Market Based Measures (MBMs) to Reduce Greenhouse Gas (GHG) Emissions from Ships

It has been customary to break down the spectrum of measures to reduce maritime emissions into basically three major classes.

  • First, technological measures include more efficient (energy-saving) engines, more efficient ship hulls and designs, more efficient propellers, cleaner fuels (low carbon content, Liquefied Natural Gas-LNG), alternative fuels (fuel cells, biofuels, etc), devices to trap exhaust emissions (scrubbers, etc), energy recuperation devices (exhaust heat recovery systems, etc), “cold ironing” in ports, various kites, and others.

  • Second, we have logistics-based (tactical and operational) measures, which include speed optimization, optimized weather routing, optimal fleet management and deployment, efficient supply chain management, and others that impact the logistical operation.

  • Third, we have what we call market-based measures or MBMs. These include a bunker levy, Emissions Trading Systems (ETS), and a variety of others.

We note that the partition into the above three categories is, in many respects, artificial. This is so because an MBM may induce the ship owner to adopt (a) logistics-based measures in the short run, and (b) technological measures in the long run. Both sets of measures would result in emissions reductions.

Τhe activity of the International Maritime Organization (IMO) to reduce greenhouse gases (GHGs) has been largely on two parallel tracks. GHGs include carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O) and others. The first GHG track mainly concerned the so-called Energy Efficiency Design Index (EEDI), which is an index that aims to reduce grams of CO2 per tonne mile for each ship built after 2012. EEDI was adopted by the IMO in July 2011, after fierce resistance from developing countries (China, Brazil, India, and others). The second GHG track concerned MBMs. It is interesting that discussion on these two tracks was conducted with no apparent connection between the two, even though both tracks concerned the same objective and as some of the MBMs proposed at the IMO embedded EEDI in their formulation.

For MBMs, in 2010 an Expert Group was appointed by the IMO’s Secretary General after solicitation of member states and was tasked to evaluate as many as 10 different MBM proposals, submitted by various member states and other organizations. All MBM proposals described programs and procedures that would target GHG reductions through either ‘in-sector’ emissions reductions from shipping, or ‘out-of-sector’ reductions via the collection of funds to be used for mitigation activities in other sectors that would contribute towards global reduction of GHG emissions.

After considerable discussion, a 300+ page report evaluating the MBM proposals was prepared by the MBM Expert Group and was presented and discussed at the IMO. The report went at length in assessing each MBM according to some evaluation criteria, in modeling future scenarios and in assessing the impact of MBMs on trade and developing countries. However, the report contained no horizontal comparison of MBMs and no recommendation as to which MBMs should be further pursued.

In fact, reception of the proposed MBMs at the IMO has been mixed at best. In addition to the lack of consensus among MBM proposers, the group of developing countries were as much against any MBM as they were against EEDI. Among industrial stakeholders, the International Chamber of Shipping, and several ship owners associations came out against an ETS, on the ground that it would be unworkable for the shipping industry. Then in May of 2013 the IMO decided to suspend discussion on MBMs altogether, rechanneling the discussion toward the subject of Monitoring, Reporting and Verification (MRV) of CO2 emissions.

The MBM saga continued with the February 2017 vote of the European Parliament to include shipping into the EU ETS as of 2023, in case no global agreement is reached at the IMO by 2021. This caused serious concern among industry stakeholders that such a regional MBM would create serious distortions, not to mention that it might not necessarily reduce maritime CO2 emissions. In November 2017, and after some negotiations between the EP and the EU Council of Ministers, it was agreed to align the EU with the IMO process, and essentially refrain from taking action on ETS before seeing what the IMO intends to do on GHGs. Industry circles, concerned with the effects of an early EU ETS, welcomed this development. Whether or not this latest agreement at the EU level might put some pressure on the IMO to resume the suspended discussion on MBMs and adopt a global MBM before the EU moves on ETS is unclear at this time. And even though the ETS looks like the default scenario for the EU if progress at the IMO is not deemed satisfactory, precisely what action the EU will take and when that action will be taken is equally unclear.

In April 2018 the IMO reached the landmark decision to adopt an initial strategy for GHG reductions that sets (among other things) a target of GHG reductions of at least 50% by 2050, vis-à-vis 2008 levels. A broad list of potential measures has also been proposed, however at this point in time no prioritization among measures exists. MBMs are included in the set of medium term measures, but only obliquely. To quote from the decision text, “new, innovative emission reduction mechanism(s), possibly including Market Based Measures (MBMs), to incentivize GHG reduction”. No measures have been specified to be adopted until 2023 at the earliest, the year when the initial strategy is supposed to be finalized. Other than the above wording, and as things stand right now, there is little in the IMO process that would reopen the MBM discussion anytime soon. Political obstacles seem too high for this to happen.

Still, in our opinion, and in spite of the politics of the issue, a carefully designed MBM such as a bunker levy would be the only viable option to substantially reduce GHGs from ships. The option would induce speed (and hence GHG emissions) reductions in the short run, plus in the long run it would make viable a wide set of GHG emissions reductions technologies and fuels that are currently non viable.

Author: Professor Harilaos N. Psaraftis, Technical University of Denmark, Inspiring Speaker at the #IntelligeceHunt5 Finals, 7.6.2019 in Oslo

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