Greenhouse Gas Emissions and INTERTANKO Policy Position Members’ Meeting Singapore 2 November 2009

1. Greenhouse Gas EmissionsandINTERTANKO Policy PositionMembers’ MeetingSingapore2 November 2009 Peter M. Swift

2. Greenhouse Gas Emissions Key Dates Kyoto Protocol Means of reducing GHG emissions IMO (MEPC) Programme UNFCCC COP 15 Meeting INTERTANKO Position “Virtual Arrival”

3. Shipping’s GHG Emissions Selected Key Dates • 1997 Kyoto Protocol • 1998 IMO initiates work on Greenhouse Gas emissions • 2000 IMO Greenhouse Gas Study • 2003 IMO Assembly Resolution A.963(23) • 2007-2009 IMO updates 2000 Greenhouse Gas Study • 2009 IMO MEPC 59 • 11/2009 INTERTANKO Council • 12/2009 UNFCCC COP15 Meeting, Copenhagen • 3/2010 IMO MEPC 60 • 5/2010 INTERTANKO Council • 10/2010 IMO MEPC 61 • 7/2011 IMO MEPC 62 • 12/2011 EU Deadline for IMO/International Agreement

4. Kyoto Protocol • Established under UN Framework Convention on Climate Change (UNFCCC) and 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, with Conference of Parties (COP15) to meet in Copenhagen in Dec 2009 to develop successor • Kyoto recognises “common but differentiated responsibilities”, i.e. developed countries produce more GHGs and should be “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

5. Means of Reducing GHG Emissions • Technical • Operational • Economic / Market Reductions expected from both new & existing ships While not restricting growth in shipping trades, especially since this is the most carbon-efficient transportation mode

6. One particular challenge for the shipping industry- i.e. seaborne trade will continue to grow strongly Trends – Population, Energy Use, Seaborne trade & CO2 emissions Index There has been strong growth in shipping Source: Fearnleys/INTERTANKO

7. IMO MEPC 59 (July 2009) • Agreed: • Interim Guidelines on the method of calculation of the EEDI for new ships and • Interim Guidelines on voluntary verification of the EEDI • Adopted: Ship Energy Efficiency Managment Plan (SEEMP) • Adopted: Guidelines for voluntary use of the ship EEOI

8. Technical Measures • Energy Efficiency Design Index (EEDI) • - measures energy efficiency of new ships • - encourages design and technical developments • - provides benchmark on the energy efficiency of an individual ship to similar ships carrying same cargo Environmental cost = Emission of CO2 Benefit = Cargo capacity transported a certain distance (based on a seagoing maximum condition) Initially only the calculation of the Attained EEDI is mandatory, but intent is to establish a mandated requirement, such that the Attained EEDI < Required EEDI

9. Operational Measures • Ship Energy Efficiency Managment Plan (SEEMP) • encourages improvement energy efficiency of ships in operations • 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 • INTERTANKO Guide on Tanker EEMP being finalised • EEOI = CO2 emitted per unit of transport work CO2 emitted measured from fuel consumption Transport work = cargo mass x distance (nm) EEOI is “voluntary” – a management tool

10. Market Measures • MEPC 59 developed outline roadmap for MBIs Reasons given to include MBIs : • Long life of ships • Growth of international shipping • EEDI (new ships) = longer term impact • SEEMP/EEOI (existing ships) = not sufficient to meet likely/possible target reductions (e.g. 20% or more in the shorter term, say up to 2020) • MEPC 60 to resume discussion • Which MBI? • GHG Compensation Fund • Emission Trading Scheme (ETS) • US alternative – a simplified Cap & Trade Scheme • Alternatives to or combinations of these

11. IMO Principles • Effective in contributing to the reduction of total global GHG emissions • Binding & equally applicable to all flag States • Cost-effective • Able to limit or effectively minimize competitive distortion • Based on sustainable environmental development without penalizing global trade and growth • Based on a goal-based approach and not prescribe specific methods • Supportive of promoting and facilitating technical innovation and R&D in the entire shipping sector • Accommodating to leading technologies in the field of energy efficiency • Practical, transparent, fraud free and easy to administer

12. GHG Compensation Fund (a.k.a. Bunker Levy) Contributions to Fund based on Bunker Fuel sales - collected by bunker suppliers Revenues used for such as: - mitigation, technology projects, r & d, IMO Technical Cooperation, and possibly other * New Convention required - to include a (IMO administered) GHG Fund * Other includes training, recycling and/or refunds to efficient ships Enjoys considerable support from many in shipping industry in part because its simplicity and low burden for shipowners

13. GHG Compensation Fund - ISSUES • Likely to take time to achieve sufficient ratifications, and to set-up the Fund and the supporting administration • Considered a “tax” by several governments • Uncertain basis for setting “level” of contributions and usage of funds • Concerns over enforcement • Potentially high administrative costs (including national governments’ involvement ?)

14. Emissions Trading Schemes (ETS) • Presently mostly conceptual with few details • Could be either Maritime-specific or integrated into a global scheme (although not yet existing) or other existing schemes • EU threatening to include international shipping in the EU-ETS, as will be the case for aviation • Would set a “cap” for shipping • Would require a new Convention and considerable administration (nationally and internationally) Has limited support from a number of national shipping associations

15. Emissions Trading Schemes (ETS) -ISSUES • Likely to take time to achieve sufficient ratifications, and to set-up the Trading Scheme and Mechanisms and the supporting administration • Will require national governments to allocate allowances, verify and possibly audit emissions • Involves a significant administrative burden for shipowners • Potentially high administrative costs • Conceptually could be developed as an amendment to MARPOL / new Annex ?

