MEPC 81 questions wisdom of ‘wait and see’ approach, UMAS says

The recent meeting of the International Maritime Organization’s (IMO) Maritime Environment Protection Committee (MEPC) has increased the commercial risk for those who adopt a ‘wait and see’ approach, University Maritime Advisory Services (UMAS) said.

The MEPC 81 meeting concluded on March 22, 2024, further clarifying the risk and opportunity both for the international shipping value chain’s commercial decision-making, and for this sector’s contribution to minimize the risks of dangerous climate change.

Specifically, the meeting itself was not a point of adoption for measures, but it was a chance to test whether the member states of the IMO were as committed to advance and implement policy measures capable of delivering the Revised GHG Strategy adopted in July 2023.

A new draft for a chapter in the Annex VI of MARPOL has been initiated titled “regulations on the IMO net-zero framework”. In addition, an increased number and diversity of countries supported a universal GHG levy.

“Many reactions to the adoption of the IMO’s Revised GHG Strategy in 2023 can be summarised as ‘good to have this, but I’m waiting for the measures in 2025’, and many seem convinced that IMO was unlikely to succeed in implementing measures capable of delivering the strategy’s level of GHG reductions – and speed of change,” Tristan Smith, Director of UMAS and Associate Professor at UCL Energy Institute, said.

“This meeting’s development of a new MARPOL chapter, and good progress and momentum towards a timely and robust implementation of robust IMO policy, including an effective GHG levy, seriously questions the wisdom of commercial strategy of ‘wait and see’, or that is dependent on IMO not delivering what it committed to in 2023.”

Although the direction of shipping’s transition was primarily set at last year’s MEPC 80 with the Revised GHG Strategy, any transition creates uncertainty and risk relating to timing, according to UMAS.

Investors in the assets (the fleet, infrastructure such as ports, energy supply chains) that enable both the incumbent fossil fuel paradigm, and that will be needed in the future zero GHG emission paradigm, face both technology risk (uncertainty about which zero-emission technology will be most competitive and when), and political risk (uncertainty about exactly how policy will disincentivize fossil fuels and incentivize zero emission fuels). One risk management strategy is to ‘wait and see’ so that decisions are only made when certainty has arrived.

However, this is not risk-free as at the same point when the fate of fossil fuel technology becomes absolutely clear, and/or the opportunity for zero emissions technology becomes absolutely clear, opportunities to manage risks related to asset disposal values and to take future market share opportunities will have already been passed over.

The meeting’s generally progressive outcome, and politically collaborative spirit, evidences that the risks of ‘wait and see’ have further increased, UMAS concluded.