What are the viable options for the shipping industry

byErik.Ranheim@INTERTANKO.com

Manager Research and ProjectsLondon 12 November 2008

The Challenges

• The world demands greener shipping

• Emission from shipping is dirty and harmful for the health and the environment

• GHGs emission from shipping is not directly regulated under the Kyoto protocol

• IMO assumed to regulate GHG emission

• Must react swiftly

The size of challenge?

4

CO2 Emissions per Unit Loadby Transport Mode

Source:Ministry of Land, Infrastructure and Transport (Japan): The Survey on Transport Energy 2001/2002 MOL (Japan): Environmental and Social Report 2004

Large Tanker

Large Containership

Railway

Coastal Carrier

Small-size Commercial Truck

Airplane

Standard-size Commercial Truck

100 200 300 400

398

226

49

11

6

3

1

0

Units Relative

Shipping energy efficient

Trends – Co2 emission, energy use, global trade

Source: Fearnleys/INTERTANKO

IndexIndex

80

100

120

140

160

180

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Population

Energy use

Seaborne trade

CO2 emission

There has been strong growth in shipping

Engine break specific fuel consumption

160

180

200

220

240

260

280

1910 1930 1950 1970 1990 2010

First ocean going diesel ship - MS Selandia

Oil crises 1973

Engine BSFC assumed constant for years 2000-2008

Source: Lloyd’s Register

g per kWhg per kWh

Fuel efficiency in shipping has has improved

Measures for current ships essential Measures for current ships essential Fleet Fleet

Cleaner, Simpler and more Efficient ships

Type ships World fleet>

400 GT Order > 15 years

Bulkers 7,530 3,304 3,877 Combination 98 13 20 Container 4,601 1,351 3,521 Dry cargo 14,184 1,244 4,385 Misc. 12,165 694 3,354 Offshore 5,140 1,112 1,966 Pass./ferry 3,816 194 1,493 Reefer 2,080 29 344 RoRo 2,225 340 929 Tankers 11,823 2,940 6,251 World fleet >400G: 63,662 11,221 26,140 % 100% 18% 41%

Above 400 GT:Above 400 GT:63,600 ships 63,600 ships

11,200 on order11,200 on order26,000 <15 years26,000 <15 years

Source: LRFairplay

Industry Initiatives

Switching to cleaner fuel will

Cleaner, Simpler and more Efficient ships

Reduce overall global emissions from ship funnels

and will therefore

in addition leading to a much cleaner and sounder environment

Reduce the amount of GHGs, due to

Less fuel consumption, and

The switch to cleaner fuel will provide better opportunities for developing more fuel efficient

engines

Revision of Annex VI will also reduce

CO2 emission

OPTIMISING SPEED

162

168

174

20 30 40 50 60 70 80 90 100 110 % SMCR

Engine shaft power

SFO

C

ME/ME-C 100% SMCR optimised

MC/MC-C 100% SMCR optimised

ME/ME-C Part load optimised

3-4g/kWh

Economy mode:

3-4g/kWh

Industry initiatives

Ship Efficiency Management Plan SEMP

• SEMP for each ship in operation• SEMP to contain:

Best practices to save energy Voluntary Operational Index (for each

voyage & over a period of time/voyages)

Other voluntary operational measures Energy inventory

• INTERTANKO, ICS, BIMCO, INTERCARGO work on a model SEMP guideline for IMO

Industry initiatives

Ship Efficiency Management Plan• INTERTANKO Best Practices –

to be approved by the Council (Nov. 2008)

• OCIMF “Energy Efficiency and Fuel Management” – an appendix to TMSA 2

• OCIMF opens for consideration of c/p terms to optimise the voyage and other operations to save energy during transportation

Best Practice on tanker

emissions & energy efficiency 1. Programme for measuring and

monitoring ship efficiency

2. Voyage optimization programme Speed selection optimization Optimised route planning Trim optimization

3. Propulsion Resistance Management Programme

Propeller Resistance Hull Resistance

162

168

174

20 30 40 50 60 70 80 90 100 110 % SMCR

Engineshaft power

SFO

C

ME/ME-C 100% SMCR optimised

MC/MC-C 100% SMCR optimised

ME/ME-C Part load optimised

3-4g/kWh

Economy mode:

3-4g/kWh

Best Practice on tanker

emissions & energy efficiency 4. Machinery optimisation Programme

Main Engine monitoring and optimisation Optimisation of lubrication as well as other

machinery and equipment

5. Cargo handling optimization Cargo vapours control procedure on all

crude tankers (80-90% vapour reduction) Cargo temperature control optimization

6. Energy conservation awareness plan

On board and on shore training and familiarisation of company’s efficiency programme

