UK: Decarbonising The Shipping Sector - Extension Of The EU Emissions Trading Scheme

Last Updated: 24 May 2010

The problem: shipping emissions estimated to rise by up to 250 per cent by 2050

It is estimated that approximately 75 per cent of the world's trade is carried by ships and with increased globalisation this figure is set to increase. A 2009 report for the International Maritime Organisation (IMO) estimated that in 2007, global shipping emissions accounted for 3.3 per cent of global greenhouse gas (GHG) emissions and that, without action to tackle the problem, levels could increase by up to 250 per cent by 2050. Conversely, cuts in global shipping GHG emissions of between 25 and 75 per cent are expected to be possible by 2050 as a result of technical or operational developments.

In common with aviation emissions, international shipping emissions are not subject to the 1997 Kyoto Protocol and are therefore exempt from any global commitment to reduce GHG emissions, even though they are a fast-growing source of (and major contributor to) global emissions. Instead, the Kyoto Protocol calls on the IMO to take action based on its representation of the global shipping industry and the need for any regulatory or market-based solutions to be applicable across the industry.

The solution?

Progress within the IMO on tackling rising shipping GHG emissions has been slow in the 13 years since the signing of the Kyoto Protocol. The main sticking point appears to be disagreement between developing countries (notably Brazil, India, China and South Africa) and the developed world (lead by the likes of the UK, Germany, France, Belgium, Sweden and Norway) over whether emissions reduction targets and market based instruments – as advocated by the protocol and including emissions trading – are appropriate solutions. This is perhaps not surprising given that developing countries are not subject to emissions reduction targets under Kyoto because they do not share the same historic responsibility as developed countries for such emissions.

In July 2009, the Marine Environment Protection Committee (MEPC), the environmental policy decision-making body of the IMO, agreed a workplan for discussion on the applicability of market based instruments to reducing global shipping emissions. This could lead to the production of a strategy report for cutting GHG emissions by 2011, including identification of possible future steps. Because the IMO process will not deliver an agreed solution for a number of years, it is understood that a number of interim and voluntary technical and operational measures to reduce GHG emissions are being trialled.

Copenhagen's efforts to decarbonise shipping

EU member states and EU institutions had hoped that the United Nations Framework Convention on Climate Change (UNFCCC) discussions last December in Copenhagen might have seen the United Nations (UN) either include shipping and aviation emissions in a new global agreement or give the IMO and the International Civil Aviation Organization (ICAO) a clear mandate to start preparations for the introduction of a global emissions trading scheme affecting their sectors. However, neither action was taken.

The EU's negotiating position at Copenhagen was that it wanted a 20 per cent reduction in global shipping GHG emissions by 2020 relative to a 2005 baseline. If this requirement had been adopted, it could have seen as much as €25bn being delivered to the developing world annually in funding for adaptation and mitigation measures by 2020.

Next steps and expected outcomes for the sector

UN discussions are ongoing and it is hoped a successor to Kyoto will be agreed at this November's meeting in Cancun, Mexico. Whether this agreement will include emissions reduction targets for the aviation and shipping sectors remains to be seen; we can expect this to be fairly low in the agenda given the major differences of opinion on key issues such as an overall emission reduction target for the medium term.

It is more likely that the EU will take action. The revised EU emission trading system (EU ETS) Directive requires the European Commission to consider the inclusion of shipping in the scheme from 2013 if the IMO process is not complete by 2012. Although this could potentially address only emissions from ships arriving at or departing from EU ports, approximately 31 per cent of global shipping emissions1 could be covered (6.1 per cent of total EU 27 GHG emissions). The new climate change commissioner, Connie Hedegaard, has indicated her willingness to tackle the problem if the IMO process does not deliver in time, while European Commission president, Jose Manuel Barroso has suggested that 'decarbonising' the transport sector is a priority for his second term in office. A report prepared for the European Commission by environmental consultancy CE Delft and published in mid-February examined four policy options and came out in favour of including shipping emissions in the EU ETS in preference to the other options (carbon taxation, efficiency standards or a baseline credit system).

These developments mirror the precedent of aviation emissions

Aviation emissions have already been included in the EU ETS and aircraft operators will have to purchase and surrender allowances for aviation emissions from 2012 onwards. As of 1 January 2010, operators in the EU member states are obliged to monitor and report emissions – a considerable cost and administrative burden.

Case study: Air Transport Association of America's judicial review before the English High Court

We are currently advising the Air Transport Association of America (ATA) and major US airlines (including American Airlines, United Airlines and Continental Airlines) in judicial review proceedings before the English High Court. We are arguing on behalf of the ATA and these airlines that the inclusion of emissions from international aviation in the EU ETS violates public international and EU law. The UK government has acknowledged the importance of the case and has agreed to a reference to the European Court of Justice.

We have also advised the Aviation Working Group (an association of aircraft manufacturers, banks and other investors) in relation to aviation emissions and have assisted in relation to governmental consultations.

Footnote

1 Based on 2006 figures.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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