IMO document ISWG-GHG 16/2 Revised possible draft amendments to MARPOL Annex VI to implement a simplified Global GHG Fuel Standard (GFS) with an energy pooling compliance mechanism
IMO document ISWG-GHG 16/2 Revised possible draft amendments to MARPOL Annex VI to implement a simplified Global GHG Fuel Standard (GFS) with an energy pooling compliance mechanism co-sponsored by ICS and IBIA is considered to be a simplified version of the Global GHG Fuel Standard (GFS) proposals made to IMO by the EU and China respectively.
Download the document HERE.
The ICS and IBIA proposal is simpler as it is based on the IMO 2020 fuel standard, that is the ship would need to meet a GHG Fuel Intensity (GFI) limit with compliance demonstrated via the BDN without needing verification by an external organisation of the DCS/fuel data. The revised proposal recognises that some form of flexibility will be needed to enable ships to comply with a GFS – the view is that compliant fuel of the required GHG intensity on a Well-to-Wake basis is unlikely to be available globally when the instrument enters into force. The revision now includes draft regulation 41 that would allow “energy pooling” in that ships that go beyond compliance with the “required GFI” can share “excess GFI” with other ships in the same pool that can’t comply, the same principle used in P&I insurance, the pool being approved by the ship’s Administration.
As with pooling of insurance (P&I) several owners can operate in a pool. The key difference is that the energy pool has to be approved by the flag State(s) for the ships in the pool, as the flag State has to issue (or a class society authorised by the flag State) a Statement of Compliance certificate. This raises the possibility of allowing an owner/operator of a very low GHG emission vessel to “sell” its pooling capability to the highest pool bidder but, importantly, would present the opportunity for those investing in a very low GHG emission ship to spread the risk of investment within a fleet of their own ships or with others. We are already seeing in the liner trade the development of hedging strategies particularly for carbon. The difficulty going forward will be for those ships operating in “spot” trades to comply/hedge hence the emphasis in this proposal on the absolute GHG Fuel Intensity standard as a requirement but with pooling providing an additional voluntary compliance mechanism for those ships that cannot comply with that standard.
Other GFS proposals made to IMO would see the introduction of a more complex and administratively burdensome ‘flexible compliance mechanism’. For example, the EU proposal (based on FuelEU Maritime) would introduce “Flexible Compliance Units” and the purchase from a central IMO registry, if needed in order to comply, of “GHG Remedial Units”, in other words a proxy trading system
Unlike those other proposed schemes, there is no central IMO registration/bureaucracy for this simplified scheme, thus seeking to keep administrative burden for the maritime industry to a minimum. As long as a ship’s Administration has approved the pool then ships under several flags can sit in the same pool.
Fundamentally, a key aspect of the “pooling” approach being proposed is to permit the continued use by ships of liquid hydrocarbon fuels as the industry transitions to other alternative “zero or near-zero” fuels. Another view is that without such an arrangement it may depress investment in “zero-GHG emission” ships and hence demand for the “zero-emission” fuels as the price spread is currently so big that for many it would not be possible to make a business case. Sharing the “excess” with other ships could ‘pool’ the cost/risk across a wider fleet.”
Please feel free to suggest amendments or, depending on how soon you wish to issue the document, we can discuss on Friday?