In May 2012, we wrote about the various emissions related regulatory requirements being introduced by additions to MARPOL, increased prospects of regional regulation and a focus on shipping sulphur emissions. Amongst the regional measures that were under consideration, there has been speculation that the EU will implement an emissions trading system similar to that implemented in the aviation sector.
European Union Emissions Trading System
In the absence of any IMO progress on the global level, it has long been expected that the EU will seek to enforce an ETS on the shipping industry, similar to that implemented in the aviation sector.
Ahead of the IMO MEPC 64th Session meeting in October 2012, the EU Transport Commissioner, Siim Kallas, and the Commissioner for Climate Action, Connie Hedegaard, announced plans for the European Commission to work more closely with the IMO to work “towards an internationally agreed global solution to decrease greenhouse gas emissions from ships”. Are the EU giving the IMO its backing or is this a message that they expect the IMO to make quicker progress towards a global solution to the shipping emissions reduction question? Either way, it is clear that the EU has not given up its wish for faster a pace of change.
In the same statement, the Commission announced plans for a “simple, robust and globally-feasible approach towards setting a system for monitoring, reporting and verification of emissions based on fuel consumption”, with details expected in the coming months. Details notwithstanding, this is another indication that the EU regard swift action as a priority.
Whilst these details are currently unclear and this monitoring system stops shy of the introduction of a full scale ETS, it has been reported that this may be a pre-cursor to a form of market based measure coming into force along with the Energy Efficiency Design Index for newbuildings in 2015. It will certainly provide the baseline information that is required for an ETS to be implemented in the future.
At the IMO level, there are renewed attempts to progress global change. A workshop involving Classification Societies, flag states and shipping organisations is convening on February 26th 2013 to discuss how best to measure shipping CO2 emissions. Whilst this is not going to gauge all emissions of green house gases (“GHG”), it is seen as an important step towards developing reduction mechanisms such as a global market based measure to drive down emissions and assist in raising funds for the UN Framework Convention of Climate Change.
Given the monitoring and assessment that is going on at regional and IMO level, it is clear that the appetite for an increased pace of change in shipping emissions will remain, akin to the aviation industry over the last few years.
Aviation Emissions
The aviation sector is subject to a cap and trade system. There is a cap on the total number of allowances. Each operator is given a tradeable allowance per year covering a certain level of CO2 emission that year. The operator will surrender the number of allowances that cover their actual CO2 emissions – any surplus allowances are tradeable or bankable. Initially, this system covered all flights involving EU airspace.
However, in November 2012, this system was amended to exempt all non-EU flights. Should the international aviation community not come up with a global solution by November 2013, the exemption will be removed.
The political horse-trading that led to the exemption of non-EU flights and the slow pace of change that the industry was progressing itself should sound a warning to shipowners.
It is hoped that that regional ETS is not implemented and that the IMO make plans that will prevent regional ETS implementation, but is it time for shipowners take the lead to prevent this happening?
In this regard, can shipowners be more proactive with their technology, design, equipment and routing? Scrubbers, low distillate fuels and LNG powered vessels are all under consideration due to the various regional Emission Control Areas (“ECAs”) such as the Baltic and North Sea ECAs. The time is coming where such considerations will be relevant worldwide due to potential tradeable allowances in emissions.
If shipowners do not want to be caught out and paying a premium for allowances to conduct their business, now is the time for action to reduce emissions from their fleet.
Emission Control Areas
Since our last article, the United States Caribbean Sea ECA has come into force, but will not be effective until 1 January 2014. From then, sulphur emissions in this area must be no more than 1%, dropping to 0.1% on or before 1 January 2015. The Baltic, North Sea and North American ECAs all remain in force with the same sulphur content regulations.
It has also recently been reported that Maersk are pressing Hong Kong to introduce an ECA there to reflect their voluntary use of low sulphur fuel.
If it is needed, this is further evidence that the reduction of emissions from the shipping industry remains high on the worldwide political agenda and can be commercially beneficial to shipowners. Shipowners need to be wise to the opportunities and issues that the increased regulation will create.
What action can owners take?
As the Maersk example shows, proactive shipowners can gain a commercial advantage by being on top of emissions regulations impact.
As one way that shipowners can begin to limit risk, it is sensible for shipowners to keep diligent records to evidence compliance with IMO regulations and EU sulphur directives (including using 0.1% sulphur content bunkers in EU ports) across the globe. We understand that the USA Port State Control may inspect the relevant records when vessels call at US ports. Keeping accurate records is therefore paramount.
Good standards of record keeping now will reduce administrative burden on shipowners when this becomes mandatory for compliance and trading purposes in the future. It will also help track fuel cost and identify areas for efficiency gains and provide context when making fleet investment decisions.