16. USA’s MBI Hybrid/Alternative • Mandatory efficiency standards for both new and for existing ships, using the EEDI as a model • The concept is based on the following principles: • regulations set up efficiency baseline for each ship, new and existing • the efficiency base line would be gradually improved (i.e. the energy index value will be lowered) • ships which would not be able to improve their energy efficiency, as required, would be expected to buy credits • IMO has to establish an “efficiency credit generation and trading” amongst the shipping community only • US argue that this approach would provide an equitable, cost effective and timely market-based solution that would complement the developments of the EEDI, EEOI, and SEEMP.

17. USA’s MBI Hybrid - ISSUES Further clarifications being sought, e.g. : • periodical tests/sea trials to check efficiency standard/energy index; intervals and test conditions • for new ships, the required EEDI would be the base line • need to establish a fair base line for each ship in service • recognition to ships with higher initial efficiency • credit mechanism: should ships buy credits to compensate only the difference between the expected efficiency and the actual performance? how would these be calculated, recorded and monitored?

18. MBI – The unanswered questions (1) ? Market Based Instrument, Mechanism or Solution ? Objective: To generate funds or To incentivise / penalise the party/parties or Both and To set a cap ? ? Use of funds: As offset in other industries and/or To support marine “activities, such as research, technology developments, training, recycling, other ? To incentivise owners, charterers/shippers, terminals, others

19. MBI – The unanswered questions (2) ? Mechanism: - Based on individual ship or company-wide - Based on total fuel usage (all CO2) or on marginal fuel usage (incremental CO2) ? Administration via: - International (UNFCCC/IMO), - Regional (e.g. EU), or - National, or - Combination ? Involvement/influence of shipowners - Initially, later; and how ?

20. Possible Outcomes for Shipping at COP15 • Stalemate - no agreement / deferred to COP16 - status quo maintained • Shipping is included in national targets/commitments of (All parties) (Annex 1 parties) • IMO encouraged to continue without delay to develop policies and measures to reduce GHG emissions, within framework of UNFCCC general agreement • UNFCCC establishes “global targets” for shipping and “directs” parties to work through IMO to achieve these • Parties agree to establish a UNFCCC global agreement to address maritime emissions, (taking into account work done by IMO?) to be concluded by [2011] But will the [Copenhagen Treaty] [COP15] ever be ratified by all / majority of countries ?

21. Conflicting provisions requiring resolution Conflict between: • Kyoto Protocol – “Common but differentiated responsibilities” (Developed vs. developing world) and • IMO Treaties – “No favourable treatment” principles (i.e. flag neutral) Possible resolution via financial offsetting ??

22. INTERTANKO Policy Position INTERTANKO Council agrees: • that shipping should strive to deliver a significant reduction in its GHG emissions, particularly CO2 emissions • to support measures that would result in CO2 and other GHG emissions reductions from tankers and to involve other stakeholders • to support the IMO process to develop real and sustainable GHG emission reductions regulations from ships; such reductions should not hinder trade • that GHG regulations should be “ship neutral”

23. INTERTANKO Policy Position INTERTANKO Council agrees: • to support the adoption of the EEDI as soon as possible, and encourages early usage of the EEDI formulae to establish target levels for CO2 emission reductions for new ships • to support the adoption of SEEMP by IMO • in respect of MBIs, to report the result of its evaluations and a comparison between various concrete alternative proposals as soon as sufficiently details are available • that it is essential that stakeholders and regulators discuss and assess (practical) targeting levels for GHG emission reductions from shipping, on both a short and long term basis Further, INTERTANKO believes it is important to initiate the process of CO2 emission reduction from shipping as soon as possible and accepts that the initially agreed target levels might be adjusted as experience is gained

24. Virtual Arrival • Cooperation 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 • Uses independent 3rd party to calculate / audit adjustment • Owners retain demurrage, while fuel savings and any carbon credits are split between parties Next Steps: • OCIMF-INTERTANKO running joint workshops • Charter Parties being reviewed – indemnity and liability issues, including bills of lading • Individual oil majors and owners “trialling” system • Bulk carrier sector examining feasibility

25. Thank you For more information, please visit: www.intertanko.com www.poseidonchallenge.com www.shippingfacts.com www.maritimefoundation.com London, Oslo. Washington, Singapore and Brussels

26. MBI – INTERTANKO Criteria 1 Governed by the IMO and be specific for the shipping industry 2 Effective in contributing to the reduction of total GHG emissions: • any funds collected should be used as “offsets” • should stimulate leading energy efficiency technologies • should provide incentives for further innovation and R&D • should stimulate stakeholders, such as charterers and ports, to employ ships in the most effective manner to reduce GHG emissions 3 Environmentally sustainable without negative impact on global trade and growth • should be cost effective • should not lead to competitive distortion • should not disadvantage operators or ships which have already taken actions resulting in GHG reductions 4 Efficient and credible enforcement and monitoring • should be binding and equally applicable to all ships • should be practical, transparent, fraud-free and easy to administer by the governing authority • should enable compliance to be demonstrated through proper monitoring • should ensure certainty and predictability