World Bunkering > News > Summer 2010 > Emissions trading? No comment!

In the run-up to the Copenhagen Conference on Climate Change (COP15), it was widely assumed that shipping would have to accept some sort of financial incentive/penalty system (in IMO speak ‘market-based measures’ (MBM) to reduce carbon dioxide (CO²) emissions.

As a result, there was an intense debate on whether shipping should be subject to an emissions trading regime, often termed ‘cap and trade’ strongly supported by the UK Chamber of Shipping, or if a form of levy, proposed by the Danes, would be better.

As it turned out, of course, Copenhagen got nowhere near such details as greenhouse gas (GHG) emissions from the maritime sector. However, IMO has been clear that the work of developing an effective regime to reduce GHGs must go on. The March meeting of its Marine Environment Protection Committee (MEPC) made some progress on technical issues but none on MBMs. Nevertheless, IMO and the shipowners, as represented by the International Chamber of Shipping, are keen to have workable proposals developed by COP16 in Mexico City this December.

Shell speaks out

Certainly the UK Chamber of Shipping is keen to press on with its proposals, and this was stressed by its new president Jan Copernicus when elected in March this year. It so happens he is a member of the Shell Trading Executive Committee and a Director of Shell International Trading and Shipping Company Limited.

He said that, coming from the energy industry, he was extremely conscious of the global challenges posed by carbon and other emissions, and said that the Chambers’ ongoing commitment to positive action on carbon – specifically a trading system that puts a value on carbon – would be a top priority for 2010. Shell in fact is the one oil company of several approached by World Bunkering that was very happy to make its position on trading quite clear. It supports trading and stands by a detailed paper on the subject that it put forward prior to COP15, in September last year.

The Shell view is that global demand for energy is growing, both in the developed and developing world. More energy means more CO² emitted at a time when climate change looms as a critical global issue. The societal imperative to limit greenhouse gases in the atmosphere at a level less than 550ppm will require the strict management of CO² emissions from both the production of energy and its use by consumers. Shell believes the shipping industry’s objective should be to ensure a sustainable future by finding and recommending the most appropriate policy for addressing CO² emissions from shipping. Any scheme must set clear environmental outcomes and must be workable in terms of implementation, equitable, enforceable and fair for all participants.

While a tax may result in behavioural changes, Shell argues, the desired outcome, ie a reduction in emissions, cannot be guaranteed. Society needs certain delivery of environmental targets. Policy instruments built around environmental objectives should deliver the desired outcome. Among key messages Shell had hoped to contribute to the expected debate at COP15 was that any scheme must set clear environmental outcomes and accompanying regulation must be globally applicable, flag neutral and founded on convention.

It wanted to stress its point that taxation or levy schemes raise revenue for governments but they do not guarantee – or even predict – an outcome. The tax can become “just another cost” of doing business, rather than a tool that drives industry to change its behaviour. There are also many legal and practical issues around setting the tax level, providing for international harmonisation of the legislative framework, collecting the levy, governing the global fund, and making sure the revenues are used for appropriate purposes.

Shell’s central argument is that an emissions trading scheme (ETS) will deliver real change. The company claims that ETS is also the most “outcome-focused” approach of the options on the table and is superior in providing incentives to reduce emissions. It adds that the allocation of allowances under the cap should be by auction/sale to avoid the need of fiscally accurate baseline assessment and benchmarking, both of which are problematic in the shipping sector.

Traders and suppliers are best placed to utilise existing technology and infrastructure to help customers initiate carbon trading and drive emissions reduction

SEAaT pushes ETS

Shell’s vessels operating arm, Shell Shipping, is a member of SEAaT (Shipping Emissions Abatement and Trading), an industry association dedicated to shipping emissions abatement and trading.

In late April, SEAaT attempted to give renewed momentum to the ETS lobby, calling for the involvement of the bunker industry in discussions for the establishment of a shipping emissions trading scheme (ETS), citing “strong commercial opportunities” for the sector. John Aitken, Secretary-General of SEAaT, said: “The ETS is by far the fairest, most commercially-viable means of encouraging more efficient fuel use. The bunker fuel companies are in an excellent position to both trade credits and to support their customers in getting the best deal for their fuel, and helping drive environmental compliance strategies.”

Commenting on the current discussions on an ETS at the IMO and the United Nations Framework Convention on Climate Change (UNFCCC), Mr Aitken said: “There are multilateral discussions at IMO and UNFCCC, as well as among the trade associations. SEAaT would welcome the participation of fuel supply companies in these, as they have perhaps the most significant knowledge and experience of trading systems in the entire sector. We would also encourage them to develop knowledge of carbon trading by joining SEAaT as associate members and participating in the wider debate.”

BP Shipping is also a member of SEAaT. However, BP told World Bunkering it was unable to comment on its policy on ETS at present. Another European-based oil company was equally reticent publicly but off the record a company source did stress that one important point is to make sure that an MBM is equally applied to any ship that consumes bunker fuel, irrespective of its flag and of where and from whom it takes it. In other words, there must be no flag discrimination.

The source added: “Moreover, as a supplier, we would not like to have to take the burden of collecting a bunker levy on behalf of the country where it would apply. For that reason only we would favour a cap and trade system against a levy.”

Cap and trade in trouble in the US?

The only US-based oil company to respond to World Bunkering’s questions was ConocoPhillips, which declined to comment. However, a well-placed US oil company source said that as far the US oil majors was concerned the whole issue of “cap and trade” was in a state of flux because of uncertainty over what would happen to efforts to persuade the US Congress to pass comprehensive climate and energy legislation.

Shortly after the source spoke it became clear that the efforts to push through cap and trade legislation were in fact in big trouble. In June last year the House of Representatives narrowly passed a climate cap and tax bill. In late May this year, however, the influential Republican Senator Lindsey Graham withdrew his support for the bill. US media observers claimed that it was much more than just one lawmaker changing his mind but that there had been a sea change in attitudes in Congress and more widely around the country. They more or less wrote off any chance of getting a climate bill through with any sort of taxation element in it.

Globally, too, it appeared that lawmakers were having considerable trouble implementing emissions legislation with measures being shelved by several countries, including Australia. It must be premature to write off ETS and there are still very strong arguments in its favour. And the EU could well still impose an ETS unilaterally. Nevertheless, it would appear that the US is unlikely to be in a position to deliver on emissions reductions for some considerable time. That being the case, it would appear logical not to expect US oil companies to see promoting ETS as being a high priority.