UK: Reducing Shipping Emissions - An Overview Of Recent International Initiatives

Last Updated: 11 April 2012
Article by Kevin Cooper, Sophie Short and Reema Shour

Shipping and aviation are the only industry sectors that are not regulated by the United Nations Framework Convention on Climate Change 1997 ("UNFCCC") or the Kyoto Protocol, an agreement linked to the UNFCCC, which set binding targets for reducing greenhouse gas emissions on those countries that have ratified the Protocol.

Whilst shipping, with relatively low CO2 emissions, is the most energy-efficient means of mass transportation, the global trend towards reducing emissions from all industry sectors (as well as the anticipated future growth of the shipping industry) has led to recent calls to improve energy efficiency and control emissions in international shipping. 2011 became the year that welcomed a number of initiatives and working groups aimed at reducing ships' carbon emissions and increasing the sustainability and green credentials of the industry as a whole.

Some major players in the shipping industry have already taken the initiative in switching to low sulphur fuel and investing in finding alternative sources of "green" fuel. It has recently been reported in the press that one of the world's biggest shipping companies, as well as the US navy, have been testing algal oil, derived from genetically modified algae, as a substitute for conventional bunker fuel. In addition, fifteen of the industry's biggest operators have endorsed a Sustainable Shipping Initiative, designed to pioneer energy-efficient vessels and make greater use of renewable energy. Nonetheless, the shipping industry is coming under considerable pressure to reduce emissions as a result of a number of regulatory developments, both domestic and international.

In this article we give a brief overview of the ongoing UNFCCC measures to reduce global emissions. We then summarise some of the principal current initiatives, both internationally and within the UK, to reduce emissions from the shipping industry.

UNFCCC and Kyoto Protocol

The primary distinction between the UNFCCC and the Kyoto Protocol is that, whilst the UNFCCC does not lay down legally binding commitments for its signatories to reduce their greenhouse gas emissions (it merely encourages them to do so), the Kyoto Protocol commits those countries that ratify it to doing so. Not all signatories to the UNFCCC have also ratified the Kyoto Protocol – the United States is an example.

One impact of the Kyoto Protocol was to set reductions in recorded emissions amounting to an 8% decrease from 1990 levels over the five-year period from 2008 to 2012. There was an expectation that the Kyoto Protocol (or its successor) would be extended to the shipping industry at the UN Climate Change Conference in Copenhagen in December 2009, but the Accord reached by the participants at that Conference was silent on the reduction of emissions from international shipping.

In December 2011, UN climate change talks took place in Durban and concluded with an agreement known as the "Durban Platform for Enhanced Action". 195 signatories vouched to negotiate a new climate change treaty by 2015, which will come into force in 2020. The Durban Conference also resulted in an extension of the Kyoto Protocol for at least a further five years, until 2017 or potentially 2020. A working group was also established to set a number of emissions targets and ensure nations' compliance. 2020 will also see the formation of a Green Climate Fund, which aims to raise US$100 billion a year and which will be used to assist developing nations in complying with their climate change commitments and mitigate any adverse effects experienced by them as a result.

In preparation for the Durban Conference, the International Chamber of Shipping ("ICS") produced a briefing document, confirming the shipping industry's commitment to cut shipping emissions by 20% by 2020, with significant further reductions thereafter. The ICS called on the participants in the Durban Conference to give the IMO a clear mandate to deliver emissions reductions through market-based measures, for example a shipping industry environmental compensation fund, possibly linked to the Green Climate Fund.

Notwithstanding the ICS' request for global regulation of the shipping industry, the Durban Conference did not result in any proposals specifically addressing the shipping industry's role in combating climate change. The secretary-general of the IMO subsequently reported, however, that the progress that has been made by the IMO in this area was widely acknowledged throughout by the negotiating bodies of the UNFCCC process.

The International Maritime Organization ("IMO") initiatives

The IMO originally sought to reduce emissions by requiring ships operating in certain areas to use fuel with lower sulphur content, as outlined below. More recently, the IMO has responded to the global focus on climate change and greenhouse gas emissions by developing specific technical and operational efficiency measures. In July 2011, the IMO's Marine Environment Protection Committee ("MEPC") also agreed a work plan guiding future discussions on market-based mechanisms. As previously recognised by the Kyoto Protocol, emissions from ships cannot be apportioned to any particular country or economy due to the inherently global and complex nature of the international shipping industry. The measures introduced by the IMO are, therefore, aimed at promoting equality for all ships, regardless of flag, in order to negate the effects and complications that regional climate change measures could have on shipping.

