World Bunkering > News > Summer 2011 > No progress on MBMs

It surprised few involved in the process that an intersessional meeting of the International Maritime Organization’s (IMO) Working Group on Greenhouse Gas Emissions (GHG) from Ships, held at the end of March, made little headway towards developing of suitable market-based measures (MBMs) for international shipping. In private, at least, there is a general consensus that July’s IMO’s Marine Environment Protection Committee (MEPC) is unlikely to result in agreement on MBMs. If so, the big question will be what will the EU do?

While IMO issued a statement claiming that “steady progress” had been made, reports from those present suggest there was no consensus on the way forward, with IMO split between those who see a compelling need to act and those who do not. The main issue is still whether non-Annexe 1 countries, according to the Kyoto Protocols, should be treated in the same way as the industrialised countries under any IMO legislation on greenhouse gases. Kyoto talks about “common but differentiated responsibilities” (CBDRs) while IMO conventions always apply equally to all flags. The strong impression of insiders at the IMO process is that countries such as China, India and Saudi Arabia are not prepared to sanction any deal at IMO which does not recognise CBDRs, at least not before an overarching deal under the UN Framework Convention on Climate Change is achieved at the Climate Change Conference at Durban at the end of the year.

The GHG Working Group will report its conclusions to the July MEPC meeting when technical measures will also be under consideration.

The Working Group, which was attended by more than 200 experts from all over the world, was tasked with providing advice on, among other subjects, the compelling need and purpose of MBMs as possible mechanisms to reduce GHG emissions from international shipping and further evaluating the outcome of work conducted last year by an Expert Group, which had carried out a feasibility study and impact assessment of several possible measures previously submitted by governments and observer organisations. The aim of the Expert Group study was also to assess the impact of the proposed MBMs on, among others, international trade, the maritime sector of developing countries, least developed countries (LDCs), and Small Island Developing States (SIDS), as well as the corresponding environmental benefits.

IMO says that, following completion of the Expert Group’s study, some of the proposed MBMs have been combined or further developed by their respective proponents and, in examining the proposals, the Working Group held an extensive exchange of views on issues related to, inter alia, the desirability of MBMs providing: certainty in emission reductions or carbon price; revenues for mitigation, adaptation and capacity building activities in developing countries; incentives for technological and operational improvements in shipping; and offsetting opportunities.

This situation poses the question what will the EU do? The European Commission has made it clear on many occasions that if IMO does not reach an effective agreement on emissions by the end of 2011 it will take unilateral action. Certainly environmental groups, including Seas At Risk (SAR), Transport and Environment (T&E) and Environmental Defence Fund (EDF), responded to the lack of progress at the IMO meeting by calling on the EU to go ahead with threats to bring shipping within the European Emission Trading System (ETS).

However, the International Chamber of Shipping (ICS) says that it believes there is an increasing understanding within the European Commission of the problems associated with trying to bring shipping into the ETS.

The EC has recently adopted a comprehensive strategy – Transport 2050 – for what it describes as “a competitive transport system that will increase mobility, remove major barriers in key areas and fuel growth and employment”. At the same time, the proposals are meant to dramatically reduce Europe’s dependence on imported oil and cut carbon emissions in transport by 60% by 2050. The EC claims its target of reducing emissions by at least 40% from bunker fuels can be met by “operational measures, technical measures, including new vessel design, and low-carbon fuels”. It says that, given the global nature of shipping, these measures need to be worked on in the international context of the IMO to be effective.

In January, Brussels was presented with a clear indication of the difficulties associated with a unilateral EU approach. A European Commission Joint Research Centre (JRC) Reference Report claimed to provide the first comprehensive overview of methodologies for estimating air emissions from shipping. The JRC Reference Report “Regulating air emissions from ships: the state of the art on methodologies, technologies and policy options” describes technological solutions and proposes policy options for reducing carbon emissions and air pollution in this sector.

Among many other things the report details the legal and economic/ commercial problems associated with any attempt to bring shipping within the EU Emissions Trading System. The following is a JRC report extract: “It has to be taken into account that trading and other transaction costs could place a large burden on small emitters such as single ships, making trading inefficient. Another threat to the functioning of the EU ETS is that of incomplete information or insecurity about future policy decisions, which can lead to volatility and investment risk in the carbon market. A threat for the maritime sector is loss of competitiveness for companies that don’t fall under the scheme.

“In contrast to the conclusions drawn from the external features of the EU ETS [which are in favour of applying it to shipping], the internal features of the maritime shipping sector do not lend themselves favourably to inclusion in the scheme. Although the sector has a significant abatement potential, meaning that environmental gains can be realised, and large ships are already obliged to hold bunker notes with information about bunker fuel sold, there are some challenges that need to be overcome in order to make membership of the scheme a success.

“First and foremost, the participating countries need to decide on an allocation method, which raises political issues and has been the major bottleneck for over a decade in the international debate. A number of studies comparing market-based and command-andcontrol instruments for different pollutants found that, in all cases, the cost of achieving the same reduction in pollution are between 1.72 and 22 times higher for command-and-control instruments. “The mobile nature of the sector creates a risk of carbon leakage, which is a major concern for the environmental effectiveness of the policy and needs to be addressed with great care.

“In addition, there are administrative difficulties due to the fact that the ships vary considerably in size, type and use. This means that deciding on the specific policy design, mainly with respect to the distribution of allowances (grandfathering based on an historic or benchmark approach, or auctioning), will face the challenge of getting all stakeholders to agree while still coming up with an ambitious policy.”

The JRC study also looks at the legal constraints on EU environmental policy regulation of air emissions from ships. It notes: “Developing a regional (European) Emission Trading Scheme for international shipping is a challenging task given the constraints which regulate the international legal framework of the maritime sector. Indeed, any EU environmental policy regulating air emissions from maritime transport has to comply with the International Law of the Sea and, in particular, with the United Nations Convention on the Law of the Sea 1982 (UNCLOS) to which the EU is signatory.”

Overall, this study underlines the desirability of reaching an international agreement at IMO rather than trying to bring shipping into the European ETS. The ICS believers relevant officials in Brussels do broadly agree with that view and that the technical measures, on which IMO has made significant progress and is likely to reach agreement in July, may be sufficient to at least buy some time before the political pressures to act unilaterally become overwhelming.