In the following article, Stylianos Mourtzanos, Marine/ Vetting – HSQE Superintendent, explains how the lack of a regulatory framework for emissions trading schemes (ETS) will challenge IMO’s decisions during latest MEPC.
The 80th session of the Marine Environment Protection Committee (MEPC) of the International Maritime Organization (IMO) was held from 5 to 16 July 2023 in London, UK. The meeting was attended by representatives from over 170 countries.
One of the key outcomes of MEPC 80 was the agreement to revise the already developed strategy for the reduction of greenhouse gas emissions from ships, in terms of ambition and comprehensiveness, as well as the official conversation and introduction of biofuels. The strategy will set out a pathway for the shipping industry to achieve net-zero emissions by 2050.
However, one of the key challenges that the IMO will face in developing this strategy, and specifically in the inclusion of the economic elements of the mid-term measures, is the lack of a regulatory framework for emissions trading schemes (ETS). ETS is a market-based mechanism that can be used to reduce greenhouse gas emissions. They work by setting a cap on the total amount of emissions that can be emitted and then allowing companies to trade emissions allowances.
There are a number of different ETS in place around the world, but there is no global ETS for shipping. This means that if the IMO decides to include an ETS as part of its strategy, it will need to develop a new regulatory framework. This could be a challenge, as it would require the IMO to reach an agreement on a number of complex issues, such as the scope of the ETS, the design of the ETS, and the enforcement of the ETS.
The lack of a regulatory framework on ETS is a significant challenge for the IMO. However, it is also an opportunity. The IMO has the chance to develop a global ETS that could help the shipping industry to reduce its greenhouse gas emissions in a way that is fair and equitable.
The Challenges of Developing a Global ETS
There are a number of challenges that the IMO will face in developing a global ETS for shipping. These challenges include:
- Scope: The scope of the ETS would need to be defined. This would include determining which ships would be covered by the scheme, and which emissions would be included.
- Design: The design of the ETS would need to be agreed upon. This would include determining how the cap would be set, how emissions allowances would be allocated, and how the scheme would be enforced.
- Enforcement: The enforcement of the ETS would need to be ensured. This would require the IMO to have the necessary powers to investigate and sanction companies that violate the scheme.
The Lack of Control of Emerging ETS
The International Maritime Organization (IMO) has already introduced in the mid-term basket of measures the economic element, which might be translated into setting a levy on emissions or the creation of a global emissions trading scheme (ETS) for shipping. However, there is a growing concern that the lack of control of emerging ETS could pose a challenge to the development of a global ETS.
Emerging ETS are being developed by a number of countries and regions, including the European Union, Norway, and California. These ETS are designed to reduce greenhouse gas emissions from ships that operate within their jurisdictions.
However, the lack of control of emerging ETS means that there is no guarantee that they will be effective in reducing greenhouse gas emissions from shipping. This is because there is no coordination between the different ETS, which could lead to ships simply switching between ETS in order to avoid compliance.
For example, a ship could operate in the European Union ETS until it reaches its emissions allowance, and then switch to the Norwegian ETS. This would allow the ship to continue operating without having to reduce its emissions.
The lack of control of emerging ETS could also lead to negative market leverage. This is when the price of emissions allowances in one ETS is affected by the price of emissions allowances in another ETS. This could make it difficult for shipping companies to comply with the requirements of multiple ETS.
The IMO is aware of the challenges posed by the lack of control of emerging ETS. However, it is unclear how the IMO will address these challenges. One possibility is for the IMO to develop a global ETS that would supersede the emerging ETS. However, this would be a complex and challenging task.
Another possibility is for the IMO to work with the countries and regions that are developing emerging ETS to ensure that they are compatible with each other. This would help to prevent ships from switching between ETS in order to avoid compliance.
The lack of control of emerging ETS is a serious challenge to the development of a global ETS for shipping. The IMO will need to address this challenge in order to ensure that a global ETS is effective in reducing greenhouse gas emissions from shipping.
Here are some additional points to consider:
- The lack of control of emerging ETS could lead to a patchwork of different ETS, which could be difficult to manage and enforce.
- The lack of control of emerging ETS could also lead to unfair competition between shipping companies, as some companies may be subject to more stringent emissions requirements than others.
- The lack of control of emerging ETS could also make it difficult for shipping companies to plan for the future, as they would not know which ETS they would be subject to.
The Way Forward
The IMO will need to work closely with governments and industry to address the challenges posed by the lack of control of emerging ETS. It is important to ensure that a global ETS is developed in a way that is fair and equitable and that it does not create unfair competition between shipping companies.
The IMO should also work with the countries and regions that are developing emerging ETS to ensure that they are compatible with each other. This would help to prevent ships from switching between ETS in order to avoid compliance.
The development of a global ETS for shipping is a complex and challenging task. However, it is an important step in the fight against climate change. The IMO must address the challenges posed by the lack of control of emerging ETS in order to ensure that a global ETS is effective in reducing greenhouse gas emissions from shipping.
The Impact of a Global ETS
A global ETS for shipping could have a number of positive impacts. These include:
- Reduced greenhouse gas emissions: A global ETS could help to reduce greenhouse gas emissions from ships, which would have a positive impact on the environment.
- Leveled playing field: A global ETS would level the playing field for shipping companies, as they would all be subject to the same emissions reduction requirements.
- Promoted innovation: A global ETS could promote innovation in the shipping industry, as companies would be looking for ways to reduce their emissions in order to comply with the scheme.
The Future of ETS for Shipping
The future of ETS for shipping is uncertain. However, there is a growing consensus that a global ETS is needed to reduce greenhouse gas emissions from ships. The IMO is currently working on developing a regulatory framework for ETS, and it is likely that a global ETS will be implemented in the coming years.
The implementation of a global ETS would be a significant step forward in the fight against climate change. It would help to reduce greenhouse gas emissions from ships, which would have a positive impact on the environment. It would also help to level the playing field for shipping companies, and it would promote innovation in the shipping industry.
However, there are also some challenges that need to be addressed before a global ETS can be implemented. These challenges include:
- Political will: There is a need for political will from governments around the world to support the development and implementation of a global ETS.
- Technical challenges: There are a number of technical challenges that need to be addressed, such as how to define the scope of the ETS and how to allocate emissions allowances.
- Cost: The cost of implementing a global ETS could be significant, and it is important to ensure that the costs are fair and equitable.
If a global ETS is implemented successfully, it could have a significant impact on the shipping industry and on the environment. It could help to reduce greenhouse gas emissions from ships, which would have a positive impact on the climate. It could also help to level the playing field for shipping companies, and it would promote innovation in the shipping industry.
The future of ETS for shipping is uncertain, but there is a growing opportunity to develop a global ETS that could help the shipping industry to reduce its greenhouse gas emissions in a way that is fair and equitable.
Above article has been initially published on Linkedin and is reproduced here with author’s kind permission.
The views presented are only those of the author and do not necessarily reflect those of SAFETY4SEA and are for information sharing and discussion purposes only.
