Decarbonizing shipping – IMO, don't make the same mistake twice!
A KCC opinion piece from CEO Engebret Dahm
The shipping sector must reduce its carbon footprint. Approved IMO rules and proposals for new regulations will make it harder for the industry to deliver significant emission cuts.
Strict global regulations are needed to reduce the carbon footprint of the shipping sector. As reported by The Financial Times on 3 May ("Shipping heavyweight Japan tables carbon tax proposal for the industry"), IMO discussions for introducing a global shipping carbon tax are underway. These will continue at the IMO MEPC 78 meeting from June 6–10. A carbon tax is definitely what global shipping needs. If structured carefully, a carbon tax can push the industry to emit less by incentivizing initiatives to improve efficiency and implementation of zero-carbon technology and fuels in shipping.
While most of the shipping industry stands firmly behind a global carbon tax for the industry, there are widespread concerns about the process and its likely outcome. IMO's new mandatory carbon intensity measure for shipping, coming into force in 2023, will set IMO on a dangerous course. This new regulatory system is based on Carbon Intensity Indicator (CII) metrics, which build on a grossly imperfect metric based on the theoretical cargo intake of a vessel without factoring in the performed transportation work. These metrics disregard operational and trading efficiency and introduce misguided incentives for the shipping industry, harming its ability to decarbonize.
Recent proposals on global carbon taxes – one tabled by China and backed by Brazil, Argentina, South Africa, and the UAE, and one of two proposals tabled by Japan – are particularly worrying. Both proposals want to levy a carbon tax on ships based on their CII-scores. If the carbon tax proposals penned by China and Japan are implemented, the regulation will further penalize the vessels and operations with the lowest emissions per transported ton of cargo – ultimately favoring empty ships. This approach, well-meaning as it may be, is senseless. It is as if the International Air Transport Association (IATA) were to introduce metrics that reward airlines for flying jumbo jets half-empty. It is wasteful, it is wrong, and it is misguided. The devil is in the details.
Operational and trading efficiency is paramount for cutting emissions before zero-emission technology and fuels are widely available for all shipping segments. Efficiency will also remain a critical factor in the future when the industry switches to zero-emission fuels, as these will be two-three times more expensive than fossil fuels. To put it bluntly, adopting a poorly developed regulatory framework that disregards the importance of operational and trading efficiency will hamper the industry's transition towards the large-scale use of sustainable zero-emission fuel solutions. That said, we call on governments in the EU, UK, and Norway to ensure that regulations of the shipping industry are both practical and sensible. As representatives of leading maritime nations, these leaders have a big voice and a big responsibility. We must work to avoid senseless and unconstructive compromises in the otherwise consensus-driven IMO.
How can we create a more constructive regime? Rather than creating more perverse incentives for the industry, the IMO should follow the EU's lead in ensuring that it is the actual emissions that are subject to a carbon price. In 2023 or 2024, the EU will include shipping in its Emission Trading Scheme (ETS), a cap-and-trade scheme where the shipowner or another responsible entity must buy emission allowances for the actual carbon emissions of the vessels themselves. This approach, linking a carbon price to the actual emissions whether through a levy or otherwise, should be replicated in the IMO.
An approach like this would push the industry to collaborate, improving efficiency in every part of the seaborne supply chain. It would also stimulate investment in tomorrow's zero-emission fuel solutions.
In a sector currently responsible for roughly three percent of global greenhouse gas emissions, carefully crafted regulations and incentives are sorely needed. Poorly conceived compromises, blocking positive change in the shipping industry, are not. If the IMO regulation is implemented as proposed by China and Japan, we risk ending up with another imperfect and counterproductive piece of IMO regulation.