Accommodation-specific energy conservation programme

Best Practices

Participation from a wide range of

tankers

INTERTANKOMembership3,100 tankers

Applicability/effectiveness

Depend on fleet characteristics

Dynamic continuous improvement

Various, individual measures Monitoring, assessmentAdjustment/corrective action

INTERTANKO a forum for exchange of information and experience

Advice, input:*Class*Charterers*Yards*Other owners*Others

Proposals in IMO

Fuel efficiency design index

• Measuring stick for shipbuilders to assess fuel efficiency/CO2 emissions

• Incentive for shipyards will create energy efficient designs to be competitive

• Wide support in IMO, except• Some developing countries*• Need baseline (what

constitutes the best ship today)

Sea trial Esther Spirit

• All suggestions by INTERTANKO on design index formula were agreed at MEPC 58:

Use value of ME power at 75% MCR Use AE power at 50% MCR SFCs at these values are given by the engine’s EIAPP Certificates Sea trails to be part of the verification

The CO2 operational index

• MEPC 58: voluntary tool to monitor each ship’s fuel consumption

• An instrument for evaluating quantitatively the effect of operational fuel efficiency measures, such as speed reduction or optimum navigation

• No direct link to design index• Monitored over time by a

Rolling Average of the fuel consumption per tonne mile for last 10 voyages (as proposed by the industry)

Average CO2 emission Aframax

Gra

ms/

ton

ne

mil

e

Voyage 13: 152 grams per tonne-mils

0

40

80

120

160

v1 v8

v15

v22

5

11

17

23

Vo

y 1

Vo

y 2

Vo

y 3

Vo

y 4

Vo

y 5

Vo

y 6

Vo

y 7

Vo

y 8

Vo

y 9

Vo

y 1

0V

oy

11

Vo

y 1

2V

oy

14

Vo

y 1

5V

oy

16

Vo

y 1

7V

oy

18

Vo

y 1

9V

oy

20

Vo

y 2

1V

oy

22

Vo

y 2

3V

oy

24

Vo

y 2

5V

oy

26

Vo

y 2

7

Advantage of the rolling average

Average CO2 Index

0

5

10

15

20

25

30V

oyag

e 10

Voy

age

11

Voy

age

12

Voy

age

13

Voy

age

14

Voy

age

15

Voy

age

16

Voy

age

17

Voy

age

18

Voy

age

19

Voy

age

20

Voy

age

21

Voy

age

22

Voy

age

23

Voy

age

24

Voy

age

25

Voy

age

26

Voy

age

27

Simple average 10 last voyages Rolling average 10 last voyages

A Market Based Instruments (MBI) should

• Be legally, politically and institutionally acceptable.

• Be easy to administer, monitor and enforce.

• Preferably be global and regulated by IMO

• Reduce CO2 emission levels in real terms by additional amounts to normal reductions• Not unduly distort competition• Ensure simple allocations of emission allowances • Be non-discriminating of ship types and flags• Be difficult to evade.• Be acceptable to Kyoto Annex I as well as developing countries.

Levy on bunkers - Danish proposal

Challenges:• Legal, competence to

establish such a scheme• Administrative who sets,

collect, disburses and monitors revenues, and

• For what purpose, and• Will it lead to actual

emission reduction?

• Possible application of an independent international GHG fund: Acquisition of emission quotas/credits generated in other industrial sectors Funding projects in developing nations Funding IMO Technical Cooperation program

Met with resistance and regarded as tax

International Compensation Fund for GHG Emissions from Ships

• International Compensation Fund to be passed on to the customers, i.e.

• No direct effect on the operators• Independent of the value of the

goods being transported• Must be global, independent of flag• Based on United Nations

Convention on the Law of the Sea (UNCLOS)

• Principle of no more favourable treatment of ships applied through Port State Control• Based on UNFCCC principle of common but differentiated responsibilities and capabilities • Should be allocated to specific compensation aims to be decided by the contracting parties• Proposed by Denmark, Ref International Oil Pollution Compensation Funds (IOPC)

Conclusion

Shipping set for reduction in emission to air

• Cleaner, reduced emission from shipping under way, by

• Sharing of information to develop Best Practices will reduce emission, and

• Technical advances to improve fuel efficiency and reduce CO2 emission will be made

• Market based instruments are controversial and complicated – but may be introduced on regional basis (ref. Europe)

• INTERTANKO prepared to continue to take the lead and to be a driver in terms of practical and realistic measures for the industry