Acting on the Paris Agreement

Contrary to popular opinion, shipping was by no means ‘excluded’ from the Paris Agreement on CO₂ emissions: under the Kyoto protocol, which is still in force, responsibility to develop measures to reduce shipping CO₂ continues to live with the International Maritime Organization (IMO).

According to panellists at the ICS Shipping Conference 2016, this responsibility is something the IMO, and the wider shipping industry, fully accepts. However, both concede that responding to and meeting the objectives by 2030 represents an enormous challenge.  

Currently, shipping contributes 2.2% of CO₂ to the global total. The size of this figure is not necessarily because ships are inefficient, but simply because shipping is such an enormous industry.

Speaking at the conference, Simon Bennett, director of policy and external relations for ICS, argued that shipping is already, by far, the most carbon efficient form of transport, stating that shipping is 30 times more efficient than cargo allocation and five times more than trucks. 

Shipping is also the only industrial sector that already has a binding global agreement in place to reduce CO₂, which will enter into force in 2030. As a result of this, all new ships built after 2025 will be at least 30% more efficient than those built in 2000. Added to this, it is now mandatory for all new ships to have CO₂ efficiency plans in place to reduce their operational emissions.

Nonetheless, both governments and society expect more, and the Paris Agreement makes clear that all sectors of the economy are expected to determine a “fair and ambitious” contribution towards the reduction of CO₂, says Mr Bennett.

For shipping, the problem with this lies in the projections for future growth for demand for maritime trade, as well as shipping’s dependence on fossil fuels, he says, adding: “Even if the CO₂ emitted per tonne kilometre continues to reduce dramatically – as we’re confident it’s going to – we’re still going to be faced with a challenge.”

Intended contribution

While developing measures to reduce shipping’s CO₂ contribution, Mr Bennet says that it is important to remember that around 60% of the maritime trade now serves developing economies and, in view of shipping’s central role in the improvement of global living standards, any IMO commitment towards reducing the world’s CO₂ should arguably reflect this. “This does not mean that the IMO cannot develop a commitment to shipping that is very ambitious while being appropriate to shipping’s vital role in world development,” he adds.

Subsequently, ICS has proposed that, on behalf of the sector, IMO develops what it has called an ‘intended IMO-determined contribution to reducing CO₂’.

“We’ve chosen this term deliberately to mirror the language used in the Paris agreement,” says Mr Bennett. “In the same way that governments are free to develop national climate action plans that are appropriate to their international circumstances, we think IMO should be free to develop a commitment that is appropriate to the international shipping sector.”

With respect to what such an IMO commitment might eventually entail, “that’s the $64,000 question”, he says, adding that it is currently the subject of intensive debate among its member associations.

Vital alignment

ICS also has agreed to jointly kick-start a campaign to persuade the European Union of the vital necessity of realigning their monitoring of shipping’s CO₂ emissions with the worldwide CO₂ reporting regime that is about to be agreed by the IMO.

The EU regulation was adopted in 2015 to be fully implemented in about three years, but all ships trading in Europe, including non-flag ships, will be legally required to comply with some of its provisions as early as next year. Among other reasons, Mr Bennett says that he is concerned about the Commission’s intention to publish information about individual ships, which the ICS believes is based on arbitrary metrics that have very little relationship to actual CO₂ emissions, and could then be used to unfairly penalise individual ships.

What really concerns the ICS, however, is that if the EU refuses to realign its regime with IMO, it could be perceived by other governments at IMO as “a sign of bad faith”, which could then eventually inhibit any other consideration of CO₂ reduction measures at IMO.

Market-based measures (MBMs) remain a controversial topic among shipping personnel, many of whom are still not entirely convinced that they work or that they deliver genuine CO₂ reductions.

That said, Mr Bennett recognises that MBMs are still popular with many governments and with associations and think-tanks like the International Monetary Fund (IMF).

The possibility therefore remains that at some point in the future IMO might yet still decide to develop an MBM for shipping, although its immediate priority is implementation of the new CO₂ data collection system and the development of a possible CO₂ reduction commitment.

Certainty in tax

Carbon tax was another topic of conversation at the conference. Ian Parry, principal environmental fiscal policy expert in the IMF’s fiscal affairs department, argues that the maritime sectors are undertaxed as shipping is subject to favourable tax treatment through tonnage tax systems, which reflects the high mobility of the tax base.

Had there been a carbon tax on fuels in 2014 at $25 per tonne of CO₂, Mr Parry reveals that maritime could have contributed 13% of the total necessary climate-related financing.

“Either a fuel tax or emission trading systems is fine in our view as long as they are comprehensive, and prices are stable and aligned to environmental objectives, and the revenue is used productively,” he says.

Further, Mr Parry says that a pricing level of $25 per tonne is likely to be on the conservative side, adding that countries need prices of $50 to $100 per tonne to meet their objectives by 2030 under the Paris Agreement.

“The bottom-line for fuel tax is that it is an efficient source of revenue but the environmental benefits are fairly modest,” he says The tax would have to be applied globally as developing countries account for 40% of CO₂.”

Mr Parry concludes: “It seems to us that the exclusion of maritime fuel is somewhat anomalous as it would be a likely efficient revenue source. Offset schemes may lead to a net increase in emissions and we tend to think that a carbon tax is better as it provides more certainty over price.”