REPORT FROM THE ISTEC / ENVIRONMENTAL COMMITTEE JOINT WORKING GROUP ON MRV (JWG/MRV)

1. REPORT FROM THE ISTEC / ENVIRONMENTAL COMMITTEE JOINT WORKING GROUP ON MRV (JWG/MRV) INTERTANKO Council Meeting Hong Kong, 26 November 2013

2. BACKGROUND • Climate Change/GHG Emissions reductions – HIGH level political item • Kyoto Protocol – Regulatory frame work through UNFCCC – Parties commit to emissions reductions targets: • primarily through national measures . . . . . . also • through MBM • Aviation & Shipping not included due to their international character • UNFCCC agreed measures are taken through ICAO and IMO, respectively • ICAO decision: to suggest an ETS for aviation by 2016 with enforcement in 2020 • IMO decisions: mandatory EEDI for new buildings & SEEMP for all ships • SEEMP does not set a target for GHG emissions reduction of ship in operations • Regulators want a target • IMO considered developing MBMs for shipping but no agreement in sight • Alternative – Amendments to MARPOL Annex VI to assess the energy efficiency of ships in operation

3. MRV STATUS & DEVELOPMENTS Concept: Three phase-in legislation Phase I – data collection to determine base line Phase II – trial period for a rating system Phase III – require op. efficiency scheme (amendments to MARPOL Annex VI) EU publishes MRV proposal Japan/Germany/EU proposals on Operational Energy Efficiency @ IMO MEPC 64 US proposal on Operational Efficiency @ IMO – MEPC 63 2011 2012 2013 2014 2015 2016 2017 2018

4. EU PROPOSED REGULATION on MRV • Applicability • All ships > 5,000 GRT calling to EU ports • Reporting CO2 emissions when ships travel: • between EU ports, • an incoming voyage from an non-EU to an EU port • an outgoing voyage from an EU port to a non-EU port • Data reported should assist to monitor the ship’s average energy efficiency at least with the following criteria: • Total annual CO2 emissions / total annual distance travelled • Total annual CO2 emissions / total annual transport work • (transport work = total annual distance x total annual cargo)  

5. EU PROPOSED REGULATION on MRV • Ships (DOC holder) provides an annual emissions Report • Reporting in accordance with a Ship Monitoring Plan approved by an accredited “Verifier” • The proposed rule has provisions with obligations for “verifiers” • Verifiers check that reporting is in conformity with the Monitoring Plan and check “credibility” of the reported data • If verification is successful, the verifier will then issue a Document of Compliance to the Company • EU Member States requested to consider penalties for ships which do not comply with the reporting, including “expulsion”

6. EU PROPOSED REGULATION on MRV Options to calculate the fuel consumption: use of BDN and periodic stock takes of fuel tanks; onboard monitoring of bunker tanks, flow meters for applicable combustion processes and direct emissions measurement • Dates for implementation: • 1st July 2015 – enter into force • 31st August 2017 – companies should prepare and submit to “verifiers” Monitoring Plan • 1st January 2018 – starts first annual reporting period • 2019 and after • – by 30th April each year, companies shall submit a verified emissions report to the EU Commission and to the Flag State • – by 30th June each year, the EU Commission will make the emissions reported by ships publicly available

7. MRV STATUS & DEVELOPMENTS Monitoring in EU initiated? Concept: Three phase-in legislation Phase I – data collection to determine base line Phase II – trial period for a rating system Phase III – require op. efficiency scheme (amendments to MARPOL Annex VI) MEPC 71 MEPC 69; MEPC 70 EU MRV Enforced? MEPC 68 MEPC 66; MEPC 67 EU publishes MRV proposal Japan/Germany/EU proposals on Operational Energy Efficiency @ IMO MEPC 64 US proposal on Operational Efficiency @ IMO – MEPC 63 2011 2012 2013 2014 2015 2016 2017 2018

8. MRV should be discussed at IMO Regional MRV will bring marginal benefit Consider data and results before next step “Transportation efficiency” vs. “Ship Technical Efficiency” Simplicity in data collection Different approaches between shipping sectors Adequate qualifications of “verifiers” Which data and how “public” will it be made? INTERTANKO COMMENTS TO PROPOSED EU MRV

9. IMPACT ANALYSIS OF THE MANDATED IMPROVEMENTS KEEP IN MIND: EVERY OTHER ACTIVITY DEPENDS ON SHIPPING SHIPPING IS A SERVICE PROVIDER ACTIVITY DIRECTED BY BENEFICIARIES TO SUCH A SERVICE ~ 180 mt CO2 ~ 0.5% of global CO2

10. INTERTANKO COUNCIL DECISION • INTERTANKO supports the MRV concept in principle collection of fuel consumption data to measure CO2 emissions from ships and it should continue investigations and assessments of the best possible model for oil and chemical tanker operations • REVISED STATEMENT • INTERTANKO supports the MRV concept in principle collection of fuel consumption data to measure CO2 emissions from ships and it shouldwill continue investigations and assessments of the best possible model for oil and chemical tanker operations [with an objective of positively influencing any regulatory decisions on the matter].

