Representatives from 175 governments gathered for a four-day summit held by the International Working Group on Greenhouse Gas emissions of the International Maritime Organisation in London from March 20th to 24th.
The summit focused on the urgent need to combat the significant contribution of the global shipping industry to the climate crisis. Currently, global maritime transport is responsible for releasing approximately 3% of worldwide greenhouse gases (GHG), and this figure is projected to rise due to the growing demand for marine transport.
In a few years, shipping-related GHG emissions could even reach a staggering 10-13%. It is no surprise that International Maritime Organisation (IMO) member states are calling for practical and immediate action to reduce the industry's carbon footprint.
Is the IMO stepping up its game in reducing GHG emissions from ships?
Since 1997, the IMO has acknowledged the detrimental effects of CO2 emissions from ships. However, the Organisation's progress towards formulating policies and mapping a way forward has been sluggish. One reason for this was the omission of shipping and aviation emissions from the Paris Agreement of 2015.
In 2018, the IMO inaugurated a Data Collection System requiring owners of ships above 5000 tonnes to monitor and report fuel consumption details. With the aim of formulating a definitive strategy by 2023, a lively debate on which long and short-term measures would be consistent with the diverging ambitions of the Member States followed. Notably, the IMO has recently faced intense pressure from its Members in Developing World countries, where global warming has had the most significant impact. Now, we learn, the World Bank has entered the debate, emphasising the humanitarian aspect to the reduction of GHG emissions by the shipping industry.
In 2023, the IMO's commitment to compelling ship owners in its Member States to take an active part in combatting the Climate Crisis is gaining momentum. The organization is shifting gears towards a more proactive approach.
How does the action at the IMO relate to that of the EU?
The EU has been actively committed to reducing GHG emissions from the shipping industry since 2008, and aims to achieve carbon neutrality by 2050. Currently, maritime transport within the EU emits around 4% of the entire EU’s CO2 output, even more than the GHG emissions released worldwide by marine transport, as reported by the IMO.
Without a doubt, the EU’s intensive and pioneering work towards the ‘EU Green Deal 2021’ - and its preceding and subsequent directives and regulations - have spurred the IMO into accelerating action.
Notably, the EU Monitoring, Reporting and Verification System (EU MRV) ( EU 2015 757) of carbon emissions from ships was followed by the IMO establishing in 2018 their own Data Collection System.
THE EU legislative bodies, the European Parliament, The Council of the European Union and the Commission have stressed for over a decade that setting binding requirements for shipping companies to reduce their CO2 emissions, is key to the need to decarbonate all sectors of the economy. It has linked that ambition to its existing Emissions Trading System (ETS). Maritime transport emissions will be capped as part of the overall ETS cap.
The EU ETS system is an emission cap-and-trade system where a limited amount of emission allowances, called ‘the cap’ is put on the market and can be traded. The cap is reduced yearly so that the EU’s emission target of 55% reduction is met by 2030, relative to 1999, while becoming neutral by 2050.
The upcoming Directive on shipping in the EU's Emission Trading System
After being urged for some years to include shipping in the EU's ETS, the Parliament, the Council, and the Commission combined, finally adopted a proposed Directive on January 23rd of this year, to include shipping in the EU's Emission Trading System (EU ETS) from 2024 onwards. A formal Directive from the European Parliament and the Council in this regard is now awaited, after which the legislation will enter into force.
The upcoming Directive sets ambitious targets for the maritime industry to cut GHG emissions by 2% starting in 2025, followed by 20% by 2035 and 80% by 2050. These cuts will apply to ships with a gross tonnage of over 5000, which account for 90% of CO2 emissions within the EU and 50% of energy use for voyages departing from or arriving in ports outside the EU. Under the new policy, shipping companies will pay for the emissions they have reported for the previous year.
To incentivize shipowners to adopt more sustainable practices, the EU will introduce penalties for excessive CO2 emissions. This will encourage them to phase out outdated ship technology, invest in energy-efficient vessels, and explore cleaner fuels and propulsion systems.
Shipowners will need to purchase and surrender ETS emission allowances for every tonne of reported CO2 emissions, based on the "polluter pays" principle. If ships exceed the limits set on their "dirty" energy consumption and fall short of their targets, they will be penalized by an administering authority of an EU Member State. The penalty paid will be collected and deposited into an "Ocean Fund," which will be used for relevant research in the sector and decarbonization measures in general. Once the Directive comes into force, the EU will be the first jurisdiction globally to impose a "carbon price" on CO2 emissions in the shipping industry.
The World Bank's proposal for a carbon levy
Back to the IMO, the World Bank has proposed a levy on greenhouse gas emissions from ships trading internationally to fund climate action. This would involve setting a carbon price and requiring shipping companies to contribute to a fund based on their emissions. Whilst the position of the IMO is not as progressed as the EU's recent agreement reached on 26th January, the debate on a carbon levy is leaning towards the World Bank's humanitarian goals.
It is clear the need for funding to combat the effects of climate change is evident in many jurisdictions worldwide, especially in Pacific islands that are experiencing rising sea levels.
However, within the IMO, there is a debate about how to use the revenues collected through the carbon levy. Developing countries are understandably seeking to benefit from financing climate goals with The World Bank appearing keen on this proposal. While larger member states tend to favour the use of the revenues for more climate change research as in the EU.
The jury is currently out on which side will win the argument but our bets are that the World Bank’s pressure to direct the spoils engendered by carbon levies to endangered countries will win the day.
The upcoming meeting of the Marine Environment Protection Committee of the IMO on July 8th is eagerly anticipated, as it is hoped that firm decisions will be taken to set a definitive net 0% emissions target for shipping by 2050.
It is worth noting that the EU is actively promoting the IMO's efforts via the 4 Million Dollar EU-IMO Energy Efficiency Project, which promotes the adoption of low-carbon technology in maritime transport in developing countries across Africa, Asia, the Caribbean, Latin America, and the Pacific. This cooperation between the IMO and the EU is a heartening sign that the shipping industry is taking climate change seriously, both globally and within the EU.