Background

Parties to the United Nations Framework Convention on Climate Change (UNFCCC) have recognised that the convention is unsuitable to address emissions from international shipping. The Paris Agreement, adopted at COP21 in December 2015, is silent about emissions from international shipping. It does, however, expect that “developed country Parties should continue taking the lead by undertaking economy-wide absolute emission reduction targets”. The overall aim of the Paris Agreement is “holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels”.

The International Maritime Organization (IMO) has agreed on a Road Map to develop a Comprehensive IMO GHG Strategy by 2023. The Initial Strategy (IS) was adopted at MEPC 72 in April 2018 with a vision to decarbonise shipping as soon as possible. The IS contains the following important objectives:

• to reduce CO₂ emissions per transport work, as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008; and

• to peak GHG emissions from international shipping as soon as possible and to reduce the total annual GHG emissions by at least 50% by 2050 compared to 2008 whilst pursuing efforts towards phasing them out as called for in the vision as a point on a pathway of CO₂ emissions reduction consistent with the Paris Agreement temperature goals.

Tackling the barriers to transition may be the single most important issue facing the shipping industry. The barriers cut across commercial business practices, which are normally beyond the scope of international regulation.

As the transition is likely to take a generation of ships, it necessitates having a mechanism to facilitate a level playing field in the marketplace for ships of both conventional and novel technological state. This is because freight rates are unlikely to correlate with the cost of operating ships using vastly more expensive fuels as long as cheap fossil fuel alternatives exist.

The IMO decided at MEPC 57 to adopt nine fundamental principles, to which a future market-based measure (MBM) shall adhere by being:

1. effective in contributing to the reduction of total global greenhouse gas emissions

2. binding and equally applicable to all flag States in order to avoid evasion

3. cost-effective

4. able to limit, or at least, effectively minimise competitive distortion

5. based on sustainable environmental development without penalising global trade and growth

6. based on a goal-based approach and not prescribe specific methods

7. supportive of promoting and facilitating technical innovation and R&D in the entire shipping sector

8. accommodating to leading technologies in the field of energy efficiency

9. practical, transparent, fraud-free, and easy to administer.

Removing the barriers for transition requires new commercial solutions and shared responsibilities between charterers and shipowners. BIMCO will develop the necessary contractual solutions to assist the transition.

The 6th Assessment Report (AR6) published by the Intergovernmental Panel on Climate Change (IPCC) states that meeting the temperature goals of the Paris Agreement requires deep cuts in global GHG reductions before 2030 and carbon neutrality by 2050.

As a bunker delivery note (BDN) is only a note not a certificate, it cannot be assigned significant documentary value. It is not possible for the ship to determine if the GHG intensity stated on the BDN is correct. Thus, the responsibility for ensuring fuel suppliers state the correct Well-to-Tank (WtT) emission factors and compliance with sustainability criteria on the BDN must belong to the authorities under whose jurisdiction the fuel supplier operates.

BIMCO’s position

•  Regulation of GHG for ships in international trade must be agreed at IMO and be transparent, harmonised, and applicable to ships irrespective of the flag they fly.

•  Any possible GHG regulation for shipping should not regulate the capacity of the world fleet. The objective should be to limit GHG emissions from ships without compromising the shipping industry’s irreplaceable role in the global supply chain.

• BIMCO welcomes the IMO Initial Strategy (IS) and its vision and objectives, but believes it is not enough. BIMCO thus supports the objective of net zero carbon¹ for shipping by 2050.

•  BIMCO realises that in order to make the aspirations of reaching net zero carbon by 2050 a reality, collaborative efforts as well as responsibilities have to be assumed by different stakeholders throughout the community involved in shipping, including shipowners, shippers, charterers, energy providers, fuel suppliers, shipyards and engine makers.

• BIMCO believes a global market-based measure (MBM) putting a price on carbon is an essential part of the solution to incentivise investment in and operation of low-carbon emitting ships.

• BIMCO believes a global MBM should be established and administered by the IMO and comply with their previously agreed nine principles.

• BIMCO considers it advantageous to develop an MBM, which features predictability and stability with regard to carbon price, thus lending itself suitable to be incorporated in commercial contracts.

• BIMCO believes that the commercial party responsible for setting the speed and route of a ship should also provide for emissions allowances or credits under an MBM. This means the charterer in case of a time charterparty and the party that commits the ship to the voyage charter in case of a voyage charterparty.

• BIMCO believes it is inappropriate for international shipping to be included in unilateral national or regional GHG emissions’ regulations.

• BIMCO notes that premature retirement of ships could result from retroactive application of unsustainable additional mandatory technical measures. Premature retirement will likely result in significant negative unintended consequences, such as unwarranted removal of needed capacity from the global supply chains and unnecessary additional emissions from building new ships.

• BIMCO encourages the reduction of emissions by operational measures, such as speed optimisation and use of the “Just-in-time” principle to convert waiting time at ports into sailing time.

• BIMCO is concerned that operational efficiency indices or Carbon Intensity Indicators (CIIs), are potentially misleading on an individual ship basis and not always representative of a ship’s true operational efficiency. It is however hoped that mandatory CIIs will lead to commercial business practices, which lower CO₂ emissions for the shipping sector.

• BIMCO supports the establishment of an IMO Maritime Research Board to fund innovation, paid for by a mandatory contribution on fuel used by ships.

• BIMCO supports the development of a global fuel carbon content standard to facilitate universal certification of marine fuels’ lifecycle emissions profiles on a Well-to-Wake approach.
• BIMCO supports the use of Bunker Delivery Notes (BDNs) for documentation of upstream Well-to-Tank (WtT) GHG emissions provided the information is controlled by the authority under whose jurisdiction the fuel supplier operates.

¹ Reference to carbon or CO₂ in this paper should be read as CO_2-eq to include the warming effects of all anthropogenic greenhouse gasses.