Sulphur emissions regulations

The IMO's ship pollution regulations are contained in the International Convention for the Prevention of Pollution from Ships ("MARPOL 73/78"), which is the main international convention aimed at preventing pollution of the marine environment by ships. MARPOL 73/78 has been updated by a number of annexes since it was adopted. Since 2010, MARPOL Annex VI has required ships operating in the Emission Control Areas1 ("ECAs") to use fuels with 1% sulphur content, with the limit dropping to 0.1% or less from 2015. As this is likely to have an impact on many Northern European ship-owners by increasing the cost of fuel and raising concerns as to the availability of compliant fuel, lobbying by various interested parties continues in an attempt to postpone the date of introduction beyond 2015. In addition, the IMO has indicated that regions outside the ECAs will be subject to a decrease in sulphur content in fuel from 3.5% to 0.5% in 2020, unless a fuel availability study, due to be published in 2012, finds that there is too little low sulphur fuel for global shipping, in which case the IMO will extend the date for compliance to 2024.

Technical efficiencies

The two measures introduced by the IMO represent the first ever mandatory international greenhouse gas reduction regime for a global industry sector. These measures come into effect on 1 January 2013 and apply to all ships of 400 gross tonnage and above. They set a ship energy efficiency management plan ("SEEMP"), akin to a safety management plan, and an energy efficiency design index ("EEDI") for new ships. The latter is intended to encourage shipbuilders to create more fuel-efficient vessels. China and Brazil were, however, some of the member states that have insisted on being granted a waiver from complying with these mandatory requirements, and that waiver is valid until 2019. The ICS has nonetheless strongly urged all ship-owners ordering new ships to only accept delivery of ships with an EEDI, irrespective of any temporary flag state waiver. Furthermore, at its recent meeting in London in February 2012, the MEPC adopted four sets of guidelines intended to assist in the uniform implementation of the EEDI and SEEMP.

Market-based measures

The IMO has also been considering its position on market-based measures through an expert working group, which has been reporting back to the MEPC. Among the numerous proposals being considered by the working group are the following: a port state levy based on the amount of fuel consumed by the vessel on its voyage to the port in question; a global emissions trading scheme which would allocate emissions allowances and set an emissions cap; and an international fund establishing a global reduction target for international shipping, to be set either by the UNFCCC or the IMO. In the meantime, the MEPC met in London at the end of February 2012 and was reported to have examined nine different market-based methods of reducing greenhouse gas emissions. No agreement was reached, however, and further deliberations have been postponed to the next MEPC meeting in October 2012.

Slow steaming

A report by independent consultants into regulated slow steaming in maritime transport was launched at the MEPC's latest meeting. This report suggests that regulated slow steaming can produce emissions reductions that rival the other reduction options being considered. The report states that if global average maritime speeds were reduced by 10%, carbon dioxide savings would rise to 19%, even after the cost of building and operating new ships to make up for lost capacity was considered. It has further been reported in the shipping press that one of the world's largest shipping operators has held extensive trials of slow steaming in this context. It remains to be seen, however, how many others will follow suit.

The EU position

Sulphur regulations

The EU has gradually been legislating to combat sulphur dioxide emissions, although it was not until a Council Directive in 1999 that EU legislation was extended to cover the reduction of sulphur emissions from certain liquid fuels used by seagoing ships.

The scope of that 1999 Directive was subsequently widened by Directive 2005/33/EC, which was aimed at controlling marine fuel emissions from ships, and which required a reduction of sulphur emissions to cover all liquid fuels derived from petroleum. In essence, the EU low-sulphur Directive, as the 2005 Directive has become known, required member states to take all necessary steps to ensure that ships berthed or anchored in EU ports are not permitted to consume marine fuels with a sulphur content exceeding 0.1% by mass. The Directive applies to all vessels, irrespective of flag, ship type, age or tonnage, and came into force as of 1 January 2010.

Although the EU low-sulphur Directive has only been in force for two years, the EU is already considering a draft proposal to align EU legislation to the MARPOL Annex VI standards by amending the Directive. If adopted, the amendments would be phased in between 2015 and 2020. It has also been reported that the European Commission will this year develop a series of medium and long-term measures within a "Sustainable Waterborne Transport Toolbox", which is aimed at enabling the industry to comply with the sulphur standards while maintaining its competitiveness.

