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Jotun 09/11/2016

Bentley Systems 10/11/16

COP21 has changed the climate of the environmental debate

The Naval Architect: November 2016

The Financial crisis more or less coincided with the uninspiring Copenhagen Climate Conference in 2009, resulting in Governments having other things to focus on than climate change.

In shipping, the broad CO2 debate also more or less vanished after 2009 for the reasons outlined above and almost all focus on air emissions since then has been about energy efficiency, NOx and SOx.

In the aftermath of COP21 and with the Paris agreement entering into force within a few weeks, I believe we can expect that CO2 will come firmly back on the agenda for shipping.

What was the real outcome of COP21?
First and foremost, COP21 became a real call for action. Nearly all participants have accepted that CO2 emissions need to be reduced and it is necessary to take action in order to limit the extent of global warming. The ambition is 1.5°C.

The biggest change since the disappointing Copenhagen Conference in 2009 is that the fronts between developed and developing countries have faded. The earlier talks between the US and China and the fact that these two countries have decided to start committing to climate change actions was important.

The Paris agreement is a legal agreement, but without commitments on targets and reductions. This will come in 2020. Until that time most of the participants have made voluntary pledges.

The old principle of “Common but differentiated responsibilities” was significantly weakened during COP21 and this has removed an important political barrier for further progress in the IMO. But, “differentiation” as a principle is still retained and we shall expect to see a special mechanism to cater for developing countries. This poses some real challenges for global industries like shipping and aviation.

The Paris agreement focuses on transparent and robust reporting of emissions and this will also apply to shipping and future IMO work. MRV represents the first step in such a system of measurement and reporting.

The Paris agreement also includes an obligation for developed countries to establish a Green Climate Fund, initially of US$100 billion. Shipping and aviation are likely to be seen as sources of funding, and this may become one driver for the establishment of market based mechanisms within these two sectors.

The Paris Agreement expects all sectors to contribute, including shipping and aviation.
As a result, it will become very important for shipping, through the IMO, to establish long term targets and trajectories and to communicate this properly.

To sum it all up, shipping got what it wanted (or at least what most of the stakeholders in shipping wanted), to keep the IMO as the regulator, but this also carries responsibilities for actually doing something over the next four years up to 2020.

Options for Shipping
CO2 is from 2016 firmly back on the agenda and IMO has the mandate (which it actually always had). The shipping Industry and stakeholders will need to take a much more proactive role on CO2 reductions than has been the case for the past six or seven years.

The downside of not being proactive will be that others take over and regulations will come from outside IMO. This means a messy patchwork of regional regulations.

The shipping industry needs to fight hard for four main principles related to future regulations on CO2:

  • Flag Neutral. This means leaving “Common but differentiated Responsibilities” behind and a move forward on a flag-neutral basis. If not, we might as well close down the debate in IMO on this issue
  • Global Regulations through IMO
  • Focus on the ship (as an entity) and not fleet/flag/country or region. However, we must expect that the shipping industry will have to describe a trajectory and targets for the industry as a whole and monitor and report against these targets
  • Technically “sound” regulations

Despite the current slowdown in the world economy, the expected longer term growth in shipping makes absolute emissions reductions very challenging. At best, we can stabilise emissions at current levels. This is supported by the IMO’s third greenhouse gas (GHG) study as well as many other studies, including those performed by DNV GL in 2010 and 2013.

Carbon offsets is therefore a likely and realistic option in order to achieve substantial reductions in CO2 emissions towards 2050 and real reductions will have to take place in other sectors. The solution to push the burden of real reductions over to other sectors, irrespective of the practical and economic rationale, and even if shipping is paying for it, will require significant efforts in both communication and negotiation.

Can we learn from other industries?
Aviation probably has the most similarities with shipping. Both carry out transportation internationally, across borders and are subject to national as well as international regulations. Both have also in practice been exempt from climate negotiations, so far. International aviation and shipping emits about the same level of CO2 per annum. Shipping emitted 796 million tonnes in 2012 and aviation emitted 724 million tonnes in 2014. This represents just over 2% of global emissions each.

The efficiency improvements seen in aviation over the last years are driven by technological developments (airframes and engines), which again have been spurred by high fuel prices and airline requirements to ever-improving efficiencies due to profitability problems.

Aviation states that CO2 reductions will be achieved through technical and operational means as well as infrastructure improvements and offsets. Two weeks ago, the ICAO Council agreed to start a voluntary piloting of a carbon reduction and offsetting mechanism that will be developed over the next 10 years.

Medium term, they would like to stabilise net aviation CO2 emissions at 2020 levels through carbon neutral growth. This will involve new technology, infrastructure and offsets. Long term, aviation has set an aspirational goal to reduce net emissions to 50% of what they were in 2005 by 2050. Here, new technology, biofuels and offsets will be the main pillars to achieve this.

In short, Aviation has stated an intention that they will improve fuel efficiency through new technology and an offsetting mechanism, but has made no binding commitments. In this respect, shipping has progressed further, having mandated technical improvements through the EEDI as a first step.

