World Bunkering > News > Winter 2009 > CO2 emissions debate splits global industry

Clean air is uncontentious – but how to achieve it?

The vital question of how to cut CO² emissions by shipping has both united and deeply divided the industry. As December’s UN Climate Change Conference Copenhagen 2009 (COP15) approaches it would be difficult to find anybody in the shipping industry who does not believe that IMO should be given the task of regulating the issue. It is now also widely accepted that shipping will be brought into the United Nations Framework Convention on Climate Change (UNFCCC), which COP15 is intending to update. That means that some form of financial penalty/incentive system, or the use of Market Based Instruments (MBI) as IMO puts it, to cut CO² emissions is inevitable.

COP15 will have to decide which authority should oversee any MBI system applied to shipping. Singapore Shipping Association (SSA) president Mr S S Teo summed up industry sentiment on this issue, saying: “The most important thing of all is that the IMO should retain the ability to control legislation for the shipping industry rather than allow unilateral, politically-motivated legislation to be introduced piece-meal.” Nothing can be taken for granted. The debate over whether the Kyoto principle of “common but differentiated responsibility” should be applied to the global shipping industry continues. Under Kyoto, “Non Annex 1 countries”, broadly the developing countries but including China, India and Brazil, are not required to make the cuts in greenhouse gas emissions (primarily of CO²) that apply to the developed countries (Annex 1 states).

This contrasts starkly with the approach always taken in the past in formulating IMO regulations that all flag states are treated equally. Nevertheless, those involved in presenting shipping’s case to COP15 are cautiously optimistic that IMO will be given the necessary mandate to put together a comprehensive package for reducing shipping’s CO² emissions.

Taking sides for trading

There is however a deep division between those who support the introduction of CO² emissions trading and those who want to see a levy of some sort. A discussion paper detailing how CO² emissions trading could work issued by shipping industry associations of Australia, Belgium, Norway, Sweden and the UK Chamber of Shipping in September exposed the profound disagreement among national shipping associations. “It is important that legislators and regulators find a practical way of including shipping in the international work to reduce global warming,” said UK Chamber of Shipping president Jesper Kjaedegaard when launching the paper.

In the debates so far, the Chamber said, no option had been defined whereby shipping could fit in with the emissions trading arrangements that are set to be applied to all other sectors. It sees the discussion paper as seeking to correct that omission. Kjaedegaard said: “Shipping is, by a considerable margin, the most efficient way to transport goods, but it still produces about 3% of the CO² emitted as a result of human activity. Clearly such a major industry, transporting over 80% of world trade, has a responsibility to reduce carbon outputs. We believe some form of emissions trading system is the way to do it.”

“It is important,” he continued, “that any solution is global and developed through the UN’s specialist maritime agency, the International Maritime Organization. It is also vital that any emissions trading regime is implemented without driving goods to other modes of transport, which would increase overall emissions and damage commercial shipping.” The UK Chamber claimed that “cap-and-trade” is the only way to guarantee overall CO² emissions reduction.

And against

The Hong Kong Shipowners Association responded robustly, partly prompted by a suggestion that the shipping industry had been “vacillating”. An HKSOA statement said that it would like to put on record that, together with many other shipowner associations, it had been “working extremely hard to identify practical and effective methods to reduce the international shipping industry’s greenhouse gas emissions”. It added: “There is no vacillation in this process, only the firm and urgent intent by many in the industry to find consensus on the elements of a scheme that meets the reality of the global shipping industry.” Highlighting the disagreement on the issue of CO² the HKSOA said: “The UK Chamber of Shipping and its supporting associations do not represent the majority opinion of the international shipping industry.

Theirs is but one proposal, although not as well developed as others.” The HKSOA said it will continue to support, “in common with many other Associations”, the Danish Compensation Fund (DCF) as the base for industry consensus. The DCF is a levy system which proponents claim would be much less bureaucratic to implement than a trading system. Emissions trading is also strongly opposed by the Union of Greek Shipowners (UGS) and the London-based Greek Shipping Co-operation Committee. The two bodies reaffirmed their stance at a meeting in Piraeus in September.

SSA’s solution – the Compensation Fund

While the HKSOA and the Greek owners have taken the lead in countering the emissions trading proposal, it should be said that the SSA made its position clear back in June this year. In a statement then it said: “With regard to market based measures, the SSA supports the establishment of a Greenhouse Gas Compensation Fund as discussed at the IMO.” Mr Teo said: “This compensation fund for the shipping industry, when adopted under the auspices of the IMO should be universally applied across the board to enable a level playing field for all industry players. The funding mechanism should be transparent, rigorous, enforceable and deliver measurable reductions.”

