Maritime greenhouse gas emissions – legal update

In our April update on this subject, we reported on the outcome of the sixty-ninth meeting of the Marine Environmental Protection Committee (MEPC) of the International Maritime Organization (IMO) (MEPC 69) and on what to expect from the next MEPC meeting (MEPC 70).

This update outlines the outcome of MEPC 70 (which took place on 24-28 October 2016), the global monitoring, reporting and verification (MRV) system to be introduced by the IMO across the shipping sector and next steps towards an international deal on maritime greenhouse gas (GHG) emissions.

Outcome of MEPC 70

MEPC 69 exposed the continuing difficulties faced in balancing the interests of developed and developing countries when considering the issue of whether and if so when a scheme to reduce shipping sector GHG emissions should be implemented.

The agreement of a mandatory GHG emissions reduction target or sector-wide emissions reduction scheme was not on the table at MEPC 70.

However, it was anticipated that the sector would take one step closer to tackling GHG emissions at MEPC 70 by adopting the MRV system that was agreed in principle at MEPC 69. In line with this expectation, the MRV system was formally adopted, in the previously agreed form, at MEPC 70.

In summary, under the MRV system ship operators will be under a mandatory obligation to collect and annually report their fuel consumption data in metric tonnes for each type of fuel they use, following a methodology and process set out in the ship’s energy efficiency management plan (SEEMP). This data will be collated by the IMO in the IMO Ship Fuel Consumption Database. It will be collated in anonymized form, to prevent public identification of specific operators or ship data. For more detailed analysis of the IMO MRV system, click here.

The MRV system will only apply to ships of above 5,000 gross tonnes. It will enter into force in March 2018. In practice, this means ship operators will need to start monitoring and reporting fuel consumption during the 2019 calendar year (being the first full compliance year), although they can voluntarily report data to the IMO under the system before this date.

The IMO will now develop guidelines regarding the implementation of the system, which are expected to be approved at the next MEPC meeting in May 2017 (MEPC 71).

Overlap with the imminent EU MRV scheme?

The European Commission has welcomed the adoption of the IMO global MRV system at MEPC 70, stating that it is in line with its European strategy for shipping emissions, adopted in July 2016, provided it is sufficiently robust in its implementation.

EU MRV scheme

The Commission has so far given little guidance as to what the adoption of the global MRV system will mean for the EU’s own maritime MRV scheme adopted in 2015 (under Regulation (EU) 2015/757 on the monitoring, reporting and verification of carbon dioxide emissions from maritime transport – the EU MRV Regulation) and due to apply earlier, from 1 January 2018 onwards. The EU MRV Regulation will (like the IMO scheme) apply to operators of ships above 5,000 gross tonnage, and will require them to:

  • Monitor and report the verified amount of CO2 emitted on all voyages to, from and between EU ports and also when in an EU port; and
  • Submit to the Commission an emissions report containing externally verified annual aggregated data.

Unlike the IMO scheme, it will also:

  • Require operators to monitor and annually report additional parameters, such as distance, time at sea and cargo carried, to enable the determination of a ship’s average energy efficiency; and
  • make the annual emissions reports submitted by operators publicly available without being anonymized.

Measurement of CO2 emissions

Both the IMO and the EU schemes provide for CO2 emissions to be measured by reference to fuel consumption. The EU scheme permits operators to adopt one or more of four permissible fuel consumption measurement methodologies, recognizing that a ‘one-size fits all’ approach to monitoring could impose a disproportionate compliance burden on some operators.

It will not be clear until next year at the earliest whether the IMO will adopt the same methodologies for measurement of fuel consumption, but the MRV provisions in the amendments to MARPOL clearly anticipate that multiple methodologies may be permissible (and the operator must state in its SEEMP which methodology it has adopted).

Review of EU MRV scheme

The Commission acknowledges that the range of data required to be reported under the EU MRV Regulation overlaps with the narrower elements required to be reported under the IMO MRV scheme, meaning that (for voyages to, from and between EU ports) as things stand operators will, from 2019 onwards, be under an obligation to report the same emissions data under two different but overlapping MRV schemes.

The Commission has said that it will activate a review clause in the EU MRV Regulation and, if appropriate, propose amendments in order to align the EU scheme with the global scheme.