Compliance with the Kyoto Protocol

The EU ratified the Kyoto Protocol in 2002. In order to meet its commitments under the Kyoto Protocol, the EU then enacted the Emissions Trading Directive 2003/87/EC, which established a scheme for greenhouse gas emission allowance trading within the EU. The EU Emissions Trading System ("ETS") came into effect in 2005. In broad terms, the ETS places a limit, or "cap" on the total amount of certain greenhouse gases that can be emitted by installations from the main energy-intensive industries (e.g. refineries and offshore, power stations, iron and steel, engineering and vehicle manufacture). Within this cap, the installations receive emission allowances from the relevant EU member state, which they can buy and sell from one another. At the end of the year, each installation must surrender enough allowances to cover all its emissions for that year, otherwise it may be fined. If an installation does not use all its allowances for that year, it can carry them over or alternatively sell them off to another installation that has used more than its allowances. The aim of the ETS is to reduce the number of allowances over time so that, by 2020, EU emissions will be 21% lower than in 2005.

In 2008, Aviation Directive 2008/101/EC amended the Emissions Trading Directive to include, from 2012, aviation in the ETS. A legal challenge by an American aviation trade organisation on the grounds that forcing non-EU carriers to abide by the ETS breached international aviation agreements and constituted an unlawful tax has recently been dismissed by the European Court of Justice. Phase III of the Emissions Trading Directive was also agreed in 2009 and is designed to improve and extend the ETS. It will come into force in 2013.

The EU's regulation of the aviation industry led to the belief that the shipping industry would be next in the EU's bid to achieve further emission cuts now that a second commitment period for the Kyoto Protocol has been agreed. In fact, the EU had indicated that it would seek to regulate the shipping industry itself if the IMO had not achieved something concrete by the end of 2011. That deadline has now expired but the EU Commission had not, as at March 2012, made any decision on the inclusion of shipping into the EU's greenhouse gases reduction commitment. There is, however, a consultation period currently underway, which is due to end in April 2012 and which involves consideration by the Commission of four options for market-based measures for shipping which are not dissimilar to the options being debated by the IMO. In the meantime, the EU has indicated that any market-based measure from the Commission will not come into force until 2017, in order to allow time for an international measure (presumably through or with the co-operation of the IMO) to be found.

The UK

The UK is committed to complying with its international obligations as an IMO member, an EU member state and a party to the Kyoto Protocol. Among other steps taken by the UK are its implementation of the EU low-sulphur Directive into national law on 20 April 2010. In addition, the UK had its own "pilot" ETS running prior to the establishment of the EU ETS, which now runs in parallel with the EU scheme. The UK also enacted the Climate Change Act in 2008 (the "Act"), thereby providing a legal framework for ensuring that the government meets its commitments to tackle climate change. In broad terms, the Act requires emissions to be reduced by at least 80% by 2050, compared to 1990 levels. The Committee on Climate Change ("CCC") was set up as an independent body under the Act.

With regard to ship emissions, the following developments are worth noting.

The CCC

At present, both shipping and aviation emissions are excluded from the overall emissions reduction targets for greenhouse gas emissions under the Act. The Act does, however, require the government to decide by the end of this year whether aviation and shipping should be formally included in the UK's carbon budgets. In a recent report, the CCC has advocated including shipping emissions in the targets under the Act and is shortly due to advise the government formally on whether shipping should be included in the UK's carbon budgets. The CCC has also urged the UK government to support some market-based approaches to reducing shipping emissions.

The UK Chamber of Shipping

The UK Chamber of Shipping has published manuals on two market-based proposals for reducing greenhouse gas emissions within the industry: (i) a contribution fund based on a bunker levy; and (ii) an emissions trading system, under which shipping companies would purchase shipping allowances or "emissions units", which they would then surrender in proportion to their actual bunker purchases. There remains a divergence of opinion within the industry which, if either, of these measures is preferred, although the prevalent view is that if any market-based measure is to be introduced, it should be done through the IMO. As discussed above, the IMO is still considering its position with regard to market-based measures.

Comment

The shipping industry remains divided on how best to tackle the issue of reducing ship emissions and some sectors of the shipping industry have expressed the view that the industry should be permitted to self-regulate globally (e.g. through the IMO), rather than be regulated by the EU or rely on unilateral regulation by individual states. At the Connecticut Maritime Association ("CMA") Conference in March 2012, it was proposed by the Chairman of the ICS that shipping be treated as a "sovereign state" in its own right and that there should be a special global regime for shipping.

Be that as it may, given the regulatory changes that have been enacted in recent years and the likelihood of further regulation in the near future, shipbuilders and purchasers, owners and charterers should consider in advance how these changes are likely to affect them and, where necessary, they should seek legal advice on how best to allocate risk and liability for compliance with a developing regulatory landscape in their contracts.

Footnotes

1. An ECA is an area where special mandatory measures are required to control ship emissions (NOx, SOx and PM, or particulate matter). Current ECAs include the Baltic and North Seas. It is expected that waters off the North American coast will be established as an ECA as of August 2012, with the list of ECAs gradually expanding with time.

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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