The impact of MEPC78 on shipping's greenhouse gas reductions

The Hong Kong Shipowners Association's Technical Director Martin Crosswell, offers valuable insight into the IMO's latest MEPC meeting.
 

The outcome of 78th session of the International Maritime Organisation (IMO)’s Marine Environment Protection Committee (MEPC78), held in June 2022 disappointed the general expectation of the international shipping community for formulation of the necessary green-house gas regulations for the sector. But this was not unanticipated, as it was another Covid-era meeting where most delegates attended virtually. To cater to delegates scattered across the globe, the meetings are much shorter, and delegates are unable to gather at the margins of meetings to thrash out compromises. This reality probably robbed the meetings of much needed pragmatism that was essential for reaching sensible outcomes, something the IMO has been renowned for in the past.    
 

The main issues presented to MEPC78 were associated with pushing forward the IMO Road Map of short-, medium- and long-term measures to reduce shipping’s green-house gases (GHG), but sadly only small incremental improvements were achieved.   
 

COP26 Target – Net Zero by 2050
 

The Net Zero target of the 2021 United Nations Climate Change Conference (COP26), a long-term aspirational measure agreed to by many shipping delegations at Glasgow in November 2021, was tabled for a second review at MEPC78. Although more members supported it than at MEPC77, there were still many who did not. It will be kept on the agenda for further consideration at MEPC79, scheduled for December 2022.  Obviously, there is the need for the IMO secretariat to create a clear pathway for shipping to reach the target, and until such a pathway is agreed, it is unlikely for the goal to be adopted. 
 

Carbon Intensity Index (CII)
 

The outcome of MEPC78 regarding the approval of the carbon intensity index (CII), a short-term measure for commencement in 1 January 2023, was another concern for most shipowners. Ships now need to report all emissions incurred in 2023 in early 2024, those incurred in 2024 in early 2025, and so on.  Many shipowners have concern about the rejected exemptions, with respect to adverse weather adjustment, short voyage correction and port waiting time. The  rejections may result in unreasonable CII values being calculated which do not truly reflect their carbon intensity, making it unreasonably challenging, if not impossible, for certain ships to meet the minimum required CII ratings of an E in the range A to E. Shipowners who charter out ships worry that once unfavourable CII’s are attached to a ship, and rating agencies report them as such, charterers will treat them unfavourably compared to sister ships, who manage to avoid heavy weather, short voyages and long stays at anchor waiting to berth. 
 

Given the fairly strong views raised by the shipowners organisations at MEPC78,  finally a compromise was agreed. The exemptions will be reviewed again, based on operational data submitted to the IMO by shipowners via flag states. A decision whether to include the rejections or not will be made before the CII becomes a mandatory regulation from 1 January 2026 onwards. Between 1 January 2023 to 31 December 2005,  CII reporting is mandatory but there are no penalties for non-conformity with the CII bands. The penalties start from 1 December 2026. 
 

Ship Energy Efficiency Management Plan  (SEEMP)
 

MEPC78 adopted guidelines for the development of the ship energy efficiency management plan (SEEMP), another short-term measure.  Ships over 5000gt are required, prior to 1 January 2023, to have a certified SEEMP Part III onboard that has been verified by the ships administration. The SEEMP Part III is part of the IAPP statutory certificate. 

The ‘SEEMP Part III’ includes: (i) a description of the methodology that will be used to calculate and report the ship’s required annual operational CII, for the next three years; (ii) an  implementation plan documenting how the required annual operational CII will be achieved during the next three years; and (iii) a procedure for self-evaluation and improvement. 
 

Meetings at the IMO are expected to decide, not later than 2023,  if it will be a port state detainable deficiency if the SEEMP implementation plan and/or the plan of corrective actions for a ship rated as D or E are not implemented from 2026 onwards by the ship as planned. Also, there is some concern that the SEEMP will require an action plan to improve a ships performance in 2024, based on the results summitted for 2023, regardless of the fact that the CII is not a mandatory regulation until 1 January 2026. The fall back preferred by many shipowners is that the period from 2023 to 2026 should be classed as a learning period, such that any failure of a ship’s SEEMP/or plan of corrective actions to not improve ratings from D to C, over three years, or from E to D over one year, should not result in any penalty. (Ratings of A to C do not require any corrective actions.) 

