Will the November MEPC meeting end the tug of war between IMO and EU?

The COVID-19 pandemic and the resulting crew change crisis combined with the latest cyber-attack hitting the headlines have made it quite difficult for the International Maritime Organization (IMO) to advance its decarbonization goals this year.

The efforts haven’t been completely derailed, on the contrary, it seems that the pandemic served as a reality check for the maritime sector to come to terms with the gargantuan transition it is about to embark upon.

Be that as it may, there is no time to waste, as pressure on the IMO to define concrete measures to achieve its GHG reduction targets mounts, especially in the wake of the EU plans to include shipping in its ETS.

Therefore, all eyes are on the IMO Marine Environment Protection Committee’s (MEPC) next meeting scheduled for November as a package of mandatory CO2 reduction measures that would be enforced across the exiting global fleet are expected to be finalized.

In this way, the IMO will demonstrate that it remains on track to meet the 2030 CO2 reduction target – a 40% efficiency improvement, as an average across the world fleet, compared to 2008.

The move will be vital if IMO wants to discourage unilateral measures against shipping, not least those envisaged by the European Union, the International Chamber of Shipping (ICS) said.

In the absence of formal IMO meetings to prepare the package of measures due to COVID-19 restrictions, the ICS hosted a series of video meetings among the member states to secure an ambitious IMO agreement, comprising three basic elements:

• to reduce the carbon intensity of existing ships through use of an Energy Efficiency Existing Ship Index (EEXI)
• the ‘Super SEEMP’ concept, whereby use of the Ship Energy Efficiency Management Plan, already a mandatory requirement, would be subject to rigorous external audit and statutory certification
• the development of Carbon Intensity Indicators (CIIs) as a complement to the EEXI and the ‘Super SEEMP’

According to ICS, the Clls would be the most difficult to develop due to the many external factors affecting operational efficiency which are simply beyond the ship’s control, such as weather and ocean conditions or the geographical location in which a ship might be trading.

Several EU states, led by Denmark and Germany, insist on a punitive approach to the enforcement of CIIs, whereby the certification required for ships to continue operating could potentially be withdrawn if the agreed CIIs are not achieved by individual ships.

ICS is supporting a compromise proposal, developed by a coalition of governments including India, Liberia, Panama, Singapore, and the United Arab Emirates.

The proposal accepts the development of CIIs, but proposes some form of ‘phased implementation’ for three years, given that the impact of the CIIs adopted will be unknown. China and Brazil have submitted their own joint proposal to IMO, which employs proposing an alternative ‘A-E’ rating system instead of the punitive approach.

The commercial benefits of achieving a higher rating should provide an incentive for shipping companies to make significant efficiency improvements that would help the industry to achieve the 2030 target, instead of focusing on punishing them for non-compliance.

China, Japan and Norway are expected to make a further joint submission to IMO that will propose specific regulatory amendments to MARPOL Annex VI for approval by the IMO MEPC, at its next meeting, which will seek to synthesise the various proposals that have already been made by governments.

According to the chamber, in the leadup to the critical MEPC meeting, many EU states still appear unwilling to move towards a less punitive approach towards the implementation of CIIs.

“Some have even questioned whether the EU is serious about wishing for IMO to reach an agreement given the growing support in Europe for unilateral measures, such as the extension of the EU Emissions Trading System to international shipping,” ICS said in its 2020 Annual Review.

“Nevertheless, ICS remains confident that an ambitious agreement can be reached when the IMO MEPC reconvenes, provided that governments can maintain open minds and be willing to avoid inflexible positions.”

ICS and its global membership of national shipowners’ associations are wholly opposed to the EU-ETS proposal as is likely to be regarded by non-EU nations as an extraterritorial ‘tax’ on global trade, resulting in trade disputes, and could derail global talks on CO2 reduction at IMO.

The meeting is also expected to give preliminary consideration to the industry proposal for a global R&D fund.

Under the proposal, the fund would be financed by shipping companies worldwide via a mandatory R&D contribution of $2 per tonne of marine fuel purchased for consumption by shipping companies worldwide, which would generate about $5 billion in core funding over a 10-year period.

“ICS and the other industry co-sponsors are aware that this proposal will be seen as radical by many IMO governments, as nothing of this scale in shipping, involving billions of dollars of funding, has been established before,” ICS pointed out in the review.

“The industry is therefore convinced that this sincere offer, to provide billions of dollars of funding to accelerate R&D of zero-carbon technologies, must be given proper consideration by governments if the IMO CO2 reduction targets are to be delivered within the timelines agreed by IMO Member States.”

Calls for a market-based measure to help bridge the enormous investment needed to make the switch to alternative fuels to decarbonize shipping are increasing.

Last month, Trafigura, one of the world’s largest ship charterers, backed a carbon levy to help boost competitiveness and uptake of alternative fuels.

Andreas Sohmen-Pao, Chairman of BW Group, also believes the industry needs to lead the way on the carbon levy leveraging on its unique global regulatory entity.

The levy is needed to bridge the enormous investments required to switch to alternative fuels.

“One can frame it is as R&D contributions, if not as a levy, to help bridge the price gap and to do so on a global basis. It will be very difficult for the industry if we have this patchwork legislation,” Pao, who is also Co-Chair of the International Advisory Panel on Maritime Decarbonisation, said while speaking during Future of Shipping decarbonization webinar.