11. INTERTANKO COUNCIL DECISION The Council agreed that ship’s efficiency is the best method of measuring performance improvement, with fuel consumption being the critical parameter The definition of ship’s efficiency should, in a broader sense, be weighted and clarified against the term of transportation efficiency For internal use only, initiate data collection from all members on the annual fuel consumption data (years 2010, 2011 and 2012) using the cumulative data on BDNs

12. INTERTANKO JOINT WORKING GROUP ACTIVITY Provide comments to the EU proposed MRV regulation & Develop a Monitoring Plan for tankers (done) Promote these with the EU Commission, Parliament and Council (ongoing) Continue to collect data from Members & find best approach to assess tankers’ fuel efficiency (ongoing) Use data collected to assess various regulatory proposals & define “ship’s efficiency” vs “transportation efficiency”, removing from energy efficiency assessment the influence of other stakeholders (importers, charterers, cargo owners, etc.) (ongoing)

13. DATA COLLECTION FOR INTERNAL USE • Vessel # (for confidentiality, ship’s name or IMO # not required) • DWT (max. summer draught) • Type tankers (oil, product, chemical/product, chemical) • Total time on laden voyages (hours) / reporting period (one year)* • Total distance in laden voyages (nm) / reporting period (one year)* • Total number of voyages / reporting period (one year)* • Total cargo onboard (tonnes) / reporting period (one year)* • Total time on ballast voyages (hours) / reporting period (one year)* • Total time at berth (hours) / reporting period (one year)* – • Total fuel consumption at berth / reporting period (one year)* • Total fuel consumption (tonnes) / reporting period (one year)*(HFO- LSHFO- MGO) • Σtonne-miles for all voyages /reporting period (one year)* • * reporting period (one year) – INTERTANKO proposed definition: • “All completed voyages in one calendar year during which emissions have to be monitored and reported”

14. FUTURE RELEVANT DATES December 2013 – February 2014 EU Parliament and EU Council to review the MRV proposal 5 December 2013 Stakeholders meeting at IMO with a number of Flag States February 2014 INTERTANKO Executive Committee meeting April 2014 MEPC 66 May 2014 INTERTANKO Council meeting

15. VIEWS BY OTHER ASSOCIATIONS • ICS submission inviting IMO to: • consider a 3-phase approach regulation: • data collection • possible development of a Pilot Phase of Additional Measures to Facilitate Efficiency • possible implementation Phase of Additional Measures to facilitate Efficiency • adopt phase I, data collection ASAP but refrain for planning on how data should be processed • data to be collected: fuel consumption and total distance (no cargo, no data on the length of ballast voyages ) • collecting and interpretation of “cargo data” is complicated and may slow down initial amendments to MARPOL Annex VI for data collection • verification of data by PSC

16. DIFFERENCES • ICS suggests mandatory data collection without any consideration on how data would possibly be used; • INTERTANKO Council decided the WG gives such consideration and establish how best would data collection be shaped for its possible further use • ICS suggests collection of fuel consumption and total distance only • INTERTANKO WG agreed to collect data such as “total cargo”, “total laden voyages” (distance and time), “total ballast voyages” (distance and time) in order to define “ship efficiency” • ICS indicates PSC as the only verifier • INTERTANKO suggested that Flag States should be the verifier

17. Council is invited to: • decide if INTERTANKO should maintain the view that tanker’s efficiency is the best method of measuring performance improvement (which will include cargo) • (b) endorse further work on an attempt to segregate “ship’s efficiency” from “transportation efficiency” • (the Council will make a decision on whether or not to use such a model, when and if appropriate) • (c) consider that each Council Member company reports data to the Secretariat • (d) delegate Executive Committee to: • (i) further coordinate the activity • (ii) at its next meeting, review the INTERTANKO position for MEPC 66 on this matter

19. EEOI

20. INTERTANKO possible model Two-tier approach for assessing tanker fuel efficiency. For example: • - The overall indicator reflecting the “transportation efficiency”; e.g. EEOI • An additional Energy Efficiency Tanker Indicator (EETI) indicating the ship’s technical efficiency considering only parameters under the ship owners’ control • EETI might enable a transparent performance benchmarking • If tankers fails to met the “target EEOI value”, it might prove compliance though the EETI. • EETI can be derived from EEOI and represents the carbon intensity of a ship in a reference condition • The EEOI formula can be mathematically expressed and split into : • - a technical factor and • - a logistics factor

21. INTERTANKO possible model • The technical factor relates the fuel consumption (as reported in the calculation of the EEOI) with the ship’s design parameters, i.e. full load (dwt) and the designed speed (Vdes) • The logistics factor can be analysed into three elements: • the “cargo utilisation” (actual cargo/over maximum cargo capacity mL/dwt), • the “distance utilisation”(distance covered in laden condition versus the total distance [dL/(dL + dB)] • the “speed utilisation” (actual average speed for the period used to calculate the EEOI/ design speed or Vop/Vdes) • For the calculation of the EETI it is necessary to apply a correction for the fuel consumption, which has to be related to the design speed. Therefore a fuel consumption correction factor “fss” is used (which can be derived from S-P curves) but for most ships is adequate to assume: fss =(Vdes/ Vop)^3 • By applying all above factors to the EEOI, then the EETI is calculated as a “normalized” figure of the EEOI, somehow “neutralizing” the influence of commercial parameters in the logistics factor

23. INTERTANKO possible model

24. INTERTANKO possible model • FURTHER ISSUES TO ADDRESS: • How to determine the “base line” from which a target mandatory value can be established (e.g. could EEOI calculated for the operational condition at designed speed and fully loaded be the base line?) • if so, the “target EEOI” mandatory curve could probably be decided by imposing a reduction from the base line by a certain percentage; such a percentage may be assessed by using the data collected under MRV • if ship is not compliant with the “target EEOI”, how should EETI value be used as a secondary compliance indicator, etc.? • There were other various suggestions such as trying to limit the ship’s cargo capacity utilisation by using ship’s displacement. • There also questions whether data collected would indicate that ships are properly used and using EEOI only would be a simpler approach