(www.MaritimeCyprus.com) The adoption of the 2023 IMO GHG Strategy, includes revised GHG reduction targets for international shipping and the next steps agreed by IMO Member States for the development of a basket of mid-term GHG reduction measures for possible adoption by 2025, potentially including a levy on GHG emissions and the ICS ‘Fund and Reward’ proposal.
On 7 July the IMO Marine Environment Protection Committee (MEPC 80) unanimously adopted the 2023 IMO Strategy on Reduction of GHG Emissions from Ships.
The full text of the 2023 IMO GHG Strategy, which includes extremely ambitious GHG reduction targets, as well as outlining the next steps for the development of mid-term greenhouse gas (GHG) reduction measures which may potentially include a levy-based economic measure, can be downloaded below.
New GHG reduction targets
IMO Member States have agreed on a new mid-century level of ambition for the Strategy to achieve:
“net-zero GHG emissions by or around, i.e., close to, 2050, taking into account different national circumstances”.
Whilst the formulation of this wording is not as precise as ICS would have preferred, the inclusion of a reference to the year 2050 still provides a clear direction of travel to the industry, as well as energy producers and fuel suppliers. The “net zero” formulation (rather than ‘”absolute zero”) uses the wording initially proposed by ICS. Whilst the reference to “different national circumstances” was of great importance to developing countries so as not to compromise their interpretations of the UNFCCC Paris Agreement, the revised IMO Strategy still makes clear that any measures adopted by IMO must apply to all ships equally regardless of the flag State.
Notwithstanding the text agreed by IMO, ICS will maintain its commitment to net zero GHG emissions by 2050, as announced at the UN Climate Summit in Glasgow in 2021.
Member States also agreed the following draft text for an alternative fuel target (also based on a proposal originally made by ICS):
“Uptake of zero or near-zero GHG emission technologies, fuels and/or energy sources to represent at least 5%, striving for 10%, of the energy used by international shipping by 2030.”
A suggestion from ICS that reference should also be included to the use of “low GHG fuels” to achieve this 2030 target was rejected by most States without any detailed consideration during the intersessional meeting held during the preceding week. Due to the highly political nature of the discussions during MEPC 80 the issue was not re-opened. Whether or not this may have implications for the future use of biofuel blends, LNG, or other low GHG fuels (such as methanol produced from fossil feedstocks) remains to be seen.
In addition, and most importantly, the 2023 Strategy includes very ambitious “indicative checkpoints”:
“.1 to reduce the total annual GHG emissions from international shipping by at least 20% striving for 30% in 2030, compared to 2008; and
.2 to reduce the total annual GHG emissions from international shipping by at least 70% striving for 80% by 2040, compared to 2008.”
The final text on targets was the product of informal late-night negotiations, outside of the official IMO meeting, between key governments (including the United States, the EU, the United Kingdom, China, Brazil, Argentina, Japan and Singapore), with the Pacific Island States ‘walking out’ of the final informal discussions because, they claimed, the result was inconsistent with a 1.5-degree climate goal. The result was then presented to other governments at the IMO meeting as a fait accompli.
The only significant final change which was then made at the official IMO meeting was at the insistence of the Pacific Island States, who threatened to reject the entire revised Strategy. This increased the optimum reductions which the shipping sector must strive for, in 2030 and 2040 compared to 2008, to 30% and 80% (from 25% and 75%). It should be noted that these very ambitious targets apply to the international shipping sector as a whole (rather than to individual ships) but are meant to be achieved regardless of any increase in maritime trade.
The fact that more ‘conservative’ States (such as China, India and Brazil) eventually agreed to such ambitious checkpoints reflects the importance they placed on not conceding a more precisely worded target for 2050, while ‘middle ground’ States (such as Japan and Singapore) were placed under significant pressure by the United States which took a very assertive role throughout the negotiations which were conducted as if this was a UNFCCC meeting, rather than a conventional IMO meeting where the various positions of governments are normally discussed in open session. However, whilst ‘conservative’ States may argue that ‘indicative checkpoints’ are not the same as ‘levels of ambition’ and not should therefore influence the shape of future regulation, EU States are unlikely to take the same view.
In theory, depending on how the current total emissions from shipping are calculated compared to 2008, and future developments with trade growth, the 2030 checkpoint may be just about achievable. However, the very ambitious checkpoint agreed for 2040 – which is less than 17 years away – looks extremely challenging, especially if an economic measure is not rapidly agreed to reduce the cost gap between new and conventional fuels to incentivise first movers, so that a take-off point can be reached by about 2030. However, further analysis will be required.
Development of mid-term measures, including potential GHG levy
The Strategy states that IMO will develop a basket of measures comprising:
“.1 a technical element, namely a goal-based marine fuel standard regulating the phased reduction of the marine fuel's GHG intensity; and
.2 an economic element, on the basis of a maritime GHG emissions pricing mechanism.”
