World Bunkering > News > Summer 2009 > Greenhouse gas emissions - watch this space

Aidan Thomson

Whether it likes it or not, the shipping industry is being dragged into the fight to reduce worldwide greenhouse gas (GHG) emissions.

So far, shipping has not been at the sharp end of the debate in the same way as, for example, the aviation sector, the automotive sector or the power generation sector. But with these sectors in many countries now starting to fall into line and, either voluntarily or pursuant to regulation, taking steps to cut their GHG emissions, regulators are looking for new targets. The shipping sector is very definitely one of those targets.

Per tonne-mile, transport by sea is, of course, an extremely efficient way of transporting goods from the standpoint of GHG emissions, especially in comparison with other forms of transport. However, because the total amount of GHG emissions that it generates (estimated by some sources at over one billion tonnes per year, or 4-5% of the global total from all sources) and the increasingly ambitious reduction targets that are being (and are expected to be) set around the world, the shipping sector will not escape GHG emissions reduction measures for long.

The Kyoto Protocol and the International Maritime Organization

Under Kyoto, many developed countries committed themselves to achieving specific reductions in emissions of greenhouse gas, relative to 1990 levels, during the period 2008-2012.

There are a number of ways in which reductions can be achieved under Kyoto. Some developed countries have already taken important strides towards emissions reduction, particularly in recent years.

Market based measures centred on “emissions trading”, for example the EU Emissions Trading Scheme (EUETS) introduced in 2005, are catching on. Such measures encourage GHG emissions reductions by emitters by rewarding good behaviour with competitive and financial advantages and punishing bad behaviour with costs that could put the emitter at a disadvantage.

Crucially, Kyoto does not require emissions of GHG from shipping to be counted for the purposes of the developed countries’ specific reduction commitments. GHG emissions from shipping are dealt with separately by Kyoto. For shipping, Kyoto simply requires the parties to pursue limitation or reduction of emissions of GHG through the IMO. No target reduction or timetable is indicated.

Current state of play at the IMO

Whilst developed countries have been endeavouring, with varying degrees of success, to meet their specific commitments, the IMO should, in theory, have been developing plans for shipping.

Tangible progress in developing a firm plan has, however, been limited. The Marine Environment Protection Committee (MEPC) within the IMO has been considering technical, operational and market-based measures for reducing GHG emissions for some time. However, in contrast to the well developed measures that are evolving in some countries and industry sectors (particularly the market based measures within the EU), measures for shipping have not really progressed. For a number of reasons, it seems that GHG emissions reduction in the shipping sector is not straightforward.

The MEPC has agreed to discuss emissions reduction, including market-based measures, again at MEPC 59 scheduled for July 2009. This date is perilously close to the key UN Framework Convention on Climate Change meeting in Copenhagen in December 2009 at which the successor instrument to Kyoto will be decided. Any lack of progress at MEPC 59 will no doubt be hotly debated at Copenhagen and there will be calls for shipping to be brought within the main body of the post-Kyoto framework rather than leaving matters to the IMO.

There is also the risk that if tangible progress at international level in relation to shipping continues to prove elusive, unilateral action might be taken at a regional level. Notwithstanding the apparent complexities of the shipping sector that have caused the IMO to stall, the European Commission has apparently stated its willingness to take unilateral action if tangible progress towards curbing emissions from shipping are not made by the end of the year.

Could the EU act to curb emissions?

The simple fact is that the EU has already acted to curb emissions from a sector that is not covered by the main Kyoto international framework and could do so again.

Like GHG emissions from the shipping sector, GHG emissions from the aviation sector are not counted for the purposes of the developed countries’ specific reduction commitments under Kyoto. In the case of aviation, the parties were required to pursue limitation or reduction of emissions of GHG through the International Civil Aviation Organisation.

Progress at ICAO on limitation and reduction initiatives was too slow for the EU, which was increasingly concerned at the growing GHG emissions associated with the sector caused by its rapid growth as a whole. In 2008, legislation was passed that will incorporate “aviation activities” into the EUETS from 1 January 2012.

“Aviation activities” are flights departing from or arriving in an aerodrome situated in the territory of a member state to which the EC Treaty applies. Controversially, this definition means that the EC’s regulation extends to operators based outside the EU as well as within the EU.

How has the EUETS been adapted to apply to the aviation sector?

The EUETS has been modified slightly to accommodate aviation activities within the EUETS’ five-year “phases”, but many aspects remain the same.

As with other EUETS sectors, by 30 April each year (starting in 2013), aircraft operators must surrender special carbon instruments (which can be EU Allowances (“EUAs”) or, subject to limits, Certified Emissions Reductions (“CERs”) or Emissions Reductions Units (“ERUs”)) to cover emissions from their “aviation activities” in the previous calendar year. Failure to do so could result in a heavy civil penalty and/or an operating ban.

CERs, ERUs and EUAs can be purchased by operators on the rapidly expanding carbon market. Alternatively:

• CERs and ERUs can be acquired through direct participation by operators in a UN approved project that delivers GHG emission reductions.
• Aircraft operators can get a free allocation of EUAs if they submit to the competent authority in their “administering member state” verified tonne-kilometre data for their aviation activities.

What can the shipping sector now expect?

As the weight of scientific evidence in support of urgent measures to combat man made climate change continues to grow and the world shows increasing willingness to embrace the transition towards a low-carbon economy, the shipping sector has to assume that changes to the status quo are inevitable.

Rather than resist change completely, the key for companies in the sector must now be to ensure that whatever measures are introduced, either internationally or regionally, are workable, sensible, give operators time to adjust, and make a dent in GHG emissions that justifies the effort made achieving it.

As to the sorts of measures that can be expected from the various quarters, these include:

• Changes in ship operation and design. The IMO is pushing the development of an energy efficiency design index for new ships and an energy efficiency operational index, with associated guidelines for both; an efficiency management plan suitable for all ships; and a voluntary code on best practice in energy efficient ship operations.
• Harbour charges that reflect a ship’s or an operator’s GHG emissions.
• A carbon levy – essentially a tax on fuel. This has been suggested in some quarters. This may yet be an option that finds favour with the IMO. Obviously, this creates an incentive to use less fuel as if less fuel is used, less tax is paid. Further the tax revenues could be used towards projects inside and outside the sector that reduce carbon emissions. Administering such a scheme could be difficult in practice, however. A tax does not really provide the clear incentive to reduce emissions that, say, an emissions trading scheme can. Furthermore, there is a risk that if the tax is too high, business might be diverted to other forms of transport. Apart from causing the shipping industry to lose business, this would also result indirectly in increased GHG emissions.
• Emissions trading. Difficult sector-specific issues would have to be ironed out before emissions trading could be introduced within the shipping sector, such as:

a) Which operators are covered and/or which routes would be included for the purpose of operators’ annual GHG emissions. Both of these issues would necessarily involve consideration of tricky questions of EC and international law. From a practical standpoint, measures that operators might take to avoid routes included within the scheme would have to be predicted and taken account of.

b) Who administers and enforces the scheme, especially in relation to operators based outside the EU or in a country that is not subject to Kyoto reduction commitments.

c) How tradable instruments are allocated fairly to scheme participants.

d) How the drive towards lower GHG emissions as a result of emissions trading might impact on the control of emissions other than GHG, eg sulphur dioxide.

e) The feasibility of including shipping with emissions trading schemes of other sectors.

Difficult though some of these issues are to address, the world is starting to embrace emissions trading as a convenient way of delivering GHG emissions reductions with the minimum impact on business and the economy, and the shipping sector has to expect that it will come under increasing pressure to join the party.