North American Panel 4 November 2010 Houston Reducing GHG Emissions from Shipping Peter M. Swift

Climate Change (GHG emissions) A challenge for all, including shipping

Shipping is energy efficient - environmentally responsible, reliable and cost efficient Source: Danish Shipowners Association

Shipping is energy efficient, BUT… CO 2 emissions by country (2007) CO 2 emissions from shipping 2.7% of global total (2007) and predicted to grow as trade expands

Reducing GHG Emissions from Shipping Regulatory Processes & Timetables UNFCCC and IMO Programmes Industry Initiatives

The Regulatory Processes UNFCCC 1992 IMO since 1997 Kyoto Protocol, adopted 1997 entered into force 2005 Copenhagen Accord 2009 UNFCCC = United Nations Framework Convention on Climate Change

Kyoto Protocol Established under UN Framework Convention on Climate Change (UNFCCC) – adopted in 1997 Ratified by 181 countries – not the USA Categorises Annex 1 (Developed) Countries and Non- Annex 1 (Developing) Countries Annex 1 Countries are committed to make GHG reductions with set targets, but also flexible mechanisms Runs through to 2012, - Conference of Parties endeavouring to develop a successor Kyoto recognises “common but differentiated responsibilities”, i.e. developed countries produce more GHGs and should be more “responsible” for reductions Kyoto looks to IMO to address Shipping and ICAO to address Aviation, and as such these emissions are currently excluded from Kyoto targets

IMO – UNFCCC Conflicting principles - a major issue IMO Principle: “No More Favourable Treatment” Versus Kyoto Protocol principle: “Common But Differentiated Responsibility”

Recent and future timetable Selected Key Dates 12/2009UNFCCC COP15 Meeting, Copenhagen 3/2010IMO MEPC IMO MEPC MBM-Expert Group IMO MEPC Intersessional (EEDI) 2010UNFCC Intersessional meetings 9/2010IMO MEPC /2010 UNFCCC COP16 Meeting, Cancun /2011 INTERTANKO Council 7/2011 IMO MEPC 62 12/2011 EU Deadline for IMO/International Agreement 2012 Kyoto Protocol expires

UNFCCC - COP15 The outcome: NO targets NO resolution of Kyoto/IMO Treaty conflict NO direct reference to international shipping in the non-binding Copenhagen Accord BUT subsequently: International Aviation and Shipping should be regulated via UNFCCC and have targets as per other industries (EU Parliament) Shipping should make its “contribution” to Climate Change measures with $$$$ (UN Advisory Group) ICAO and IATA agree a package of reduction measures

Reducing GHG Emissions from Shipping Technical measures Operational measures Market based measures

Reducing GHG Emissions from Shipping IMO Programme developing: Technical Measure (EEDI for new ships) Operational Measure (SEEMP & EEOI for new and existing ships) Market Based Measure (if needed)

Technical Measures Environmental cost = Emission of CO 2 Benefit = Cargo capacity transported a certain distance measures energy efficiency of new ships encourages design and technical developments Initially only the calculation of the Attained EEDI was planned to be mandatory, but the drive is to establish a mandated requirement, such that the Attained EEDI < Required EEDI Energy Efficiency Design Index (EEDI)

EEDI Required [ Tankers>20,000 DWT]10% 20% 30% Phase Phase Phase 3 on and after 2025 Reference Line = Phase 0 = no reduction (2013 & 2014) EEDI DWT Attained EEDI < Required EEDI

Operational Measures Ship Energy Efficiency Managment Plan (SEEMP) –encourages improvement energy efficiency of ships in operation –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 Energy Efficiency Operational Indicator (EEOI) = CO 2 emitted per unit of transport work CO2 emitted measured from fuel consumption Transport work = cargo mass x distance (nm) EEOI is “voluntary” – a management tool

Market Based Measures MBMs under review at MEPC Emissions Trading Schemes GHG Fund and Leveraged Incentive Schemes Ship Efficiency & Credit Trading and Vessel Efficiency System Rebate Mechanism Some would require all ships to pay a contribution Some provide rewards to more energy efficient ships Most include a support mechanism to developing countries

