On 28 June 2013 the European Commission (the “Commission”) published a legislative proposal to introduce a system of monitoring, reporting and verification of CO2 emissions from large ships using EU ports (the “Proposal” or “drafted Regulation”)10.

The Commission has also published a Communication, which illustrates its strategy to reduce these emissions, preferably through measures adopted worldwide11. In the first place, the note describes the background of the Proposal, its content and the main consequences for shipping operators.

According to the Commission, the global greenhouse gas (“GHG”) emissions from the shipping industry amount to 1 billion tonnes per year, meaning around 3% of the global GHG emissions. They are expected to represent 5% of

the global emissions in 2050. Since this value would not be compatible with the goal of keeping global warming below 2ºC as agreed at the international level, measures need to be taken in order to avoid this increase. Therefore, it is not by coincidence that the reduction of GHG emissions from maritime transport has been in the Commission’s agenda for years.

The European Union (the “EU”) and its Member States have always shown a strong preference for a global approach to reducing GHG emissions from international shipping led by the International Maritime Organisation (“IMO”). Notwithstanding the various debates, an international solution has not been found yet. Hence the Commission decided to start working on its own strategy.

In June 2013 the Commission presented its action plan that consists of three consecutive steps: i) the introduction of a system of monitoring, reporting and verification of CO2 emissions from large ships; ii) the definition of GHG reduction targets for the maritime transport sector; iii) the application of further measures, including market-based measures (i.e. Emissions Trade Schemes), to be implemented in the medium to long term.

The Proposal for a Regulation introducing a system for the accurate monitoring, reporting and verification of CO2 emissions and other climate information from ships is therefore the first step of the European strategy.

The Proposal covers all types of vessels above 5000 gross tonnes that use EU ports, regardless of the vessel flag State. This means that the regulation applies only to large vessels emitting significant levels of emissions12.

The Proposal provides that targeted ships owners13 shall have to monitor CO2 emissions for i) all intra- EU voyages, ii) all incoming voyages from the last non-EU port to the first EU port of call, and iii) all outgoing voyages from an EU port to the next non- EU port of call.

Targeted ships owners shall have to calculate and report their annual CO2 emissions over 12-months reporting periods, based on fuel type and fuel consumption data recorded in their log books and bunker delivery notes. They will also have to provide information concerning the distance travelled, time spent at sea, cargo carried, in order to obtain an overview of ships average energy efficiency. Monitoring and reporting shall be complete and accurate, and comply with the methodology agreed in the monitoring plan approved for each ship14.15

All emissions data shall then be verified by an independent and accredited body. When the emission report complies with all the requirements set out in the Proposal, the verifier shall deliver a document of compliance to be kept on board and made available for inspection at EU ports.

Finally, the verifier shall transmit the document of compliance and the other relevant information to the Commission and the flag State16.

By 30 June of each year the Commission shall make publicly available the emissions reported and the information on the targeted ships compliance with the monitoring and reporting requirements17.

As regards sanctions, the Proposal requires Member States to lay down a system of penalties for failure to comply with the various monitoring, reporting and verification requirements set out in the drafted Regulation. Further, the Proposal clearly provides that if a vessel fails to comply with the monitoring and reporting requirements for more that one reporting period, the national

State port authority may issue an expulsion order. As a result, the vessel concerned shall be prohibited from entering any other Member State port until such monitoring and reporting requirements are fulfilled18.

The Proposal will be now discussed by the European Parliament and Council under the co-decision procedure, and the Regulation should enter into force in July 2015. The monitoring, reporting and verification obligations shall apply to shipping activities carried out from 1 January 2018 so as to give Member States and shipping operators time to prepare for compliance.

This timeline should also allow the IMO to reach agreements before the coming into force of these EU rules. The Commission has clearly stated to be willing to take into consideration any development that may occur at IMO level and to review, if necessary, its strategy to reduce CO2 emissions in order to reflect worldwide rules that may be introduced in the meantime.

The monitoring, reporting and verification system could generate some additional costs for shipping operators, i.e. establishing a monitoring plan, collecting data, facing controls. However, the Commission reckons that potential additional costs generated by the monitoring system will be outbalanced by emissions reduction and fuel savings. The monitoring system should also allow the cutting of GHG emissions up to 2% compared with the actual situation as well as the reduction of net shipping costs for ships owners up to 1.2 billion Euros per year in 2030.

In conclusion, the monitoring and reporting rules discussed above are not yet law, and amendments to the current framework may not be excluded. Therefore, the shipping sector will have the possibility to present its views through lobbying activities within the co-decision procedure, and to participate in the debate on the next steps of the EU strategy to reduce GHG emissions.