Market-based mechanisms for effective Greenhouse Gas reduction
On 1 January 2020 some might say that the marine sulphur journey is over, the issue dealt with. Let us move on to tackling greenhouse gas (GHG) emissions.
Instead it seems that ship-owners’ worst fears are materialising. The “level playing field” is at risk of distortion through lack of comprehensive and consistent enforcement of the 2020 Sulphur Cap. Many administrations have not processed their national legislation or completed inspection and enforcement training.
For ships that do comply, anecdotal evidence from ship’s officers highlights concern regarding fuel quality and in particular fuel stability. Many ships are only switching to compliant fuels a week before year end and have no experience with the new fuels. The market evidence, as indicated in reports from Argus Media, is that in mid-November 2019 less than 50% of HFO bunkerings were for LSFO. Time will tell if concerns regarding new fuels are justified or not. Not much comfort for a ship’s Master handling his or her ship through a winter North Atlantic force 10 gale.
Some ship-owners who have chosen alternative compliance methods, principally exhaust gas scrubbers, are being disappointed with delays and cost increases. A meteoric rise in orders and a global concentration of marine conversion work in China’s shipyards has resulted in broken promises and a re-think of decisions.
The entry into force of MARPOL Annex VI regulation 14.1.3 on 1 January 2020 has not been a glittering success. The class teacher’s end of term report would say “Maritime has worked hard all year but needs to work smarter. Must do better if ambitions to be achieved. 4/10.”
Lessons from 2020 for GHG reduction
The agenda at IMO has quite rightly moved on to GHG emissions and the ambitious target of a 70% real terms reduction by 2050. That requires new ships launched from 2030 to be zero fossil carbon.
Will administrations work smarter this time round?
Back in 2003, the IMO, shipping associations, regulators, the EU, etc. were invited to an emissions trading event. The concept of an emissions trading scheme for marine SOx was explained and explored including an emissions trading game. The event resulted in the formation of industry association SEAAT (Shipping Emission Abatement and Trading), but it did not have sufficient support and the opportunity was lost. We are now witnessing the consequences with the costly, inefficient and highly risky implementation of the global sulphur cap.
To learn the lessons of 2020, we must re-visit these banking and trading ideas if we are to achieve anything like a coherent and economic outcome for the zero-fossil carbon (ZFC) fuelled new builds of the 2030s and beyond.
There are good examples of emissions trading schemes that have worked and delivered at lower cost and lower emissions. The US Acid rain scheme had its critics, but the record shows that the scheme achieved its goals through a well-structured framework which avoided market abuses and distortions. The European scheme has not been so successful. Political interference and a lack of genuine and in-depth consultation are some of its shortcomings.
Investment and research will be essential to achievement of the 2030 ZFC goal. A prescriptive approach would however take the responsibility for decisions away from the polluter and would not hold the regulator accountable for the consequences of their mistakes.
Despite IMO’s claimed commitment to being goal-based, the reality during many discussions at MEPC and PPR is that prescription is front and centre of the debate. The Environmental NGOs are no exception to perpetuating prescription and pre-conception rather than supporting a goal-based approach.
Last week, IMO discussed setting speed limit for ships to reduce GHG emissions. This approach is sheer madness and likely to have untold consequences. The NGO promoting this approach has not undertaken any detailed techno-economic studies of the impact of the proposal. It is a “lazy man’s” solution to reducing CO2 emissions.
As well as using trading schemes, effective GHG emissions reduction will need real commitment to goal based regulations and operating frameworks. If we just take a command and control approach, the ultimate social environmental costs will be much higher. Let us instead take the better route of setting clear goals, timescales, incentives and creating a workable market framework (the boundaries of acceptability) so commercial shipping can make its own decisions and take its own risks.