ASIAN PANEL March 2, 2010 GREENHOUSE GAS EMISSIONS FROM SHIPS

1. ASIAN PANELMarch 2, 2010GREENHOUSE GAS EMISSIONS FROM SHIPS JOSEPH ANGELO DEPUTY MANAGING DIRECTOR

2. IMO ACTIONS • Nine fundamental principles • Technical measures • Operational measures • Market based instruments (MBI)

3. 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

4. TECHNICAL MEASURES • Energy Efficiency Desing Index (EEDI) • - require a minimum energy efficiency of new ships • - stimulate technical development • - separate technical and design based measures from • operational and commercial measures • - compare the energy efficiency of an individual ship to • similar ships which could have taken its cargo - Cost: Emission of CO2 - Benefit: Cargo capacity transported a certain distance (Relates to a seagoing maximum condition)

5. OPERATIONAL MEASURES • Ship Energy Efficiency Managment Plan (SEEMP) • improve 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/improvement towards set goals • Energy Efficiency Operations Index (EEOI) - assist shipowners/operators in the evaluation of the performance of their fleet with regard to CO2 emissions - how to measure a ship’s energy performance - how the EEOI can be used to promote low emissions from ships • INTERTANKO Guide on Tanker EEMP - assist members in implementing IMO SEEMP

6. IMO STATUS MEPC agreed on: • Interim Guidelines on the method of calculation of the Energy Efficiency Design Index (EEDI) for new ships • Interim Guidelines on voluntary verification of the EEDI • Guidelines for voluntary use of the ship Energy Efficiency Operations Index (EEOI) • Guidelines for Ship Energy Efficiency Management Plan (SEEMP) • Workplan for further consideration of Market Based Instruments (MBIs)

7. IMO WORKPLAN • MEPC 60 (March 2010) – Further details of MBI proposals are submitted • MEPC 60 – Further consideration of methodology and criteria for feasibility studies and impact assessments of MBIs • MEPC 61 (October 2010) – Preferably clearly indicate which MBI it wishes to further evaluate and identify elements to be included • MEPC 62 (Summer 2011) – Could be in a positionto report progress to Assembly and identify possible future steps

8. MARKET BASED INSTRUMENTS • Should MBIs be included? • Reasons for MBIs • Long life of ships • Growth of international shipping • CO2 reductions due to EEDI (new ships) = long term measure • Measures on existing ships = not sufficient to meet reductions of 20% or more in the short terms (up to 2020) • Which MBI? - GHG Compensation Fund (Denmark/Japan) - Emission Trading Scheme (ETS) (Norway, Germany & France) - US alternative – based upon EEDI - World Shipping Council (WSC) – modified US alternative

9. GHG COMPENSATION FUND • Ships make a set contribution to the Fund based upon fuel consumption • Collection by registered Bunker Suppliers • Bunker Delivery Note as evidence • Mandatory registration of Bunker Suppliers • Revenues used for - Mitigation, Adaption and Technology Projects - Non-vessel Specific R&D Projects - Technological Cooperation within IMO - Rewarding most efficient ships (Japanese alternative)

10. EMISSION TRADING SCHEME • CAP on net CO2 emssions for shipping • CAP to be agreed by UNFCCC or IMO with periodical declining trajectory • Carbon allowance = 1t equivalent CO2 emission • Allowances (distributed) or sold = CAP • End of each period – ship owners surrender allowances to correspond to the actual fuel consumption: • emissions < CAP – rest allowances can be sold • emissions > CAP – buy additional allowances

11. USA ALTERNATIVE • Compliance with Efficiency Index standard (EIR) • EIR uses the EEDI formula as a model • Ship delivery: EIR = mandatory EEDI value • EIR value gradually and periodically lowered • Ship compliance: • attained Efficiency Index (EIA) or • direct and continuous fuel consumption monitoring • IMO establish Efficiency Credit (EC) trading for ships • Measuring compliance: EC = (EIR – EIA) x Activity • EC > 0 – ship sells credits; EC < 0 – ship buys credits • Activity (over a compliance monitoring period) could be: • actual cargo tonne-miles; • tonne-miles only or • tonne-mile default value for each type and size of ship

12. WORLD SHIPPING COUNCILVESSEL EFFICIENCY SYSTEM (VES) • Combination of US MBI & GHG Fund • Emission targets: • EEDI value and its reduction - new buildings • Less stringent base line and targeted reduction for ships in operations • Ships meeting the target = no additional charges • Less efficient ships = charges/ton of fuel consumed over the target • IMO establish a Fund to collect charges

13. PRINCIPLES FOR INCENTIVES/PENALTIES • GHG Fund • all ships pay a levy • contribution by fuel consumption (fixed price) • efficient ships receive a reward (Japan) • ETS • all ships buy allowances • difference in number of allowances purchased (market price) • US & WSC MBIs • no extra costs for ships complying with required efficiency standard • US - same standard for all ships (?) • WSC - different standards for new and for existing ships • Both provide incentive for efficient ships

14. INTERTANKO POSITION • MBIs – a political decision • Meaningful GHG reductions or a “cash cow”? • If MBIs are included as part of IMO regulatory package for the reduction of GHG emissions from ships, the selected measures should meet the IMO nine principles • INTERTANKO will make its own evaluation according to a set of principles similar to the IMO nine principles

15. 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

16. COP 15 • COP 15 provides little answers for shipping • Copenhagen Accord refers to “new and additional funding shall be provided for developing countries” • Will this come from shipping?? • If so, could result in a double tax for shipping if MBIs are introduced • IMO MEPC meeting in March should shed some light on this

17. COP 15 • Kyoto Protocol remains in place • Article 2.2 of the Kyoto Protocol – Parties included in Annex 1 shall pursue reduction of GHG emissions from marine bunker fuels working through IMO - “common but differentiated responsibilities” (CBDR) • CBDR Concept is embedded in the Copenhagen accord • Impact on IMO negotiations in March remains to be seen

18. COMPLICATING FACTOR • Applying GHG emission standards only to the flags on Annex 1 countries will not have significant effect • Would apply to less that 30% of the world’s fleet BUT, some are thinking – • Technical and operational standards for all ships • MBIs, if included, incorporate CBDR concept

19. INTERTANKO POSITION • Shipping should strive to significantly reduce GHG emissions • Advocates measures that would result in CO2 and other GHG emissions reductions from tankers • Believes that energy efficiency will be gained through better coordination with other stakeholders involved in the logistical chain • Supports the IMO process to develop regulations that do not hinder commerce • Supports “ship neutral” regulations, equally applicable to all flags

20. INTERTANKO POSITION • Supports the adoption of EEDI • Supports the adoption of SEEMP and has developed a SEEMP model specific for tankers • Stakeholders and regulators have to agree on targeting levels for GHG emission reductions • The target levels should be ambitious • Targets should also be realistic and thus provide incentives for sustainable efforts to achieve them • Initial agreed target levels could be adjusted as experience is gained - it is important to initiate the process of CO2 emission reduction from shipping as soon as possible

21. VIRTUAL ARRIVAL • Cooperation between Charterer (Terminal Operator) and Tanker Operator • Speed is “optimised” when ship’s estimated arrival is before the terminal is ready • Operator and Charterers agree a speed adjustment • Uses independent 3rd party to calculate/audit adjustment • Operators retain demurrage, while fuel savings and any carbon credits are split between parties • OCIMF-INTERTANKO have established Virtual Arrival project: - Monitoring trial voyages - Guidance for development of Charter Parties clauses - Criteria for certifying 3rd parties

22. VIRTUAL ARRIVAL

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