The United Nations COP15 climate conference in Copenhagen December this year has as its goal to hammer out a comprehensive and legally binding international treaty governing world-wide CO2 emissions. While reaching this ambitious goal now appears to be very much in doubt, it still remains likely that any kind of political agreement reached will have significant ramifications for shipping.
INCREASED TRADE MEANS INCREASED EMISSIONS
Shipping is at present by far the most environmentally friendly transport alternative in terms of CO2 emissions. International shipping transports large volumes of energy, food, raw materials and finished goods and, barring a fundamental restructuring of the world’s economic systems, we can assume that continued global economic growth will provide a steadily increasing demand for shipping transportation services.
The dilemma is that while the rest of the world is attempting to reduce its CO2 emissions under the framework of national and international agreements and regulations, shipping’s emissions are mostly unregulated and appear set to increase – keeping pace with the expected long-term increase in world trade. If this persists unchecked, shipping emissions may increase from the present 2.7% of the world’s CO2 emissions to as much as 20% by 2050.
This is an untenable situation for shipping and mitigating regulatory measures are already in the works. Not unreasonably, the shipping industry is concerned about how these regulatory proposals may influence ship design and operations and ultimately, the business models.
FLEET SEGMENTS AND CO2 EMISSIONS
The estimates of actual world wide shipping bunker fuel consumption, and therefore CO2 emissions, provided by academics and bodies have varied widely. The IMO therefore commissioned an updated greenhouse gas study, this time including all recognised authorities on shipping fuel consumption and emissions. The completed study was presented to the IMO Marine Environment Protection Committee (MEPC) 59 in July 2009, giving a consensus estimate for CO2 emissions from international shipping of 870 Mtonnes.
When this is broken down into ship categories, bulk carriers are in third place, behind tankers and container carriers. It should be fairly obvious that any measures, regulatory or other, intended to reduce shipping emissions will have to cover at least these ship types in order to have the desired effect.
INTERNATIONAL REGULATIONS – POLITICAL GRIDLOCK
The international regulators’ concern over shipping CO2 emissions can in a sense be traced back to 1997, the same year as the negotiation of the United Nations Framework Convention on Climate Change (UNFCCC) Kyoto Protocol, the international climate treaty produced at the UNFCCC and intended to achieve the “stabilisation of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system”. Shipping and aviation were not included at that time, or rather the responsibility for handling these sectors was delegated to the UN bodies IMO and the International Civil Aviation Organization (ICAO) respectively for further proposals and action.
Due to both increasing global concern over CO2 emissions in general and increasing pressure to address shipping emissions in particular, the IMO has highlighted the CO2 issue in its recent meetings of the MEPC. Providing urgency to these deliberations has been the upcoming UNFCCC COP15 conference in Copenhagen in December 2009, where the UNFCCC expects the IMO to deliver a comprehensive solution describing how shipping will regulate its CO2 emissions.
Initiatives for regional regulations originating in the European Union (EU) have been instrumental in catalysing urgent action at the IMO. Both the European Commission (EC) and the European Parliament (EP) have been vocal in their demand that shipping takes action to regulate and ultimately reduce its CO2 emissions. The EU has been clear in stating that unless the IMO manages to develop and implement satisfactory international regulatory mechanisms the EU will implement regional regulations. The EC has also stipulated a deadline; the IMO has until the end of 2011 to act. Underpinning this message, the EC intends to issue a directive in 2010 prescribing regional measures that will come into force in 2013 if the IMO response is unsatisfactory . Adding further pressure are domestic political developments leading to legislative initiatives in the US in particular (e.g. the Kerry-Boxer bill) but also in Australia and New Zealand. Proposals are under consideration that if adopted will regulate maritime CO2 emissions in national waters.
The shipping industry and IMO have been monitoring these regional and national initiatives with increasing concern. The general agreement is that shipping, being international in nature, is best served by international regulations that create a globally uniform framework. A patchwork solution of various regional and national regulations is generally considered to be a poor approach when addressing a global issue. It is therefore safe to state that the IMO has felt itself under considerable pressure to deliver a comprehensive set of international CO2 regulations.
Unfortunately the highly politicised nature of the CO2 issue has seriously hampered the IMO efforts to reach consensus on appropriate regulations. The fundamental disagreements at the UNFCCC on who should accept and pay for what level of CO2 reductions in a treaty replacing the existing Kyoto Protocol once it lapses in 2012 have spilled over into seemingly irreconcilable differences at the IMO. Specifically, the key disagreement is rooted in the conflict between the Kyoto Protocol’s differentiation of national emission reduction responsibilities embodied in the phrase “Common But Differentiated Responsibilities (CBDR)”, according to which developing nations have no quantified commitment to emission reductions, and the IMO principle of “No More Favourable Treatment (NMFT)”, according to which ships from every nation are to be treated alike.
