Shipping and the EnvironmentGHG Emissions from Ships

A Industry’s Perspective by

Erik.Ranheim@INTERTANKO.comManager Research and Projects

Cyprus - 20 May 2009 The European Maritime Day

The Challenges

• The world demands greener shipping

• Emission from shipping is dirty and harmful for the health and the environment

• Annex VI now in place• GHGs emission from

shipping is not directly regulated under the Kyoto protocol

• IMO assumed to regulate GHG emission

• Shipping recognizes that action is necessary

Basics?

Backdrop World focus – basic crises

Food / resources crises“If anything, international trade has reduced the price of food over the years through greater competition, and enhanced consumer purchasing power."WTO Director-General Pascal Lam

Economic crises It is widely recognized that trade stimulate world economic growth, which is regarded to be necessary to avoid a:

Climate crisesWhich easily can create a vicious circle of resources and economic crises

Catch 22 - conflicting interests?Shipping in the middle with few

friends?

World trade by shipping by type cargo

Source: Fearnleys

bn tonne milesbn tonne miles

0

4,000

8,000

12,000

16,000

20,000

24,000

28,000

32,00019

86

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Est

08.

Pr1

0

Iron ore Coal Grain Baux/AlumPhosphate Other CargoesCrude oil Oil products

Average grow th 2002-08 = 5.1%

Average grow th 1986-01 = 3.5%

Trends – Co2 emission, energy use, global trade

Source: Fearnleys/INTERTANKO

IndexIndex

80

100

120

140

160

180

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Population

Energy use

Seaborne trade

CO2 emission

There has been strong growth in shipping

World primary energy demand IEA the Reference Scenario

Source: IEA

1000 million tonnes oil equivalents1000 million tonnes oil equivalents

0

1

2

3

4

5

1980 2000 2006 2015 2030

Coal +2%

Oil +1%

Gas +1.8%

Nuclear +0.9%

Hydro +1.9%

Biomass +1.4%**

Renewables +1.6%

Engine break specific fuel consumption

160

180

200

220

240

260

280

1910 1930 1950 1970 1990 2010

First ocean going diesel ship - MS Selandia

Oil crises 1973

Engine BSFC assumed constant for years 2000-2008

Source: Lloyd’s Register

g per kWhg per kWh

Fuel efficiency in shipping has has improved

9

CO2 Emissions per Unit Loadby Transport Mode

Source:Ministry of Land, Infrastructure and Transport (Japan): The Survey on Transport Energy 2001/2002 MOL (Japan): Environmental and Social Report 2004

Large Tanker

Large Containership

Railway

Coastal Carrier

Small-size Commercial Truck

Airplane

Standard-size Commercial Truck

100 200 300 400

398

226

49

11

6

3

1

0

Units Relative

Shipping energy efficient

Everybody must reduce emission

CO2 emission does not mean much unless related to the size of the company and the nature of its

operation

Shipping represents only some 3% of GHG emission,

but Emission is made up

a multitude of small contributors

Shipping carries ~ 80% of goods transported and volumes shows an increasing trend

and

The challenge is, therefore, to reduce emission by improving efficiency without unduly affecting

trade

The Stern ReportConclusions:Human-caused alterations to the global climate may result in reductions of global GDP of anywhere from 5 to 20% per year

Current global economic crisis shows how a relatively small reduction of output, such as 1 - 2% of GDP, may already have considerable implications for trade

Climate change may initially have small positive effect, but longer term the effects will be very damaging. The benefits of strong, early action outweigh the costs.

Policy of action to be based on 3 elements: Technology Behavioural change Carbon pricing

Lord Stern of Brentford

Later the situation is believed to be much more serious that outlined in

The Stern Report

Shipping’s tools to reduce GHGs?

• Technology• Design index• Ship Efficiency Management Plan

• Behavioural change• Operational index • Cooperation with charterers• Improving logistics

• Pricing of carbon• Emission trading Scheme

(ETS), to stimulate entrepreneurship?

• Levy• Compensation fund

No general agreement on MBIs

CO2 reduction – Trade increasing

Reference

World Fleet Energy Consumption

World Fleet Energy Consumption

On-shore targetOn-shore target

40 - 80 % increase ifno efficiencymeasures taken

20 - 30 % absolute reduction onshore

Bridgeable gap??

