By Cate Hull
For many in the shipping industry, reducing their carbon footprint is part of all future planning.
Maersk and its partners launched a decarbonisation pilot project that kicked off with the departure of an ultra-large container ship (ULCS) from Rotterdam to Shanghai using biofuels.
Partnering with eight multinational companies that established the Dutch Sustainable Growth Coalition (DSGC) in 2012, Maersk has agreed to sail one of the first ULCSs, the 18,000 twenty-foot equivalent unit (TEU) Mette Maersk on a return journey using up to 20 percent sustainable second-generation biofuels that will save 1,500 tons of carbon and 20 tons of sulfur in a single voyage.
According to David Samad, senior manager in Maersk’s Technical Innovation Group and project lead on this initiative, the DSGC aims “to drive sustainable growth by combining economic profitability with environmental and social progress — and in that way contribute to the United Nation’s Social Development Goals (SDGs).”
The German-based New Climate Institute for Climate Policy and Global Sustainability recently published an Eight Point Carbon Pricing Plan designed to place a levy on shippers to reduce GHG emissions.
Here are New Climate’s eight points:
1. Revise the existing MRV regulation to increase transparency and include per route emissions
To implement a levy on emissions, it is necessary to first know how much is being emitted and exactly who is responsible for the emissions on each route. There are currently two data collection systems for international shipping: the EU MRV system and the IMO Data Collection System (IMO DCS). The EU MRV applies to all ships weighing at or above 5,000 GT sailing to and from EU ports and the data collected is publicly available. The IMO DCS also applies to ships weighing at or above 5,000 GT and has a global coverage, but individual ship data remains confidential. However, to assess a levy for shipping, the MRV system would need to be both global in scope and publicly available per ship and route, so neither the EU MRV nor the IMO DCS suffices in their current form.
2. Make the “shipping company” the compliance entity
An equally important question is who should be responsible for paying the levy. In theory this could be done “upstream” at the point of fuel suppliers, or “downstream” at the point of the shipping company, which could be defined as “the shipowner or any other organisation or person such as the manager or the bareboat charterer, which has assumed the responsibility for the operation of the ship from the shipowner.” As enforcement of a levy may be difficult upstream, using this definition of shipping company for the compliance entity places the compliance obligation with the entity that is most able to make decisions about reducing emissions.
3. Make the levy payable either directly to the IMO or integrate levy payment procedures into port fee structures
The administrative burden of any new levy should be kept to a minimum. A designated payment matched to emission reporting and verification could be paid directly to the IMO or integrated into the berthing fee structure that shipping companies already pay to port authorities. Approximately 28 of the 100 world’s largest ports already apply environmentally differentiated port fees. In such an approach, more efficient ships or ships willing to reduce speed in their approach pay a reduce docking fee. Such adjusted fees could be expanded to include the levy price.
4. Build competences to check compliance and enforce the levy as part of port state control measures
Article 218 of UNCLOS provides port states with the right to take actions against vessels that violate international rules and standards, if the vessel is voluntarily in the port of that state. In addition, several Memoranda of Understanding have been signed reinforcing the role of port states in enforcing safety and environmental regulations. Combined with MRV data, a port could check that a shipping company is up to date with its levy payment obligations as it currently does with bunker delivery notes. Compliance would apply to emissions from the vessel since the last time the vessel entered a participating port. This would incentivise a ship charterer to verify that levy obligations have been paid for previous voyages undertaken by other charterers.
5. Set the levy level to provide a clear and steady incentive for action
The levy should be set high enough to ensure an incentive to take emission reducing operational measures in the short term and make zero carbon technologies increasingly competitive in the medium term. The price level at which a levy would be effective partially depends on cost differences between renewable options for marine fuels and prices for incumbent fossil fuels.
The price of alternatives and therefore the required carbon price to induce change depends on several factors. Renewable fuels, for example for hydrogen or ammonia, are tied to the cost of renewable electricity. If this cost is low, costs for e.g. hydrogen decrease too, making this fuel more attractive. For shorter distances, electric shipping is a promising option, especially because of the comparatively high amount of energy lost in conversion from electricity to hydrogen and then further into gas through methanation.
6. Set a clear upward trajectory for the levy to provide more certainty for investors
Starting with a moderate levy price level can help avoid large market distortions or a shock to world trade. The levy could then increase on an annual basis to provide certainty for investors and make the transition to zero-carbon fuels and technologies attractive such that fossil fuels are phased out by around 2050. By increasing the levy each year, the IMO can react on technological changes in the shipping sector. Considering that ships have a life span of several decades; the price level should ensure new fossil fuel powered ships are uncompetitive by around 2030.
7. Establish a fund to receive and disburse levy revenues
Revenues from the levy could go towards a special purpose fund, that could address the principle of CBDR-RC, compensating disproportionately affected states. Moreover, the fund could promote further R&D to improve best available technologies and operational practices and bring them into the mainstream, for example with a focus on ports in developing countries. The IMO has already set a precedent for a multilateral fund with the International Oil Pollution Funds. Another model could be the Global Maritime Technology Cooperation Centres Network (GMN) Fund as called for by Cambodia, China, Ecuador, Georgia, Iran, Jamaica, and Kenya at MEPC73.
8. Set a clear course for a decarbonised maritime future
Discussions on establishing a levy for international shipping could be introduced in a workstream within the Marine Environment Committee (MEPC) for candidate medium-term measures that specifically includes “new/innovative emission reduction mechanism(s), possibly including Market-based Measures (MBMs), to incentivize GHG emission reduction.” To be implemented from 2023, the process to propose, lay the groundwork and implement the levy must start now.
Cate Hull is the CEO of FreightExchange, a freight and logistics company based in Sydney.