GHG discussions at MEPC 77: IBIA perspectives
Paying for CO2, fuel lifecycle emissions and GHG intensity limit on agenda
Policy and regulatory tools to cut greenhouse gas (GHG) emissions from international shipping will dominate plenary discussions at the 77th session of the IMO’s Marine Environment Protection Committee (MEPC 77) which meets 22-26 November.
These policy decisions and tools will have significant impact on the marine fuels sector, and will set the pace for the transition to low and zero-emission shipping. The market will need to respond with the right type of fuels and technology solutions. We also need to ensure the fuels and technologies on offer are technically feasible, safe to use and truly sustainable. All of this will come at a financial cost, and increased complexity, for shipping and the marine fuels sector.
MEPC 77 will consider a number of GHG related items. IBIA will focus on the areas that have the greatest potential impact on the marine fuels sector.
Zero carbon by 2050?
The Initial IMO GHG Strategy, adopted in 2018, calls for overall GHG from international shipping to be reduced by at least 50% by 2050 (compared to 2008). The IMO’s GHG strategy is due to be revised in 2023. There are no less than seven proposals to MEPC 77 calling for the IMO to embrace a zero-emissions target by 2050, many of them co-sponsored by member states.
This will be discussed during the first day of MEPC 77. The outcome will depend on positions taken by member states. Recalling how difficult it was for MEPC to agree on the 50% reduction target in 2018, which was resisted by many member states as too much too soon, it is not a given that these much more ambitious proposals will be accepted and adopted at this session. There are, however, several member states that have declared their support for carbon neutral shipping by 2050.
Paying for CO2 or CO2e – MBMs
The previous session of MEPC, and the 10th Intersessional Working Group on Reduction of GHG Emissions from Ships (ISWG-GHG 10), have discussed a number of submissions related to potential market-based measures (MBMs), and these will be on the agenda MEPC 77.
MBMs proposed so far are either in the form of universal GHG levies or a cap & trade system for CO2 or CO2 equivalents (CO2e),
This is not a discussion IBIA has taken part in to date, but we do understand that MBMs will be needed to narrow the price difference between fossil fuels and low-emission alternative to drive uptake. The cost difference between ‘green’ fuels and fuels that emit high levels of GHGs must narrow substantially for this market signal to be effective, meaning the price tag on CO2 or CO2e must be substantial too to effectuate real change. A GHG levy seems more straightforward than a cap & trade system, and seems to be preferred by the shipping industry.
Lifecycle GHG/carbon intensity guidelines
MEPC 77 will consider outcomes of the 9th Intersessional Working Group on Reduction of GHG Emissions from Ships (ISWG-GHG 9), which made some progress on lifecycle assessment (LCA) guidelines to assess the overall climate impact of marine fuels.
This is a complex discussion which cannot readily be described in a few words, but there are a few main points which we have summarised below.
Some prefer IMO to focus only on the ‘tank to wake’ (TtW) GHG emissions as that is the only part shipping/IMO can actively regulate and control. Most prefer a well to wake (WtW) approach taking full lifecycle GHG emissions into account. Although the latter is infinitely more complex and will put big demands on all parties, including fuel suppliers, IBIA has so far supported a policy taking full WtW emissions into account. At present, hydrogen and/or ammonia as a hydrogen carrier are the only fuel types that do not produce CO2 when converted to propulsion power.
IBIA considers TtW to be short-sighted as it fails to recognise potentially huge GHG emission during the production of hydrogen/ammonia and would discourage or even eliminates other solutions that could be low carbon or carbon neutral if looking at full lifecycle WtW emissions, such as fuels derived from waste and sustainable biomass sources, among others.
ISWG-9 agreed on developing WtW LCA guidelines but was not able to agree on the exact methodology. There are competing proposals with many common elements but also some divergence. The EU has submitted a proposal in line with the methodology proposed in FuelEU Maritime (Fit for 55 package). Another proposal, which appears to be simpler and more flexible, is based on a Fuel Lifecycle Label (FLL).
Both talk about defining default well to tank (WtT) emissions of various fuel categories, which was supported, and needs to be developed by experts. Determining default values must be supported by documentation, verification and certification. There is also talk of allowing a system where default values can be replaced by actual values provided the actual values are proven through a recognised certification scheme.
The accounting of GHG emissions is based on the IPCC principles laid out in the 2006 IPCC Guidelines for National Greenhouse Gas Inventories.
Draft LCA Guidelines using aspects from both proposals do talk about Fuel Lifecycle Label (FLL) categories for the fuel based on carbon source and other sustainability aspects. This could be documented on the BDN linking the fuel, as supplied, to a sustainability certificate.
This would have significant impact on marine fuel suppliers. Despite the complexity this will entail, it is hard to see any other way to move forward than to adopt a workable methodology and associated certification schemes, preferably one that will apply a single and consistent international approach to determine the lifecycle analysis of fuels as supplied to the maritime sector.
MEPC in plenary is not the place for detailed discussions about the LCA Guidelines, only for the discussions in the ISWG to be ‘noted’ and consider how to continue developing LCA Guidelines for international shipping.
Phasing in a fuel GHG intensity limit
The 10th Intersessional Working Group on Reduction of GHG Emissions from Ships (ISWG-GHG 10) began discussions on proposals envisaging a gradual phase in of fuel with lower GHG intensity than fossil fuels, with the potential introduction of a Low GHG Fuel Standard (LGFS), or GHG intensity limit.
IMO regulatory instruments to address GHG from shipping have so far regulated the emission from the ship through technical and operational measures. The idea of a GHG intensity limit is a new departure as it would set requirements on the fuel’s overall GHG emissions profile and require gradual uptake of low GHG intensity fuels.
It is, in essence, the same principle as we have seen in the Fuel EU maritime (Fit for 55) proposal, which is a policy instrument aimed at stimulating demand for renewable and low carbon fuels.
The proposals could have a similar effect as setting sulphur limits. We know that for ships to start using lower sulphur fuels, we needed a clear regulatory signal to stimulate demand. The supply market responded to that demand by providing lower sulphur fuels in time for emission control area (ECA) sulphur limits as and when new ECAs and lower ECA sulphur limits came into effect.
We also saw that, despite fears of lacking availability, demand for low sulphur fuels or technology solutions to help the global fleet comply with the IMO 2020 sulphur limit have been provided too.
A gradual phase-in of low GHG intensity limit could be a very effective tool to ensure predictable levels of demand, which the supply side would respond to as we see increasing demand for such fuels.