Why do I keep referring to aviation?
Because shipping is being compared with aviation and COP21 confirmed this yet again. Shipping will not be able to continue self-regulation through IMO on these issues without delivering commitments that are similar to aviation.

At the same time, shipping needs to develop its own pathway and measures, and to communicate these bearing in mind that as an industry we will continue to be compared with aviation.

A possible blueprint for shipping
While observing the challenges that both aviation and shipping have in reducing emissions and at the same time serving global transportation needs and remaining competitive, there is a rationale to treat these sectors differently. There is in fact a strong argument that for certain parts of the transportation sector, hydrocarbon or carbon-based fuels represent the most efficient way of carrying your fuel with you at the same time as delivering the required range and efficiency. If we also consider hydrocarbons as a transition towards more environmentally friendly types of biofuels, then we can justify a system of carbon offsets for a certain period of time, say 30-50 years.

A future scenario for CO2 reductions in shipping will thus have to consist of three elements:
• Technical means
• Operational means
• Offsets

Shipping will need to establish a trajectory of emissions. This can be fairly concrete in the 15-20 years horizon and more “aspirational” towards 2050. The ICS proposal to start with sector intended contributions (INDCs) is a good way forward, at least for the longer term targets.

A robust and global MRV system is a prerequisite for establishing and monitoring progress against targets. A robust and global MRV system is also the best way of removing the regional MRV system being introduced by EU. Final adoption of the IMO Global MRV system at MEPC70 is therefore of paramount importance. Thereafter we can hope that common sense will prevail and the two systems can be adjusted so as to enable the formulation of one single global MRV system.

The basic principles of an offset system as well as actual carbon pricing needs to be compatible with other industries. Possible funding mechanisms for the Green Climate Fund (US$100 billion) have to either apply to all industries/countries where offsets are used or be funded through energy consumption taxes or similar, but certainly not be targeted at one or two specific industries.

A possible blueprint for shipping may then look like this: Follow EEDI targets for new ships until 2025. This will in principle give a reduction of 30% for all new ships; introduce and make operational a global MRV system by 2018 or 2019; set a target of minimum carbon-neutral growth from 2023 based upon no purchase of offsets (i.e. achieved through technical and operational means); set an ambition to achieve a 50% reduction in CO2 emissions by 2050 compared with the baseline from IMO’s third GHG study in 2013. This can first be an aspirational target or sector INDCs as proposed by ICS, but is to be translated into committed targets by 2023; the gap between carbon-neutral growth and a long term 50% reduction in total industry sector emissions is to be covered by a global offset mechanism through IMO. The simplest solution to start with here is an offset system based upon a levy as proposed by ICS and this can be changed later if the targets set out in the long-term trajectory are not met.

Obstacles and challenges
Getting traction in the IMO on a defining trajectory for shipping and the various means and mechanisms that should be deployed to follow this trajectory is one challenge. COP21 has significantly weakened one of the obstacles to real progress at the IMO, “Common but Differentiated Responsibilities”. Removal of this obstacle has been one of the pre-requisites for the IMO to move forward.

The EU MRV system will be rolled out and the IMO need to move quickly to establish a global system that is equivalent. The best way of removing regional regulations is to get in place a robust international regime. Nevertheless, we may expect a period of dual reporting systems (EU and IMO) before the EU decides to sunset its regulation.

An absolute reduction in CO2 emissions in the shipping sector without an offset mechanism is going to be very difficult to achieve in the medium term. The introduction of a market based mechanism may leave the door open for a political decision to use shipping and aviation as major contributors to the planned Green Climate Fund. This represents a real threat to shipping as an industry.

The simplest of offset mechanisms is a levy system. A levy system will allow some of the funding raised to be retained within the industry for further technology development. However, a levy carries the challenge of proving that real offsetting is taking place. It is therefore likely that a significant portion of the revenue from a levy will have to be spent on carbon reduction initiatives in other sectors.

Communication to external stakeholders as a united industry has to date been a big challenge. The shipping industry needs to learn from others (like aviation) and communicate better both its achievements and intentions on emissions.

In conclusion
COP21 has put CO2 emission reductions firmly back on the agenda for shipping and IMO needs to move quickly to establish a global MRV system. However, it is important to remember that a Global MRV system is only the starting point. Shipping will, through the IMO, have to establish long term targets and trajectories for meeting climate change targets and commit to these.

Carbon-neutral growth looks possible if all technical and operational means are deployed. Absolute CO2 emissions reduction will be difficult to achieve, and a long term 50% reduction in absolute terms looks unlikely, even with a lot of new technology. Therefore an offsetting system will be required and we should plan for this as part of the long term solution.

Let us therefore hope that the IMO can run with this ball and score a successful outcome at MEPC70. Taking the initiative and delivering a long term plan in accordance with the spirit of the Paris Agreement is the only way for shipping to remain in charge of its own destiny.

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