Research and Development (R&D) 
 

As anticipated, the International Chamber of Shipping, (ICS), led proposal for a US$5 billion R&D fund, based on a US$2 levy on ships bunker fuel, was not taken forward at MEPC78, although it received considerable support from the membership. This stand-alone measure, if agreed, could have been started up quickly and would have been able to distribute about US$500 million every year to fund many decarbonization R&D projects, in the long-term interests of both the industry and the global community.

Market Based Measures (MBMs)  
 

At an IMO intersessional GHG meeting in May 2022, ISWG GHG12, there was a general discussion of the various MBM proposals, which are medium-term measures, to encourage swift development and take up of low and zero-emission fuels. These were accepted by MEPC78 without further discussion and have been forwarded to ISWG GHG13 scheduled for December 2022, with instructions to develop a basket of mid-term measures for submission to MEPC80 scheduled for June 2023. The main MBMs to be developed for ISWG GHG12 include various proposals from different members: (i) the comprehensive proposal for a carbon levy; (ii) a “Cap and Trade” system; (iii) a “Funding and Reward” mechanism, with the combination of a carbon levy and a benchmarking system; and (iv) a levy system, combined with a reward or “feebate” system for ships using zero-carbon fuels.
 

Several members have indicated that they can live with either a levy-based approach or a cap trade system, whereas several other members and the ICS see serious problems with a cap-and-trade approach whereby the cost of allowances, set by a market, might be variable and volatile with the potential to lead to “rationing” of maritime transport. And a potentially valid criticism of the levy-based approach, identified during the ISWG-GHG12 IMO meeting, is that closing the price gap between fossil and zero-carbon fuels the quantum of the levy could be at such a high level that it might cause unacceptable impacts on trade. 
 

Most of the systems, apart from the levy based system, are complex, and considerable work is needed to explain them to the IMO so that members can decide which system should be adopted. It is possible that more systems will emerge at MEPC79. 

IMO Life Cycle Analysis (LCA) Correspondence Group
 

There has been much discussion about whether ships emissions should only cover the ones used onboard from tank to wake or whether they should cover all emissions from well to wake. Although the GHG emitted in the fuel extraction processing and delivery to bunker ports around the world, well to tank, is to be included in country emissions, according to the Intergovernmental Panel on Climate Change (IPCC), it has been recognised that ships need to know what they are and should be financially encouraged to select fuels with minimal emission lifecycles.  There is still a lot of discussion around this issue at the IMO but it is now looking more probably that ships will need to take the whole lifecycle chain into consideration in a well to wake cycle, but possibly in the “initial phase”  ships should not be penalized for using low and zero emission fuels, wherever they come from, keeping a neutral stance between technology and fuel as much work is needed to finalize an acceptable solution. 
 

MEPC 78 has established a correspondence group to develop draft guidelines on the Lifecycle GHG Intensity of Marine Fuels, with a view to finalising the draft at MEPC 80, July 2023. The main requirement is to develop procedures that allow for the continuous review of Well-to-Tank, Tank-to-Wake and Well-to-Wake GHG emissions default values for the identified fuels. This requires identifying the main fuel production pathways and feedstocks for inclusion in the draft LCA guidelines, and how they could be subcategorized and further specified. Ships are required under the CII regulations to report emissions for Tank to Wake but the LCA guidelines are being developed so ships can take into account the emissions from the extraction and processing of fuels to delivery to ships. 

Conclusion
 

International shipping currently consumes around 300million tonnes of fossil fuel per year, emitting 3% of the worlds anthropological  CO2 . Shipping traditionally  tracks the world’s GDP so unless drastic action is taken to decarbonize shipping, the emissions will only increase. Ship owners are well aware of their responsibilities but as they operate worldwide a global solution is needed with a level-playing field. The IMO is vested with the responsibility to create global solutions; and relevant, practical rules should be agreed as early as possible. We are thankful that the situation does continue to move forward and hopefully when physical meetings are able to restart movement will speed up, enabling shipping to meet its GHG commitments on time, in the interests of all. 

Source: Hong Kong Maritime Hub

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