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”.

Reducing emissions may be the single most important issue facing the shipping industry. The obstacles to achieving emissions targets cut across commercial business practices, which are normally beyond the scope of international regulation.

The International Maritime Organization (IMO) agreed on a Road Map to develop a Comprehensive IMO GHG Strategy by 2023. The Initial Strategy (IS) was adopted at in April 2018 with a vision to decarbonise shipping as soon as possible.

The IMO Marine Environment Protection Committee (MEPC) adopted the 2023 IMO Strategy on reduction of GHG emissions from ships. The strategy contains the following ambitions:

• Net-zero GHG emissions by or around, ie close to, 2050

• Uptake of zero or near-zero GHG emissions technologies, fuels and/or energy sources to represent at least 5%, striving for 10%, of the energy used by international shipping by 2030

To clarify the pathway towards decarbonisation, the strategy further includes indicative checkpoints:

• To reduce the total annual GHG emissions from international shipping by at least 20%, striving for 30%, by 2030, compared to 2008.
• To reduce total annual GHG emissions from international shipping by at least 70%, striving for 80%, by 2040, compared to 2008.

These indicative checkpoints will play a significant role when the implementing measures are developed. It is the intention that they form points on the trajectory towards the 2050 ambition of net-zero GHG emissions, and 2040 is only 17 years away. Ships being built now will be in service then. With mandatory measures also having been agreed to be developed by 2025 in order to implement the pathway, the industry faces some major changes.

As the transition to a low carbon future 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 cheaper fossil fuel alternatives exist.

The IMO decided at MEPC 57 to adopt nine fundamental principles, to which a future economic element of GHG reduction measure (formerly known as market-based measures ie 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 minimize competitive distortion
5. Based on sustainable environmental development without penalizing 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 a collaborative approach among charterers, ports, cargo interests and ship operators, part of which includes the of use of incentivised contractual solutions. BIMCO will assist the transition by developing the necessary incentivised contractual solutions that support the principle of freedom of contract and business imperatives.

The 6^th 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 net zero by 2050.

As a bunker delivery note (BDN) is only a note not a certificate, it cannot be assigned significant statutory documentary value.  It is not possible for a ship to ascertain if the GHG intensity stated on a BDN is correct. Thus, the responsibility for ensuring that fuel suppliers state the correct Well-to-Tank (WtT) emission factors and compliance with sustainability criteria on a BDN must belong to the authorities under whose jurisdiction a 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 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 vital role in the global supply chain.
• BIMCO welcomes the IMO Strategy on reduction of GHG emissions from ships.
• BIMCO realises that in order to achieve the aspirations of reaching net zero GHG by 2050, collaborative efforts as well as responsibilities must be assumed by different stakeholders throughout the community involved in shipping, including shipowners, shippers, charterers, cargo owners, energy providers, ports and terminals, fuel suppliers, shipyards and engine makers.
• BIMCO believes a global economic element of GHG reduction measure (Economic Element) putting a price on GHG is an essential part of the solution to incentivise investment in and operation of low-GHG emitting ships.
• BIMCO supports the use of operational data to improve efficiency across fleets. While data ownership follows each ship, their use should support fleet optimisation at ISM company level.
• BIMCO believes a global Economic Element should be established and administered by the IMO and adhere to its previously agreed nine principles.
• BIMCO considers it advantageous to develop an Economic Element, which features a predictable and stable GHG 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 provide for the GHG cost under an Economic Element. 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, increase in transportation costs and unnecessary additional emissions from building new ships.
  • BIMCO strongly promotes the reduction of emissions by improved efficiency, 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 IMO review of the short-term measures and will work to facilitate commercial business practices, that will lower CO₂ emissions for the shipping sector and a metric that limits the CII to fuel consumption within the control of the shipowner and the charterer.
  • BIMCO supports the development of a global fuel GHG intensity standard to facilitate universal certification of marine fuels’ lifecycle emissions profiles on a Well-to-Wake approach. A fuel GHG intensity standard requires inclusion of a fleet averaging/pooling option for it to ensure applicability at the ship level. This is because each ship will decarbonise at a different pace.
  • 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.