Companies Advised to Understand Technical Aspects of Emission Measurement

The maritime shipping industry is facing increasing pressure to limit its contribution to global GHG emissions. According to a recent study, oceangoing vessels are responsible for at least three percent of global GHG emissions, greater than the percentage of GHG emissions from any country except the five largest emitters.1

At the international level, limits on GHG emissions from ships are being negotiated through a specialized agency of the United Nations known as the International Maritime Organization (IMO). The IMO met October 6-10, 2008, and, while no regulatory consensus was reached, the IMO made significant progress toward establishing baselines for GHG emissions from ships. Companies would be well advised to become familiar with these baseline methodologies, as they present opportunities for shipping companies to actively address emissions in advance of regulations and to market themselves to a customer base that is growing increasingly concerned about carbon emissions from their supply chain. Companies should also be aware of regulations already in effect in certain California ports that may affect vessel operations.

IMO Negotiations

The IMO has stated that it is working towards a “binding instrument” for GHG reductions to be presented at the 2009 climate summit in Copenhagen, Denmark. However, there are several issues that may stand in the way of the signing of an international agreement that incorporates mandatory GHG reduction measures by that date.

The most significant sticking point is a disagreement among IMO membership as to whether GHG controls should apply equally to all ships, regardless of their flag state, or only to those ships flying the flags of more developed nations that are signatories to the United Nations Framework Convention on Climate Change (so-called “Annex I” countries). The use of market-based regulatory instruments, such as a cap-and-trade system, is also a matter of controversy among IMO members.

It remains to be seen whether the IMO’s internal disagreements, which were sufficiently strong to derail discussions at the October meeting, will prove intractable. Regardless, they are likely to make it difficult for the IMO to reach consensus on a GHG regulatory scheme in time for the 2009 Copenhagen summit.

Progress on Baseline Methodologies for GHGs Emissions from Ships

While agreement on emissions limits may not be reached any time soon, the IMO’s Working Group on GHG Emissions from Ships (the “GHG Working Group”) is making significant progress toward the development of baseline measurements of CO2 emissions. The working group met in special session in Norway in June 2008 to develop a “technical basis” for GHG reduction mechanisms that might be part of a future IMO regulatory regime. The working group’s discussions included both policy alternatives, such as emissions trading and a global levy on maritime bunker fuel, as well as the refinement of a voluntary “CO2 Operational Index” to measure GHG emissions from ship operations and a mandatory “CO2 Design Index,” a proposed methodology for determining the expected fuel efficiency (and thus, the GHG footprint) of new ships at the design stage. Significant progress on the development of these standards was made at the October 2008 meeting.

Understanding and complying with these proposed methodologies may carry more than just public relations benefits. For example, to the extent that CO2 emissions are a proxy for fuel consumption, tools to help measure emissions intensity under varying conditions can also help a company optimize fuel (and cost) efficiency through operational choices on such issues as routing and cruising speed. A shipping industry group, in connection with the Maritime Research Institute Netherlands (MARIN), recently initiated a joint venture for the development of software tools to provide ship operators with real-time measurements of emissions intensity and fuel efficiency based on such parameters as the ship’s speed, draft engine output and environmental conditions. Such tools could not only help measure and reduce CO2 emissions, but also help shippers achieve greater cost efficiency.

Accurate measurements of baseline CO2 emissions may also help shipping companies with investors and insurers, many of which are showing increasing interest in potential environmental liabilities associated with GHG emissions. The Carbon Disclosure Project (CDP), for example, provides public disclosure of the carbon footprints of hundreds of corporations and other businesses via voluntary annual questionnaires. The CDP is partially funded by institutional investors that pay close attention to the carbon disclosures of the largest companies.

A related CDP initiative is likely to be of interest even to shipping companies that are not publicly traded and which do not face climate-related insurance issues. The CDP’s Supply Chain Leadership Collaboration (SCLC) calls on eleven of the world’s largest corporations to accurately assess and disclose GHG emissions resulting not only from their immediate operations, but also from many of their suppliers. Overseas transportation may contribute significantly to the aggregate carbon emissions associated with commercial and other goods, and the companies participating in the SCLC or follow-on projects may soon be calling on their transport providers to offer an accounting for their shipping-related carbon emissions. Shippers already conversant with the IMO or similar methodologies for measuring their CO2 emissions may have a significant advantage in dealing with such customers.

California Efforts

California’s efforts to regulate GHGs are proceeding at a faster pace than those at the international level. In 2007, the California Air Regulatory Board (CARB), implementing the state’s comprehensive GHG control legislation, AB32, began enforcing state regulations on the use of low sulfur fuel in auxiliary diesel engine on ships operating within 24 miles of the California Coast.2 A group of shipping companies challenged the state regulations, which were ultimately invalidated by the U.S. Court of Appeals for the Ninth Circuit on the grounds that they were preempted by the federal Clean Air Act. Pacific Merchant Shipping Association v. Goldstene.3

The state has also adopted regulations requiring certain ships docked in California’s ports to use onshore electrical power rather than auxiliary engines, thus reducing GHG emissions associated with idling.4 However, the regulations are not yet final and are not in effect at this time.

In addition to efforts at the state level, the Port of Los Angeles and the Port of Long Beach have adopted a Clean Air Action Plan (CAAP)5 that includes a number of measures applicable to oceangoing vessels designed to reduce emissions of criteria pollutants as well as GHG emissions. The CAAP calls for vessel speed reduction within 40 nautical miles of the ports, the use of onshore power rather than auxiliary engines while at dock and low sulfur fuels (0.2 percent sulfur or less) in main and auxiliary engines. Currently, vessel speed reduction is voluntary and onshore power and low sulfur fuels are being implemented contractually through the issuance and renewal of leases for port terminals.

Conclusion

In conclusion, there is still a great deal of uncertainty as to the shape of maritime GHG emissions regulations. The one clear step companies can and should take is to understand the available methodologies for measuring their own CO2 emissions. Once an assessment of emissions is made, companies can consider other voluntary options that, in the absence of regulations, make good business sense.