Just before the most recent furore, Mr Teo reaffirmed the SSA’s support for the Compensation Fund (Bunker Levy Scheme), saying: “We have not changed our position in this respect.” He added, though, that the scheme should also have provisions enacted that recognise and reward progressive operators who develop or deploy environmentally friendly technology for their ships, as well as provisions to incentivise the development of innovative green technologies. This shows that the position of the SSA, HKSOA and the other national shipowners’ associations is not set in stone. For example, the HKSOA says it is looking at ways to build on the Compensation Scheme.

For his part, Mr Teo also stressed that the SSA remains open to any other proposals that can “demonstrate predictability, universal application, a genuine and demonstrable reduction in emissions as well as stimulate innovation and research of new technologies”. For the moment, though, the global shipping community has become polarised between the emissions trading and the levy schemes.

Finding a compromise

The HKSOA, SSA, UGS and UK Chamber, are all members of the International Chamber of Shipping (ICS), which has had the unenviable task of trying to present a united front at COP15. ICS said: “It has never been the intention of ICS to seek to reach agreement on a single preferred MBI; during recent discussions real progress has been made towards a consensus on the essential characteristics of any MBI for shipping, ie that it should be ‘flag neutral’ in its effect to avoid distorting markets, simple to administer and provide overall environmental benefit in respect of climate change. Above all, any MBI for shipping must be acceptable to all IMO Member States, including those that are non-Annex I nations under the existing Kyoto Protocol on Climate Change.”

Nevertheless ICS reaffirmed its “commitment to developing a consensus among its member national shipowner associations about possible Market Based Instruments (MBI) to help reduce the shipping industry’s CO² emissions, in order to present a common international industry position with governments, at IMO and UNFCCC, during the complex negotiations in the months ahead”. It added: “This is an extremely complex task given the wide range of national perspectives on the issue, and differences of approach between large and small companies, and the extent to which individual companies may perceive the impact of various options on their own commercial operations.

Moreover, many of the proposals for MBI that have so far been suggested – whether by governments or within the industry – are largely conceptual, and still do not contain enough practical detail about how they would operate in practice, to fully assess their impact. The task of ICS, however, is to represent the best interests of the international shipping industry as whole.” In 2008 the ICS Executive Committee established a high level working group which continues its work of examining the ‘pros and cons’ of various options for MBI, including a possible fuel levy, emission trading schemes, or some hybrid combination of the two.

Referring to the open debate between its members, ICS said: “Many ICS member associations have publicly expressed a preference for one form of MBI or another. There are actually remarkable similarities between those proposals based on a levy and those based on some form of emission trading, and the diversity of views is an indication of the complexity involved in finding a solution that is fit for purpose and capable of offering real CO² emissions reduction.” ICS pledged to “continue to pursue its role as an ‘honest broker’, providing considered comment, from a global industry perspective, on implications of proposals that may be made by governments in the months ahead, both in terms of their impact on shipping and in terms of their likely environmental benefit”.

EEDI – another option?

Generally speaking, the technical aspects of the package IMO has been putting together have been less controversial than its deliberations on MBI. However, it appears that October’s 2nd International Conference on Ship Efficiency left its 200 plus participants wondering whether the current proposal to implement an Energy Efficiency Design Index (EEDI) is an appropriate tool to cut ship emissions. Stefan Krueger of TU Hamburg Harburg, Institute of Ship Design and Ship Safety, discussed the pros and cons of the EEDI currently debated within the IMO working groups.

Professor Krueger argued that the EEDI philosophy had serious drawbacks and would undermine technical progress. He claimed that possibilities for optimising ship design would be extremely limited. He reminded the audience from 24 countries – many of them representing shipping companies – that CO² output is proportional to fuel consumption. All measures to decrease fuel consumption also decrease the CO² footprint. His solution for improving ship efficiency and reducing the CO² problem was adjusting the fuel price accordingly. Prof Krueger said that the baseline definition used for EEDI, which depends solely on the deadweight of the ship and the ship type, leads to ships being “efficient” when they are big and slow.

To make the Index work, Professor Krueger suggested replacing deadweight with payload and to improve the baseline concept by taking into account physical principles. Otherwise, he claimed, there would be no encouragement for designers to develop more efficient designs, resulting in significant reductions of fuel consumption. While disagreements continue over the type of MBI that should be applied to shipping and the technical package that needs to be implemented, there can be no doubting the pressure the industry is under to take what will be seen by the rest of the world as effective action.

Illustrating the sort of demands that will become increasingly insistent as time goes by, the Port of Rotterdam recently joined Friends of the Earth Netherlands in calling for the maritime industry to cut CO² emissions by 30% by 2020 and 80% by 2050, compared to 1990 levels. In a joint statement, the two organisations said: “An 80% reduction by 2050 is necessary, according to scientists, if global warming is to be restricted to 2ºC, the internationally accepted upper limit. Transport by water is more energy efficient than by land or air. In that sense, it is sustainable.

Also, according to expectations, more and more goods will be transported by water in the coming decades. Hence, there is every reason to aim for a powerful reduction in CO² in shipping.”