IMO MBM – Expert Group Group of MBM schemes which would require all ships to pay a contribution: 1. International Fund for Greenhouse Gas emissions from ships – suggested by Denmark and supported in principle by Cyprus, Marshall Islands and Nigeria 2. Global Emission Trading System for International Shipping, as proposed by Norway, France and Germany with general support from the UK Group of MBM schemes which provide rewards to more energy efficient ships: 3. Leveraged Incentive Scheme based on the International GHG Fund - proposed by Japan. 4. Trading with Efficiency Credits based on Efficiency Standards for All Ships - proposed by the USA. 5. Vessel Efficiency System - proposed by the World Shipping Council. Plus Rebate Mechanism Some are in sector, i.e. shipping only; others are out of sector

Why are MBMs Proposed ? To incentivise or reward owners or To penalise inefficient ships or To fill the gap between what is expected and what is delivered

Why are MBMs Proposed ? or ETS or other MBM Ships have a long life – EEDI takes time / operational measures not readily quantifiable; further “incentives” may be needed International trade and shipping will continue to grow A deemed “need” to fund offsetting in other sectors

Application of the GHG Fund Offset (out of sector) Actual emissions BAU Target line EEDI

Application of ETS Offsetting (in sector & out sector) Actual emissions BAU Target line EEDI Funds to UNFCCC

Application of the Leverage Incentive Scheme Req. EEDI 1 Req. EEDI 2 Req. EEDI 3 EEDI Attained 0% 50% 100%50% Ship 2 Ship 1 Ship 3 EEOI benchmark Actual PATERN 1 PATERN 2 Initial EEOI Reduced EEOI NEW BUILDING EXISTING SHIPS

Application of the Ship Efficiency and Credit Scheme US EEDI (EIr) IMO EEDI New ship IMO EEDI (US EIa) Efficiency Credit = (EIr – EIa) x Activity Existing hip (EIa) Efficient Credit >0 = Sells Credits Efficient Credit < 0 = Buys Credits

Future Means of Reducing GHG Emissions from Shipping Industry activities and initiatives

Means of Reducing GHG Emissions from Shipping Industry initiatives: Work on EEDI – formula and reference line (workshops) Developing and assessing additional GHG reduction measures for new and existing ships (workshops) Developing Marginal Abatement Cost Curves - to determine what is achievable (study groups) Developing and implementing operational measures, such as “Optimal speed” (Liners) and “Virtual Arrival” (Tankers and Bulkers) Developing industry SEEMPs, such as INTERTANKO’s TEEMP – Tanker Energy Efficiency Management Plan plus Active participation in MBM Expert Group

Technical and Operational Mitigation Measures

Marginal Abatement Cost CurvesPRELIMINARYDRAFT, Not for circulation Developed in conjunction with DNV

Virtual Arrival OCIMF / INTERTANKO project THE CONCEPT: Virtual arrival is about identifying delays at discharging ports, then managing the vessel’s arrival time at that port/terminal through well managed passage speed, resulting in reduced emissions but not reducing capacity. It is NOT not about blanket speed reduction to match current market conditions. Virtual Arrival is all about managing time and managing speed.

Virtual Arrival OCIMF / INTERTANKO project THE MECHANICS: Cooperation agreement between Charterer (Terminal Operator) and Owner Speed is “optimised” when ship’s estimated arrival is before the terminal is ready Owners and Charterers agree a speed adjustment May use an independent 3 rd party to calculate / audit adjustment Owners retain demurrage, while fuel savings and any carbon credits are split between parties

Virtual Arrival - additional benefits In addition to directly reduced emissions, other benefits include: Reduced congestion & toxic emissions in the port area Improved reliability/safety Potentially increased use of weather routing Important pre-conditions: The safety of the vessel remains paramount The authority of the vessel’s Master remains unchanged The basic terms of trade remain the same

Is an MBM needed for Shipping ? USD/tonne *MGO since Dec 2008 Source: Bunkerworld Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 MDO/MGO* HFO Bunker prices 2000 – 2010 [USD/tonne] HFO 380 cst / MDO / MGO*, Fujairah With bunker costs frequently % of total operating costs, does shipping need any further market incentive to reduce GHG emissions ?

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