ASIAN PANEL GREENHOUSE GAS EMISSIONS FROM SHIPS ASIAN PANEL March 2, 2010 GREENHOUSE GAS EMISSIONS FROM SHIPS JOSEPH ANGELO DEPUTY MANAGING DIRECTOR

IMO ACTIONS Nine fundamental principles Technical measures Operational measures Market based instruments (MBI)

IMO PRINCIPLES 1.Effective in contributing to the reduction of total global GHG emissions 2.Binding & equally applicable to all flag States 3.Cost-effective 4.Able to limit or effectively minimize competitive distortion 5.Based on sustainable environmental development without penalizing global trade and growth 6.Based on a goal-based approach and not prescribe specific methods 7.Supportive of promoting and facilitating technical innovation and R&D in the entire shipping sector 8.Accommodating to leading technologies in the field of energy efficiency 9.Practical, transparent, fraud free and easy to administer

TECHNICAL MEASURES Energy Efficiency Desing Index (EEDI) - require a minimum energy efficiency of new ships - stimulate technical development - separate technical and design based measures from operational and commercial measures - compare the energy efficiency of an individual ship to similar ships which could have taken its cargo - Cost: Emission of CO 2 - Benefit: Cargo capacity transported a certain distance (Relates to a seagoing maximum condition)

OPERATIONAL MEASURES Ship Energy Efficiency Managment Plan (SEEMP) –improve energy efficiency of ships in operations –best measurable practices on operational procedures setting goals –plan implementation strategy –monitoring – Energy Efficiency Operational Indicator (EEOI) –procedures for self-evaluation/improvement towards set goals Energy Efficiency Operations Index (EEOI) - assist shipowners/operators in the evaluation of the performance of their fleet with regard to CO2 emissions - how to measure a ship’s energy performance - how the EEOI can be used to promote low emissions from ships INTERTANKO Guide on Tanker EEMP - assist members in implementing IMO SEEMP

IMO STATUS MEPC agreed on: Interim Guidelines on the method of calculation of the Energy Efficiency Design Index (EEDI) for new ships Interim Guidelines on voluntary verification of the EEDI Guidelines for voluntary use of the ship Energy Efficiency Operations Index (EEOI) Guidelines for Ship Energy Efficiency Management Plan (SEEMP) Workplan for further consideration of Market Based Instruments (MBIs)

IMO WORKPLAN MEPC 60 (March 2010) – Further details of MBI proposals are submitted MEPC 60 – Further consideration of methodology and criteria for feasibility studies and impact assessments of MBIs MEPC 61 (October 2010) – Preferably clearly indicate which MBI it wishes to further evaluate and identify elements to be included MEPC 62 (Summer 2011) – Could be in a position to report progress to Assembly and identify possible future steps

MARKET BASED INSTRUMENTS Should MBIs be included? Reasons for MBIs –Long life of ships –Growth of international shipping –CO 2 reductions due to EEDI (new ships) = long term measure –Measures on existing ships = not sufficient to meet reductions of 20% or more in the short terms (up to 2020) Which MBI? - GHG Compensation Fund (Denmark/Japan) - Emission Trading Scheme (ETS) (Norway, Germany & France) - US alternative – based upon EEDI - World Shipping Council (WSC) – modified US alternative

GHG COMPENSATION FUND Ships make a set contribution to the Fund based upon fuel consumption Collection by registered Bunker Suppliers Bunker Delivery Note as evidence Mandatory registration of Bunker Suppliers Revenues used for - Mitigation, Adaption and Technology Projects - Non-vessel Specific R&D Projects - Technological Cooperation within IMO - Rewarding most efficient ships (Japanese alternative)

EMISSION TRADING SCHEME CAP on net CO 2 emssions for shipping CAP to be agreed by UNFCCC or IMO with periodical declining trajectory Carbon allowance = 1t equivalent CO 2 emission Allowances (distributed) or sold = CAP End of each period – ship owners surrender allowances to correspond to the actual fuel consumption: –emissions < CAP – rest allowances can be sold –emissions > CAP – buy additional allowances

USA ALTERNATIVE Compliance with Efficiency Index standard (EI R ) EI R uses the EEDI formula as a model Ship delivery: EI R = mandatory EEDI value EI R value gradually and periodically lowered Ship compliance: –attained Efficiency Index (EI A ) or –direct and continuous fuel consumption monitoring IMO establish Efficiency Credit (EC) trading for ships Measuring compliance: EC = (EI R – EI A ) x Activity EC > 0 – ship sells credits; EC < 0 – ship buys credits Activity (over a compliance monitoring period) could be: –actual cargo tonne-miles; –tonne-miles only or –tonne-mile default value for each type and size of ship

WORLD SHIPPING COUNCIL VESSEL EFFICIENCY SYSTEM (VES) Combination of US MBI & GHG Fund Emission targets: –EEDI value and its reduction - new buildings –Less stringent base line and targeted reduction for ships in operations Ships meeting the target = no additional charges Less efficient ships = charges/ton of fuel consumed over the target IMO establish a Fund to collect charges

PRINCIPLES FOR INCENTIVES/PENALTIES GHG Fund –all ships pay a levy –contribution by fuel consumption (fixed price) –efficient ships receive a reward (Japan) ETS –all ships buy allowances –difference in number of allowances purchased (market price) US & WSC MBIs –no extra costs for ships complying with required efficiency standard –US - same standard for all ships (?) –WSC - different standards for new and for existing ships –Both provide incentive for efficient ships

INTERTANKO POSITION MBIs – a political decision Meaningful GHG reductions or a “cash cow”? If MBIs are included as part of IMO regulatory package for the reduction of GHG emissions from ships, the selected measures should meet the IMO nine principles INTERTANKO will make its own evaluation according to a set of principles similar to the IMO nine principles

INTERTANKO CRITERIA 1 Governed by the IMO and be specific for the shipping industry 2 Effective in contributing to the reduction of total GHG emissions: –any funds collected should be used as “offsets” –should stimulate leading energy efficiency technologies –should provide incentives for further innovation and R&D –should stimulate stakeholders, such as charterers and ports, to employ ships in the most effective manner to reduce GHG emissions 3 Environmentally sustainable without negative impact on global trade and growth –should be cost effective –should not lead to competitive distortion –should not disadvantage operators or ships which have already taken actions resulting in GHG reductions 4 Efficient and credible enforcement and monitoring –should be binding and equally applicable to all ships –should be practical, transparent, fraud-free and easy to administer by the governing authority –should enable compliance to be demonstrated through proper monitoring –should ensure certainty and predictability

COP 15 COP 15 provides little answers for shipping Copenhagen Accord refers to “new and additional funding shall be provided for developing countries” Will this come from shipping?? If so, could result in a double tax for shipping if MBIs are introduced IMO MEPC meeting in March should shed some light on this

COP 15 Kyoto Protocol remains in place Article 2.2 of the Kyoto Protocol – Parties included in Annex 1 shall pursue reduction of GHG emissions from marine bunker fuels working through IMO - “common but differentiated responsibilities” (CBDR) CBDR Concept is embedded in the Copenhagen accord Impact on IMO negotiations in March remains to be seen

COMPLICATING FACTOR Applying GHG emission standards only to the flags on Annex 1 countries will not have significant effect Would apply to less that 30% of the world’s fleet BUT, some are thinking – Technical and operational standards for all ships MBIs, if included, incorporate CBDR concept

INTERTANKO POSITION Shipping should strive to significantly reduce GHG emissions Advocates measures that would result in CO 2 and other GHG emissions reductions from tankers Believes that energy efficiency will be gained through better coordination with other stakeholders involved in the logistical chain Supports the IMO process to develop regulations that do not hinder commerce Supports “ship neutral” regulations, equally applicable to all flags

INTERTANKO POSITION Supports the adoption of EEDI Supports the adoption of SEEMP and has developed a SEEMP model specific for tankers Stakeholders and regulators have to agree on targeting levels for GHG emission reductions The target levels should be ambitious Targets should also be realistic and thus provide incentives for sustainable efforts to achieve them Initial agreed target levels could be adjusted as experience is gained - it is important to initiate the process of CO 2 emission reduction from shipping as soon as possible

VIRTUAL ARRIVAL Cooperation between Charterer (Terminal Operator) and Tanker Operator Speed is “optimised” when ship’s estimated arrival is before the terminal is ready Operator and Charterers agree a speed adjustment Uses independent 3 rd party to calculate/audit adjustment Operators retain demurrage, while fuel savings and any carbon credits are split between parties OCIMF-INTERTANKO have established Virtual Arrival project: - Monitoring trial voyages - Guidance for development of Charter Parties clauses - Criteria for certifying 3 rd parties

VIRTUAL ARRIVAL

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