This review will reportedly take place once the legal framework for the IMO’s global MRV system is “fully established”, including the required IMO guidelines (which are expected to be approved by MEPC 71).

Progress towards a global GHG emissions reduction scheme

IMO roadmap for 2017 to 2023

Progress was also made at MEPC 70 towards the implementation of a GHG emissions reduction scheme for the shipping sector, with agreement reached on a roadmap (covering the period 2017 to 2023) for developing a comprehensive IMO strategy on reduction of GHG emissions from ships.

The roadmap includes the following key aspects:

  • Just prior to MEPC 71 (due to be held in May 2017), the MEPC will hold an inter-sessional meeting to start discussions on the IMO’s strategy for reducing GHG emissions from ships.
  • The strategy will set out the IMO’s level of ambition, and will include an inventory of near-, mid- and long-term emissions reduction opportunities (including alternative fuels).
  • The IMO strategy will be adopted (in an “initial” form) at MEPC 72 (due to be held in spring 2018) prior to the start of data collection under the MRV system commencing in 2019 (referred to as ‘Phase 1’).
  • Phase 2 will begin in autumn 2020 when the data collected from 2019 is analyzed and reported on to the IMO.
  • The strategy will be subject to review in 2021 and 2022 based on the data collected in 2019 and 2020.
  • Phase 3 (the final phase) will see the IMO finalize the revised strategy for adoption at MEPC 80 (due to be held in spring 2023). The final strategy will include an implementation schedule for the measures identified in it.

The agreed roadmap is expected to be adopted at MEPC 71 next year.

Comparisons between the international shipping and aviation sectors

Comparisons will inevitably be drawn between the international shipping and aviation sectors, both being large GHG emitting sectors which were left out of the Paris Agreement.

The aviation sector made significant progress this year towards putting in place a global scheme to curb CO2 emissions from the international aviation sector. However, the timelines of the two sectors are not as different as may first appear.

In October, the International Civil Aviation Organization (ICAO) members reached high level agreement on the structure of a global market-based measure to achieve carbon neutral growth post 2020, which will take the form of a carbon offsetting scheme (as reported on by us here).

Last minute concessions made at ICAO in order to get an agreement will mean that the aviation scheme will now only become mandatory from 2026, three years beyond the end of the current IMO roadmap (albeit that a significant number of ICAO members have agreed to participate in the scheme voluntarily from 2021).

To draw direct comparisons between the shipping and aviation sectors also risks oversimplification. While it is true that both sectors have to grapple with complex jurisdictional issues associated with international travel, there are important differences which must be recognized, such as the more complex travel patterns typical of the freight shipping sector.

Pushing up the cost of transporting freight by sea (which is a possible consequence of a maritime GHG emissions reduction scheme) also has the potential to negatively impact exporters in emerging economies, which rely on low-cost maritime transport to access global markets. There is also a risk of carbon leakage if businesses turn to alternative, more carbon intensive transport methods such as road transport in response to increased shipping costs. These are all issues that the IMO will need to address in order to reach agreement on curbing emissions from the shipping sector.

Against that backdrop, the adoption by the IMO of a global MRV system and the approval of the roadmap are important milestones towards formulating a coherent emissions reduction plan for the shipping sector.

The IMO can also point to its adoption of a global cap on sulphur content in shipping fuel of 0.5 per cent from 2020 (affirming an agreement to curb sulphur emissions that was adopted by the IMO in 2008) as another key success of MEPC 70.

Next steps

The IMO MRV system has been enacted through amendment to Annex VI of MARPOL, as proposed at MEPC 69. The technical detail on the MRV system is expected to follow in May 2017.

Many ship operators may already be upgrading onboard measurement instruments and IT systems to ensure they can accurately collect and process the necessary data for compliance with the EU MRV Regulation from 2018 for voyages to, from and between EU ports.

Operators of large ships who were not expecting to be caught by the EU MRV scheme (because they do not operate in and out of EU ports) now face the prospect of monitoring CO2 emissions data for all international voyages caught by the IMO scheme from 2019 onwards. While the technical detail of the scheme is not yet known, there is sufficient detail in the amendments to MARPOL to begin a scoping exercise ahead of MEPC 71, for example, determining whether data collection systems may allow accurate measurement of fuel consumption with minimal additional upgrades. Source: Reed Smith LLP (Authors: Nick Rock, Sally-Ann Underhill and Adam Hedley)