The initial negotiating position of the developing nations – that CBDR must be part of any future UNFCCC climate agreement – has therefore had the side effect at the IMO that the developing nations have been unable to accept that shipping regulations regarding CO2 emissions apply to them as well as to the developed countries. The attitude appears to be that this would basically compromise their negotiating position ahead of the Copenhagen conference. The developed countries are similarly unable to accept a break with the NMFT principle, chiefly as this would lead to an unacceptable differentiation between flags, and secondly since it would seriously weaken the impact of regulations (only 20–25% of the world fleet is flagged in developed nations).
In this climate of political gridlock, progress at the IMO has been slower than originally envisaged. Nevertheless, at MEPC59 in July this year the IMO was able to put together a package of regulations for voluntary application and testing:
A Ship Energy Efficiency Management Plan (SEEMP) guideline
A revised Energy Efficiency Operational Indicator (EEOI, previously known as the CO2 Operational Index )
An Energy Efficiency Design Index (EEDI, known at an early stage as the CO2 Design Index), including a guideline on voluntary verification
The expectation is that the IMO will, at some point, make the EEDI and possibly the SEEMP mandatory. The speed with which this may happen is, however de-pendent on the kind of agreement re-ached at the Copenhagen conference, and the impact this will have on the IMO processes.
MEPC59 also established a road map for agreeing on an appropriate market-based instrument (MBI) before the end of 2011. This is yet another complex issue with multiple areas of disagreement. One issue, hopefully to be resolved at COP15, is the conflict between CBDR and NMFT as described above. Developing nations are generally reluctant to see themselves included in a market-based instrument, while developed nations consider it meaningless to limit coverage to only a small part of the world fleet.
Among MBI advocates, the key contentious issue is the disagreement on the type of instrument to apply, with the key contenders being a greenhouse gas compensation fund or an emission trading system. It is important for the industry that these issues are resolved and a mechanism agreed on before the EU deadline of the end of 2011 is reached.
COP15 – WHAT’S THE LIKELY OUTCOME FOR SHIPPING?
Presently, it is generally recognised that it is still too early to dub COP15 a failure – but neither is it likely that it will live up to the expectations raised after the meetings in Bali and Poznan. It appears quite clear that no binding legal treaty will be reached; at most there will be a political agreement that can function as a stepping stone towards a comprehensive treaty at COP16. However, given the nature of these negotiations this may actually result in an increased impetus to reach an agreement on the politically more “easy” issues, of which shipping may be considered to be one. Within the framework of ongoing discussions, there are seven options for shipping on the table which may be broadly categorised into four alternatives:
1. The IMO is to continue working independently on emission targets and implementation measures
2. The parties to the UNFCCC are to set emission targets/trajectories either explicitly or with reference to general policy goals, and the IMO is to decide on implementation measures
3. The parties to the UNFCCC are to decide both targets and implementation measures as part of a new global instrument for shipping
4. Same as 1, but the involvement of countries is to remain voluntary (i.e. retention of the Kyoto Protocol’s CBDR principle)
Alternative 1 or 2 is considered most likely as they can potentially obtain broad support and should allow the IMO to continue its work with the major political stumbling blocks removed. Assuming this development, a streamlined work process at the IMO and a very rapid ratification of any subsequent IMO agreements, the shipping industry may be facing some kind of mandatory CO2 regulations as early as 2013. Most likely this would then consist of an updated EEDI and an agreed MBI.
One additional issue of significance for shipping is the possibility that an agreement will be reached at COP15 introducing an international bunker fuel tax. In the context of COP15, this is an element that is being debated primarily as a financial mechanism to finance climate change mitigation and adaption in developing countries, not as a measure intended to reduce CO2 emissions per se. Since agreement on financing is a contentious issue in the over-all negotiations, it is conceivable that this is a measure that may actually be agreed on. If so, it is expected that the IMO will be handed responsibility for designing and implementing it, and conceivable that COP15-defined funding needs will be a primary design criterion. This is not likely to be given a warm welcome by the shipping community.
Finally, for those hoping for a lack of progress on any kind of shipping-related agreement at COP15 and in the IMO, a word of caution; as noted above the EU has unequivocally stated that regional CO2 regulations will be implemented if international agreements are not established. As this sentiment is increasingly being echoed by other countries, the shipping industry may be facing the dismal prospect of an increasingly complex grab-bag of national and regional regulations, rather than the relative simplicity of a uniform international framework. Seen in this light, the industry would be well advised to support rapid progress on CO2 regulations at the IMO.