Regulating the GHG emissions from ships was never going to be easy and MEPC 75 demonstrated just how challenging the agenda really is, and more importantly, how challenging it will become. LR’s Principal Specialist for Strategic Regulatory Projects, Matthew Williams followed the debate and shares his views on the outcome.
We all like polarised debates. They make deciding on our view easier because we can skip the detail. In measures to reduce the GHG emissions from ships, the poles are either high ambition or low ambition. Whilst the outcome of MEPC 75 can be viewed from either perspective, you would then miss an important point of detail: the outcome was predetermined by the availability of decision support information.
MEPC 75 demonstrated that information is the Achilles Heel of the regulatory response to growing GHG emissions from shipping. The Fourth IMO GHG Study provides important information on emissions, the IMO knows much less about solution readiness of alternative energy carriers and power sources, and about the impacts of policy options on the global fleet, economic growth, trade and sustainable development. This needs to be rectified.
Moving faster on increasing ambition for IMO 2030 and IMO 2050 and the measures to deliver an energy transition which some have called for will falter if it is assumed that there will be a different outcome with the same approach to information in the future.
No single entity can provide all the needed information but with it, IMO has a chance to be bolder in its decision making. LR’s Maritime Decarbonisation Hub is our contribution to providing objective and evidence-based insight into what can be achieved and the ways and means to do it. We can all play our part; realising any degree of ambition depends upon it.
More work, less fuel
MEPC 75 agreed a short term-measure to reduce the carbon intensity of shipping, compromising a requirement for existing ships to be as technically efficient as new ships as soon as possible after October 2022 (the Energy Efficiency Existing Ship Index (EEXI)), and a requirement for operational carbon intensity reduction from 2023.
Whilst the environmental benefit of EEXI has been questioned, the time frame for compliance is unquestionably challenging and the industry is strongly recommended to take early steps to assess the impact of the EEXI on their ships, make the necessary adaptations and be prepared to demonstrate compliance from October 2022 (exact date TBC) at the latest. Not being compliant puts ships’ ability to trade at risk.
Once you have passed the EEXI test, then comes the need to reduce operational carbon intensity from 1 January 2023. This requirement uses the building blocks already available in MARPOL Annex VI: the annual monitoring, reporting and verification cycle for fuel oil consumption data (IMO DCS) and the Ship Energy Efficiency Management Plan (SEEMP). Whilst the mandatory requirement to reduce carbon intensity has been approved and will be included in MARPOL Annex VI, the detail of: by how much, by when, using what metrics; the definition of a rating mechanism; and the verification audit regime for SEEMP will be in non-mandatory guidelines which are yet to be finalised and will be subject to a lot of work between now and May 2021.
The fact that so much of the detail remains to be determined makes planning for the measure challenging, but not impossible. It is this carbon intensity reduction requirement which will put increasing pressure on fleets between 2023 and 2030, with adaption bringing consequences for revenue, OPEX and CAPEX. Equally, the requirement will add a further level of sophistication to the business of shipping which can be leveraged. Understanding how limits on operational carbon intensity will impact trading patterns and voyage flexibility will be important, particularly for charterers and owners on the spot market.
Both requirements are subject to reviews which are to be completed by 1 January 2026 and will determine the extent to which the measure will tighten its grip on carbon intensity and under-performing ships thereafter. It is recommended that the planning assumption is that the performance of a ship under the more flexible regime pre-2026 will be taken into account should a more robust regime be implemented after 2026.
The measure remains subject to a detailed assessment of the impacts on States which needs to be competed for MEPC 76 in June 2021 but working on the expectation of a delay is not advised.
Funding for R&D
The industry proposal for an International Maritime R&D Board/Fund to accelerate the research and development of low-carbon and zero-carbon fuels, energy sources, propulsion systems and other new GHG reduction technologies was welcomed in principle but questioned on everything from trade impacts of the $2 per tonne of fuel levy to governance and intellectual property rights. We will have to wait until MEPC 76 in June 2021 to find out where a revised proposal could take the debate.
A fundamental question has arisen though: why does the funding and R&D need to be coordinated by or on behalf of the IMO? There are alternative ways of de-risking the investment, one of which is by reinforcing expectations that investment in an energy transition will be required in an ambitious timeframe. The value of bold, resilient decisions should not be underestimated. But that Achilles Heel needs treating.
The benefit for the industry is that this may serve the objective of getting scaled and commercialised solutions to market faster; the urgency of need focuses resources like nothing else.
Pace of change and market-based measures
Both the approval of the short-term measure and the discussion on R&D resulted in debates about the future level of ambition of the IMO and the need to bring forward work, particularly on market-based measures.
Going further and faster on emissions reduction makes the regulatory problem of a missing market for zero-carbon fuels acute. Designed correctly, market-based measures have an important role to play in addressing this market failure, but they proved divisive before and there is no evidence progress will be easier now.
Market-based measures change the rules of the game and the negotiations needed to achieve consensus. To date, consensus has been very comfortable with command and control and will continue to be if that Achilles Heel does not get treatment.
Find out more
Other relevant outcomes are summarised in LR’s summary report of MEPC 75 available at lr.org/imo
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