require all players to work together on smart new technology, better ship designs and new CO2 neutral or carbon-free fuels.

What are the business impacts?

Returning to the rhetorical question “How will this affect my business?”, with so much left to decide, that is anyone’s best guess at this point in time.

A simple truth could be that owners of ships with the lowest carbon footprints will be in the best position.

This brings about more questions. When will we see new ships which are able to burn alternative fuels? And will there be a first mover reward? Unfortunately, these answers remain part of a still to be determined future.

Master mariner and naval architect Niels Bjørn Mortensen is one of the industry’s pre-eminent regulatory experts. His has headed BIMCO’s marine department, served as Maersk Maritime Technology’s director of regulatory affairs and chaired the Danish Shipowners’ Association technical committee. He also sits at the Danish Maritime and Trade Court as an expert judge.

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