During the intersessional meeting which preceded the MEPC, China, Brazil and around 20 other governments spoke firmly in opposition to the development of a levy on GHG emissions as an economic measure, which ICS argues will be required to achieve the very high levels of ambition which have now been agreed. However, about two thirds of the governments which spoke supported a flat rate (levy-based) system, with many – including the EU, open registers, Pacific Island States and many others – being open to a fund and reward (feebate) mechanism as proposed by ICS (and separately by Japan).
Those governments which had opposed a levy did not change their positions at MEPC 80, and the language agreed regarding the type of economic measure which might be developed, in addition to a Global GHG Fuel Standard (as a technical measure) has been left open in the 2023 Strategy, which simply refers to a “GHG pricing mechanism”. However, all Member States agreed that the possibility of levy-based measure, including the ICS “Fund and Reward” proposal, should remain on the table and be subject to a Comprehensive Impact Assessment by UNCTAD, alongside an assessment of alternative proposals.
Importantly, terms of reference for this Comprehensive Impact Assessment were agreed as part of the 2023 Strategy – see Appendix 2 of the 2023 GHG Strategy, which refers to a “ levy” and “rewards” in the accompanying “measures matrix”. While it is disappointing that Member States were unable to reach consensus about a levy at MEPC 80, the levy/fund and reward system remains on the table for further consideration. Moreover, informal discussions with some of those governments which are currently opposed to a levy, due to concerns about the impact on trade, suggest that they expect that a levy-based system may be adopted by IMO.
Also importantly, the 2023 Strategy includes indicative timelines which suggest that a basket of mid-term measures, including both technical and economic elements, should be adopted by IMO in 2025 with a possible entry into force date of early 2027. The fact that Member States were willing to agree to hold an extraordinary session of the MEPC in 2025 to adopt a package of amendments to MARPOL Annex VI suggests that they are committed to finalising these measures as soon as possible.
It has been agreed that the first iteration of UNCTAD’s Comprehensive Impact Assessment must be complete by MEPC 81 in Spring 2024. Provided that this is conducted objectively, and taking account of the very ambitious nature of the GHG reduction checkpoints which have now been agreed, it seems likely that, notwithstanding the current reservations of a large minority of governments, that this assessment will identify that a levy-based ‘Fund and Reward’ measure will be the best way forward and that, if such a measure is well-designed, the economic impacts on States will be shown to be minimal compared to alternative proposals. To a large extent, of course, this will depend on the levy quantum which might finally be agreed. But the levy-based approach has the added advantage of providing greater certainty about what these impacts might be.
“Synergies with existing measures”
Apart from how the extremally ambitious levels of ambition which have now been agreed will be delivered in practice, there is another piece of potentially problematic text in the revised Strategy (para. 4.8):
“In addition, the potential synergies with other existing measures such as the Carbon Intensity Indicator (CII) will be considered, in particular regarding incentives for energy efficiency and for the adoption of better operational practices in the shipping value chain or other technologies to reduce emissions from ships.
This text emerged from discussions behind the scenes between the United States and Brazil and may be linked to the promotion of biofuels. But there was no real discussion as to the meaning or purpose of this text during the IMO meeting itself.
The Strategy states:
“The Committee recognizes the need for a broad approach to regulating safety of ships using zero or near-zero GHG emission technologies, fuels and/or energy sources, including addressing the human element, to ensure a safe implementation of this Strategy.”
Role of Seafarers
The 2023 Strategy also includes the following text:
“Recognizing the impact this Strategy will have on seafarers and other maritime professionals, the Organization is further requested to assess its instruments, guidance and training standards to help ensure a just transition of seafarers and other maritime workforce that leaves no one behind”.
Monitoring and reduction measures such as DCS and CII were also discussed.
The MEPC approved the review plan of the CII regulations and guidelines, which must be completed at the latest by 1 January 2026. The plan foresees the timeline for the review of the short-term measure is described as follows:
1. Data gathering stage: from MEPC 80 to MEPC 82 (autumn 2024)
2. Data analysis stage: working group at MEPC 82 to be continued by a correspondence group; and
3. Convention and Guidelines review stage: an intersessional working group between MEPC 82 and MEPC 83 (spring 2025) as well as a working group at MEPC 83.
The short-term GHG reduction measures, CII rating, EEXI and enhanced SEEMP, entered into force on 1 November 2022.
A comprehensive report on the many other issues discussed at MEPC 80, including other GHG-related issues such as the adoption of the first iteration of the Life Cycle Assessment (LCA) Guidelines on marine fuels and an important MEPC Resolution on the use of biofuels, will be available soon.
You can download the full text of the 2023 IMO Strategy on Reduction of GHG Emissions from Ships, below: