IMO’s guiding principles of new GHG strategy discussed at ISWG-GHG 14

Like ambition, UMAS highlights, this is a key section. The guiding principles of the strategy will effectively guide the approach to the future GHG reduction work of IMO, in particular the development and implementation of mid and long term measures and the approach taken to disproportionately negative impacts on States and barriers and supportive measures.

As UMAS highlights, historically, this has been a contentious section because there is disagreement between states on the extent to which agreements made in the parallel UNFCCC multilateral process should also apply at IMO.

Revisions to this section were proposed by several Small Island Developing States (SIDS). The proposed amendments from the SIDS were aimed at capturing the many interventions that support having an equitable transition for the sector and embedding them, via text amendments, into this section (as well as other sections) to provide assurance to climate vulnerable and remote countries that the work of the IMO will be guided by principles that could support an equitable transition.

Examples of the text suggestions include the polluter pays principle, enshrined in MARPOL and other IMO conventions, the principle of equity from the UNFCCC and the Paris Agreement and the principle of the precautionary approach.

It was seen by some Members, largely developed countries as potentially opening Pandora’s box for the section – meaning that making this many modifications could undo the progress made to reach the existing text agreed in 2018.

The response from other developing countries was mixed. A majority supported not reopening the section other than to surgically insert a point on safety although there are three positions worth noting:

• One developing country did note that CBDRRC and equity are different but may be complimentary, although this was during the discussions on Level of Ambition.
• One developing country gave comments as a response to the proposed amendments but equally stated that if the majority agreed that the section wouldn’t be reopened they would support the majority

There is a general feeling from developing countries that CBDRRC and equity should not be interchangeable which aligns with how they have been previously represented in the UNFCCC and Paris Agreement texts, as well as in the proposed text from the SIDS which retains and references CBDRRC separately.

After discussion the current draft text moving forward to ISWG15 has not been significantly revised. It contains a reference to the “polluter pays principle” and a reference to safety both in square brackets.

Mid-term measures

ISWG-GHG 12, ISWG-GHG 13 and MEPC 79 heard convergence on the high-level description of mid-term policy measures. This was around a combination of technical elements (e.g. a fuel standard), and economic elements (e.g. a carbon/GHG levy).

Previous discussion also converged around some language around the objectives of these two different types of policy, indicating what they would need to be designed to achieve:

• Promote the energy transition of shipping
• Provide the world fleet the needed incentive
• Ensure a level playing field and a just and equitable transition ISWG-GHG 14 held two rounds of discussions on the mid-term measures.

The first round discussed whether there were any developments in preferences for the different specific policy proposals, and the basket of policy measures, as well as discussing the possibility of carrying out a comparative analysis of measures.

The second round focused on the subject of revenue disbursement. The revenue disbursement discussion went into some detail both of what revenues could be used for, and what framework/architecture could be used for disbursement. All who spoke reinforced the outcomes in earlier debates on the benefits of a combination of both technical and economic elements in the mid-term measure(s).

However, there were a broad range of positions in the debate on details of measures. There was no clear support amassing behind any one of the economic element proposals (e.g. ICS and China on a fund and reward scheme, Japan’s feebate concept and the Marshall Islands levy proposal). Alas, it was noted that there are many similarities between these measure proposals.

For the technical element proposal, for those who expressed any preference there was broadest support for the GHG Fuel Standard as proposed by the EU, noting the maturity of its design, however there were also questions on the complexity of the additional flexibility mechanism.

In the debate around how revenues arising from a carbon/GHG price might be disbursed, many countries indicated that it was premature to talk about revenue disbursement and preferred to discuss this after MEPC 80. Of those who did speak on the subject, there were a mix of preferences on where the funding should be deployed.

Several preferred revenues to be allocated for ‘in sector’ only (e.g. spent on international shipping), while others preferred less constraint and deployment including to support the transition to new fuels and to enable just and equitable transition.

There is much expectation outside of shipping for the imminent implementation of a carbon/GHG price. However, as well as the range of preferences above, there remains a lot of detail to be developed, not least because other IMO inputs (revision of strategy, LCA guidelines) to the policy design process are still awaited (at MEPC 80).

Many states see great value in further work done prior to ISWG-GHG 15 to compare the different measure proposals in terms of compatibility in the basket, effectiveness, feasibility and impacts on states.

It looks likely that there will be a ~2 day “ad-hoc expert workshop” at some point in early May for that purpose. This may then provide some additional clarifications that can be used for the agreement of greater specifics at ISWG-GHG 15.

It may be likely that the Revised Strategy will simply feature lists of candidate measures without specifics but the key for MEPC80 is that it is the planned launch of phase 3 for measure, the phase during which they will be finalised.

When might further policy, including a carbon price, be agreed?

Until this point, there has been no clarity on the date at which IMO would formally finalise and agree the next set of policies (mid-term measures), widely expected to be the key policies for driving deep GHG reductions and the transition away from use of fossil fuels.

For now, the uncertainty on timescale combines with the uncertainty on the specifics of what these policies will contain. The soonest some clarification of what these policies might regulate/incentivize, is the adoption of the Revised Strategy at MEPC 80, e.g. through the level of ambitions which describe the rate of GHG reductions these policies will need to enable.

There is then a finalization phase (phase 3) which is on track to start after MEPC 80, but currently has no agreed date for conclusion. However, the IMO’s process for implementing policy measures means that there is a minimum time period between when it 0agrees” a policy and when the policy actually enters into force of around 2 years.

The discussions saw a range of opinions on the date to finalize and agree on individual measures. There is a general agreement that measures in the basket will likely have individual implementation dates. The earliest proposal for a measure to reach agreement is in 2024, implementation thereafter. The latest proposal would see a measure agreed by 2030 at the latest.

The majority of countries that spoke preferred agreement either in 2024 or 2025. It looks likely that the final text of the Revised Strategy will include greater specification, including the timetable for the finalization phase (phase 3) of policy measure development.

As with Level of Ambition debates, industry members reiterate calls for clarity, unambiguous signals to allow for a predictable and investible transition. Although not debated in detail during ISWG-GHG 14, there are interactions between the timelines for adopting mid-term measures and the revision of short-term measures. The latter is expected to take place in 2026, informed by results from the initial period of implementation (e.g. from 2023).

The extent to which short-term measures drive GHG reductions, and the type of GHG reductions these achieve (e.g. efficiency increase and/or fuel substitution) will also be relevant to the role and specifics of mid-term measures.

For stakeholders in the shipping industry needing to make decisions on the composition and operation of ships during the period 2027 onwards, it is therefore entirely possible that specifics of the two key driving regulatory forces (short-term measures and mid-term measures) may only start to clarify in 2025, and remain significantly uncertain through much of 2026). The best guidance prior to those clarifications being the specifics agreed in the revised strategy.

Just and Equitable Transition

As with previous meetings there were multiple references to the transition being ‘just’ ‘equitable’ and ‘leaving no one behind’. The debates at IMO generally set up two key overarching questions for IMO to answer relating to a just and equitable transition for shipping, and ultimately, for member states:

• Will the Revised Strategy represent a commitment to a Just and Equitable Transition and if so, what language will capture this and in what sections and
• How can this commitment be operationalized in the development, assessment and implementation of mid-term measures (and any other relevant future action)?

The first question relates entirely to the revision of the strategy process and will be answered by MEPC80 in July 2023.

The answer to the second question is determined by the current phase 2 discussions on the basket of mid-term measures, the future phase 3 finalization of mid term measures, and ultimately also the future work of the organization.

However, a balancing factor is that time is of the essence – the more climate impacts occur, the more inequality between states widens, burdening those with little historic responsibility and hampering sustainable development opportunities.

In terms of both submissions and discussions, the group remains largely divided on both the language and placement of any JET mention, or equivalent, in the strategy, as well as on the combination of measures and features that may support it.

What is notable is that many are coming to understand that Just and Equitable are different concepts, both with great value for the transition and that interchangeability is unhelpful due to different scopes and applications.

In the context of the IMO, an equitable transition protects states from suffering widening inequalities due either to climate impacts or to mitigation measures but also promotes equitable access to opportunities and benefits of the transition.

A Just Transition would currently apply at a workforce or individual level, seeking to assist in safety, training and reskilling of seafarers and dignified work, though depending on the perspective, this could also include others such as port workers and certain communities.

A collection of Pacific SIDS, representing climate vulnerable voices, called for integration of language, principles and ambition in the Revised Strategy to produce both the high ambition transition needed, while simultaneously providing assurance that they will not be unduly burdened or left behind.

Notably, while calling for language for an equitable transition to be embedded throughout the strategy, they also support the inclusion of a just transition in one section. Additionally, on measures they support a basket combining an MBM putting a price on emissions to close the competitiveness gap between new and zero emission fuels with a complimentary fuel standard to provide certainty of emissions reduction.

Revenue generated as a by-product of an emissions price could be used to support both shipping’s transition and climate vulnerable developing countries. They therefore support out of sector use of any revenues created by an MBM which also aligns with findings from World Bank analysis, presented in a submission, that spending both in- and out- of sector would likely be a more effective and equitable use of potential funds.

The Pacific SIDS outlined their position in a series of submissions to this meeting and took to the floor to reiterate it. From other developing countries there was a more minor but general openness to the principle of equity and the concept of an equitable transition with one developing country outside of the Pacific SIDS grouping also supporting explicit inclusion of a just and equitable transition in the strategy.

Another developing country outside of the Pacific SIDS grouping suggested that equity and CBDR-RC may be complementary. However, there remain calls for further clarity on JET before its inclusion in the strategy could be widely supported.

On the measures, many developing countries supported a comparative analysis of measures and remain focused on the process of the comprehensive impact assessment, fearing that mid-term measures may increase trade costs in export driven nations that could also result in long-term market losses.

There is a general interest in using any potential revenues in-sector (noting above, that ‘insector’ does not yet have a clear definition). There is also a question over what access to revenues for out-of-sector purposes developing countries that fall outside the SIDS and LDCs bracket might have.

Developed countries, with some exceptions, signal a cautious and conditional openness to inclusion of JET in the strategy, though the preference appears to be integrating a single reference in section 5 of the strategy ‘BARRIERS AND SUPPORTIVE MEASURES; CAPACITY-BUILDING AND TECHNICAL COOPERATION; R&D’ This is indeed the only reference so far to an equitable transition in the draft text going forward.

On the measures discussion, as mentioned above, it was largely felt by developed countries that it is currently premature to talk about disbursement of revenues from a possible MBM, though some members took the floor to recognize the importance of this issue in relation to developing countries, particularly SIDS and LDCs.

The current points of agreement are that no one should be left behind, a just and equitable transition for shipping is important, and that the core of any measure should be its climate effectiveness. Moving forward, it will be interesting to see how the group continues its work to answer the two questions above.

SEE UMAS’ FULL ISWG-GHG 14 READOUT