Anti-Trust/Competition Law Compliance Statement INTERTANKO’s policy is to be firmly committed to maintaining a fair and competitive environment in the world tanker trade, and to adhering to all applicable laws which regulate INTERTANKO’s and its members’ activities in these markets. These laws include the anti-trust/competition laws which the United States, the European Union and many nations of the world have adopted to preserve the free enterprise system, promote competition and protect the public from monopolistic and other restrictive trade practices. INTERTANKO’s activities will be conducted in compliance with its Anti- trust/Competition Law Guidelines.

GHG EMISSIONS FROM SHIPS UPDATE ON IMO DEVELOPMENTS INTERTANKO COUNCIL MEETING Tokyo, 13 May 2009

IMO ACTIONS Technical measures Operational measures Market based instruments (MBI)

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 CO2 - Benefit: Cargo capacity transported a certain distance (- Relates to a seagoing maximum condition) (- Attained index < Required index)

OPERATIONAL MEASURES Ship Efficiency Managment Plan (SEMP) –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 and improvement towards set goals EEDI = Fuel consumption / cargo x distance INTERTANKO Guide on SEMP for Tankers

MARKET BASED INSTRUMENTS IMO ”package”: should & would it include MBIs? which MBI? SHOULD: –Long life span of ships –Growth of international shipping –CO2 reductions due to EEDI = long term –Measures on existing ships = not sufficient to meet reductions of 20% or more in the short term (up to 2020) WOULD: –To be discussed at MEPC 59 (July 2009) –Expected not to be opted out WHICH: –GHG Compensation Fund –Emission Trading Scheme (ETS) –Cap & Trade Scheme –Alternatives to or combinations of these

MBIs – Common Key Elements A global, binding, separate legal entity – a new Convention An Independent Secretariat or Administration Funds used for Join Implementation (JI) & Clean Development Mechanisms (CDM) Monitoring through fuel used Each ship has an “account” for contributions or allowances Challenge to be applied world wide Will increase ships’ operational costs

Contributing to the adaptation of developing countries and to investment to reduce CO2 emission to reduce CO2 emission (Compatibility of CBDR principle and uniform application of rules ) uniform application of rules ) Contributing to the adaptation of developing countries and to investment to reduce CO2 emission to reduce CO2 emission (Compatibility of CBDR principle and uniform application of rules ) uniform application of rules ) Mitigation/Adaptation project R&D for highly efficient ships International GHG Fund IMO-TC Contributions ( per unit fuel) GHG Fund proposed by Denmark

Leveraged Incentive for Efficiency Improvement (improvement effort will be rewarded in the form of refund. Leveraged Incentive for Efficiency Improvement (improvement effort will be rewarded in the form of refund. Contributing to the adaptation of developing countries and to investment to reduce CO2 emission to reduce CO2 emission (Compatibility of CBDR principle and uniform application of rules ) uniform application of rules ) Contributing to the adaptation of developing countries and to investment to reduce CO2 emission to reduce CO2 emission (Compatibility of CBDR principle and uniform application of rules ) uniform application of rules ) Mitigation/Adaptation project R&D for highly efficient ships Recycling capacity building International GHG Fund Assistance to infrastructure development Human Resource development IMO-TC Refund (based on evaluation) Contributions ( per unit fuel) [ 60% ] [ 40% ] Leveraged Incentive Scheme for GHG Fund (proposed by Japan) Labeling (Evaluation of efficiency improvement)

UNFCCCEU ETSIMOCentral Registry Flag Ship DOC Fuel Quantity CO2 Emissions Allowances Verifier Shipping Companies Fuel Input Other EntitiesCountries Quantity Carbon Factor Surrender Allowances ISM Audit Carbon Management process Global Sectoral Report Allocate allowances to Industry Grant allocation to ships Other Shipping Companies Buy & Sell credits Ships can buy AAUs from Countries via the IMO Ships can buy CERs & EUAs direct from other entities Shipping companies can invest directly in CDMs and JIs ETS proposal for the shipping industry suggested by SEAaT

Shipping Company Bulk carrier Ro-RoAframaxVLCC IMO Start of compliance period During the compliance period End of compliance period - reporting UNFCCC Allocation to industry Allocation to company e.g 1000 tonnes based on fleet shape Operates fleet within 1000 tonnes allocation 400 tonnes 300 tonnes 200 tonnes 100 tonnes Actual 150 tonnes Actual 250 tonnes Actual 450 tonnes Total allocation = 1000 tonnes Total actual emissions = 1000 tonnes Therefore no credits to sell or buy How would this work on a shipping company level? (suggested by SEAaT)

MBIs – Differences GHG Fund: –perceived as a tax and with no imposed CAP –easier to administrate & predictable level of contribution –alternative best explained in IMO ETS –establish a CAP on emissions but.. no absolute CAP –emissions beyond CAP – higher price for allowances –trading with other industries – very complex monitoring required, yet not defined –system for shipping alone - need to monitor each ship’s emissions (fuel consumption seems not a sufficient measure) –free allowances would only apply in the first stage Japanese proposal –provides for rewards to energy efficient ships (60% of funds) –requires sophisticated assessment of ships qualifying for reward + an appeal system –some of the funds used for no direct GHG emissions reductions measures

OCIMF: ETS Pros Reflects market price of carbon. Can link shipping into wider GHG reduction initiatives. Direct purchase of CO2 units from Administrator reduces opportunity for evasion. With enforcement by port states, implementation can initially be limited to Annex 1 countries (80% of world trade). Equal treatment of international trading vessels > 400 GRT regardless of ownership, flag state, or port of origin. Enables the ‘invest-or-buy’ concept. By definition, environmental objective is addressed. Cons Marine ETS still at conceptual stage, allowance allocation and/or auctioning needs to be defined. Will require definition of a ‘Cap’ Fluctuating carbon market price introduces investment uncertainty for GHG reduction technology. Requires set-up of trading administration and agreement on an effective monitoring, verification and enforcement system. Effective enforcement will require the set up of a data exchange process involving all participating states. Requires strict investment criteria and monitoring of fund expenditure. ‘Critical mass’ of Annex 1 and non-Annex 1 countries must be signatory to be effective

OCIMF: GHG Compensation Fund Pros Provides ship owner some certainty over costs Conceptually simple to implement, Equal treatment of international trading vessels > 400 GRT regardless of ownership or flag state Use of bunker delivery note as evidence of payment facilitates enforcement. Accuracy of the bunker oil consumption baseline will improve as global compliance is achieved. Data can be used for Annex VI supply/demand studies. Introduces an ‘invest-or-pay’ concept Cons May not reflect the price of carbon. Requires monitoring and adjustment of levy to achieve desired outcome. ‘Critical mass’ of major bunker supply countries must be signatory for effective implementation. Issues of principle, governance and administration need to be resolved. For reductions in GHG emissions to be achieved, strict investment criteria and monitoring of fund expenditure are required. Setting the contribution level to the fund is subject to political pressures. The complexity of the bunker supply chain makes collection of funds by the Administrator unlikely to be 100% effective. Once introduced, a levy is unlikely ever to be removed even if the CO2 reduction target is achieved

MBIs – WHICH IS BEST Which alternative: – is workable and easy to enforce? –gives most CO 2 reduction for the money spent? –realy meets the IMO nine principles? What should be INTERTANKO policy line? –acceept MBIs as part of IMO package? –on which basic principles?

MBIs - INTERTANKO PRINCIPLES (suggested) 1. Effective in contributing to the reduction of total GHG - funds collected be used as "offsets", e.g. to stimulate JI & CDM and IMO Convention, etc. - stimulates leading energy efficiency technologies - promotes innovation and R&D 2. Environmentally sustainable without negative impact on global trade and growth - cost effective - able to limit or effectively minimise competitive distortion - credit for actions already taken which have already resulted in GHG reductions 3. Efficient and credible enforcement & monitoring - binding and equally applicable to all ships - practical, transparent, fraud-free and easy to administer - able to demonstrate compliance through proper monitoring (the scheme should be based on actual fuel burned) - certainty & predictability of the scheme