North American Panel4 November 2010

Houston

Reducing GHGEmissions 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

235,9

217,1

91,2

72,6

53,8

40,5

29,8

9,0

1,9

0 50 100 150 200 250

VLCC tanker

Bulk carrier

Product tanker

General cargo ship

Container ship

Freight train

Ro-ro ship

Heavy truck

Air plane

km

Transport distance for 1 ton cargo per kg GHG emissions

Source: Danish Shipowners Association

Shipping is energy efficient, BUT…

CO2 emissions by country (2007)

CO2 emissions from shipping 2.7% of global total (2007)

and predicted to grow as trade expands

Reducing GHGEmissions 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 timetableSelected Key Dates

12/2009 UNFCCC COP15 Meeting, Copenhagen

3/2010 IMO MEPC 60

2010 IMO MEPC MBM-Expert Group IMO MEPC Intersessional (EEDI)

2010 UNFCC Intersessional meetings

9/2010 IMO MEPC 61------------

11/2010 UNFCCC COP16 Meeting, Cancun------------

5/2011 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 GHGEmissions from Shipping

• Technical measures

• Operational measures

• Market based measures

Reducing GHGEmissions 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

societyforBenefit

costtalEnvironmenindexdesign efficiencyenergy Attained

Environmental cost = Emission of CO2

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%10%

20%

30%

Phase 12015 - 2019

Phase 22020 - 2024

Phase 3Phase 3on and after 2025on 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) = CO2 emitted per unit of transport work

CO2 emitted measured from fuel consumptionTransport 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 contributionSome 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 ETSor 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)Offsetting (in sector & out sector)

Actual emissionsActual emissions

BAUBAU

Target line

EEDI

Funds to UNFCCCFunds to UNFCCC

Application of the Leverage Incentive Scheme

Req. EEDI 1

Req. EEDI 2

Req. EEDI 3

EEDIAttained

0%0%

50%50%

100%100%

50%50%

Ship 2

Ship 1

Ship 3

EEOI

benchmark

Actual

PATERN 1

PATERN 2

Initial EEOI

Reduced EEOI

NEW BUILDINGNEW BUILDING

EXISTING SHIPSEXISTING SHIPS

Application of the Ship Efficiency and Credit Scheme

US EEDI (EIr)US EEDI (EIr)

IMO EEDIIMO EEDI

New ship IMO EEDI (US EIa)

Efficiency Credit = (EIr – EIa) x Activity

Existing hip (EIa)

Efficient Credit >0 = Sells CreditsEfficient Credit < 0 = Buys Credits

Future Means of Reducing GHGEmissions from Shipping

Industry activities and initiatives

Means of Reducing GHGEmissions 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

Technical and Operational Mitigation Measures

Marginal Abatement Cost Curves

PRELIMINARYPRELIMINARY

DRAFT,DRAFT,

Not for circulationNot for circulation

Developed in conjunction with DNV

Virtual ArrivalOCIMF / 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 ArrivalOCIMF / 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 3rd 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 ?

US

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*MGO since Dec 2008

Source: Bunkerworld

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Bunker prices 2000 – 2010 [USD/tonne] HFO 380 cst / MDO / MGO*, Fujairah

With bunker costs frequently 60-80 % of total operating costs, does shipping need any further

market incentive to reduce GHG emissions ?

Thank you

For more information, please visit:www.intertanko.com

www.shipping-facts.comwww.maritimefoundation.com

London, Oslo. Washington, Singapore and Brussels