It may also be prudent to review current charterparties to ascertain which party carries the obligation – and risk – of providing and using compliant fuel in the relevant areas. Again, this is good practice before regional or worldwide ETS systems may be implemented.
European Union Emissions Trading System
In the absence of any IMO progress on the global level, it has long been expected that the EU will seek to enforce an ETS on the shipping industry, similar to that implemented in the aviation sector.
Ahead of the IMO MEPC 64th Session meeting in October 2012, the EU Transport Commissioner, Siim Kallas, and the Commissioner for Climate Action, Connie Hedegaard, announced plans for the European Commission to work more closely with the IMO to work “towards an internationally agreed global solution to decrease greenhouse gas emissions from ships”. Are the EU giving the IMO its backing or is this a message that they expect the IMO to make quicker progress towards a global solution to the shipping emissions reduction question? Either way, it is clear that the EU has not given up its wish for faster a pace of change.
In the same statement, the Commission announced plans for a “simple, robust and globally-feasible approach towards setting a system for monitoring, reporting and verification of emissions based on fuel consumption”, with details expected in the coming months. Details notwithstanding, this is another indication that the EU regard swift action as a priority.
Whilst these details are currently unclear and this monitoring system stops shy of the introduction of a full scale ETS, it has been reported that this may be a pre-cursor to a form of market based measure coming into force along with the Energy Efficiency Design Index for newbuildings in 2015. It will certainly provide the baseline information that is required for an ETS to be implemented in the future.
At the IMO level, there are renewed attempts to progress global change. A workshop involving Classification Societies, flag states and shipping organisations is convening on February 26th 2013 to discuss how best to measure shipping CO2 emissions. Whilst this is not going to gauge all emissions of green house gases (“GHG”), it is seen as an important step towards developing reduction mechanisms such as a global market based measure to drive down emissions and assist in raising funds for the UN Framework Convention of Climate Change.
Given the monitoring and assessment that is going on at regional and IMO level, it is clear that the appetite for an increased pace of change in shipping emissions will remain, akin to the aviation industry over the last few years.
Aviation Emissions
The aviation sector is subject to a cap and trade system. There is a cap on the total number of allowances. Each operator is given a tradeable allowance per year covering a certain level of CO2 emission that year. The operator will surrender the number of allowances that cover their actual CO2 emissions – any surplus allowances are tradeable or bankable. Initially, this system covered all flights involving EU airspace.
However, in November 2012, this system was amended to exempt all non-EU flights. Should the international aviation community not come up with a global solution by November 2013, the exemption will be removed.
The political horse-trading that led to the exemption of non-EU flights and the slow pace of change that the industry was progressing itself should sound a warning to shipowners.
It is hoped that that regional ETS is not implemented and that the IMO make plans that will prevent regional ETS implementation, but is it time for shipowners take the lead to prevent this happening?
In this regard, can shipowners be more proactive with their technology, design, equipment and routing? Scrubbers, low distillate fuels and LNG powered vessels are all under consideration due to the various regional Emission Control Areas (“ECAs”) such as the Baltic and North Sea ECAs. The time is coming where such considerations will be relevant worldwide due to potential tradeable allowances in emissions.
If shipowners do not want to be caught out and paying a premium for allowances to conduct their business, now is the time for action to reduce emissions from their fleet.
Emission Control Areas
Since our last article, the United States Caribbean Sea ECA has come into force, but will not be effective until 1 January 2014. From then, sulphur emissions in this area must be no more than 1%, dropping to 0.1% on or before 1 January 2015. The Baltic, North Sea and North American ECAs all remain in force with the same sulphur content regulations.
It has also recently been reported that Maersk are pressing Hong Kong to introduce an ECA there to reflect their voluntary use of low sulphur fuel.
If it is needed, this is further evidence that the reduction of emissions from the shipping industry remains high on the worldwide political agenda and can be commercially beneficial to shipowners. Shipowners need to be wise to the opportunities and issues that the increased regulation will create.
What action can owners take?
As the Maersk example shows, proactive shipowners can gain a commercial advantage by being on top of emissions regulations impact.
As one way that shipowners can begin to limit risk, it is sensible for shipowners to keep diligent records to evidence compliance with IMO regulations and EU sulphur directives (including using 0.1% sulphur content bunkers in EU ports) across the globe. We understand that the USA Port State Control may inspect the relevant records when vessels call at US ports. Keeping accurate records is therefore paramount.
Good standards of record keeping now will reduce administrative burden on shipowners when this becomes mandatory for compliance and trading purposes in the future. It will also help track fuel cost and identify areas for efficiency gains and provide context when making fleet investment decisions.
It may also be prudent to review current charterparties to ascertain which party carries the obligation – and risk – of providing and using compliant fuel in the relevant areas. Again, this is good practice before regional or worldwide ETS systems may be implemented.