2006 2010 2025

Ship sizes and emission400 GT and above

GT ships CO2 emission from ships

>400 60,000 ~ 90%

>500 45,000 ~ 87%

>2,000 30,000 ~ 80%

>10,000 16,000 ~ 67%

Source: DnV

Fair to the 3rd worldEnergy (oil equivalents) consumption and CO2 emission per capita

(not including hydro or nuclear)

Source: IEA

Oil equivalents/capitaOil equivalents/capita CO2 emission /capitaCO2 emission /capita

0

1

2

3

4

5

6

7In

dia

Afr

ica

Ch

ina

Wo

rld

Fra

nce

Ita

ly

No

rwa

y

FS

U

UK

Md

l Ea

st

Jap

an

OE

CD

S K

ore

a

Ru

ssia US

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Energy consumption, oilequivalents/capita

Emission per capita

.. the only serious defensible principle is equal emission rights per capita, adjusted for past emissions.

The options to reduce GHG emission

Energy Efficiency Design Index - EEDI

Require a minimum energy efficiency of new ships Stimulates technical developmentSeparates technical and design based measures from operational and commercial measuresCompares the energy efficiency of an individual ship to similar ships which could have taken its cargoWide support in IMO, except some developing countries*Supported by INTERTANKO

To be based on, installed power, specific fuel consumption, correction factors to account for specific design elements, speed, dwt, the contribution from auxiliary machinery EEDI = Fuel consumption / cargo x distance

Sea trial Esther Spirit

* Wants “common but differentiated responsibilities” agreed under UNFCCC and the Kyoto Protocol.

You cannot manage what you cannot measure

The CO2 operational index

An instrument for evaluating quantitatively the effect of operational fuel efficiency measures, such as speed reduction or optimum navigationCharterers great influenceNecessary to evaluate SEMPNot immediately mandatoryNo direct link to design index

Cap-and-trade

The quotas system has already contributed with The quotas system has already contributed with investments in the non-Annex I countries which will reduce of CO2 emission by 1,800 m tonnes (1.2% (1.2% annually) for the period 2008-12annually) for the period 2008-12

Word emission 2004 27,000 m ts, today some Word emission 2004 27,000 m ts, today some 30,000 m ts30,000 m ts

COCO22 has become a commodity and CO has become a commodity and CO22 trading a trading a

multi billion (€50 bn) industrymulti billion (€50 bn) industry

Carbon Point

Cap-and-trade not enough?

•For the period until 2012 so many allowances are For the period until 2012 so many allowances are given that CO2 price will be zero, for the period 2013-given that CO2 price will be zero, for the period 2013-20, tighter, average prize some €35/tn20, tighter, average prize some €35/tn

•According McKinsey $75 per tn is necessary to make According McKinsey $75 per tn is necessary to make a sufficiently number of emission reduction initiative a sufficiently number of emission reduction initiative profitable, $45/tn expected and this will only cause profitable, $45/tn expected and this will only cause half the needed reduction half the needed reduction

•Legal requirements necessary to limit emission from Legal requirements necessary to limit emission from certain sectors, in addition to certain sectors, in addition to

•Public support to emission reducing measuresPublic support to emission reducing measures

Jørgen Randers Professor

Professor at the Norwegian School of Business Asdministation

Aviation ETS scheme

* smallest planes excluded** Reduction target based of average emissions 2004-06

All* flights to/from EU included as of 2012

Reduction 2012 3%, later 5% cut p.a.** Operators must submit plans by 30.03.11 Use of revenues generated by auctioning

allowances decided by EU by members Complemented by technical/

operational CO2 reducing measures Further unilateral and other

agreements on global measures to reduce greenhouse gas emissions from aviation.

On 7 October the Environment Committee of the European Parliament called for shipping to be included in the revision of the European Union's Emissions Trading Scheme (EU-ETS).

Europe basis for shore based ETS - decided aviation ETS - shipping next?

ETS pros and cons

+1. Contributes to reduced CO2 emission by

definition, 2. Links shipping into onshore/aviation ETS3. Market based pricing of carbon 4. Direct purchase of CO2 units from

Administrator reduces opportunity for evasion.

5. With enforcement by port states, implementation can initially be limited to Annex 1 countries (80% of world trade).

6. Equal treatment of international trading vessels > 400 GRT regardless of ownership, flag state, or port of origin.

7. Enables ship operators to invest-or-buy 8. Dynamic- may stimulate

entrepreneurship

-1. Marine ETS still at conceptual stage,

allowance allocation and/or auctioning needs to be defined

2. Will require definition of a ‘CAP’ 3. Fluctuating carbon market price

introduces investment uncertainty for GHG reduction technology.

4. Requires set-up of trading administration and agreement on an effective monitoring, verification and enforcement system.

5. Effective enforcement will require the set up of a data exchange process involving all participating states.

6. Requires strict investment criteria and monitoring of fund expenditure.

7. ‘Critical mass’ of Annex 1 and non-Annex 1 countries must be signatory to be effective

8. Shipping very fragmented compared to current onshore and aviation ETS

Source: OCIMF with some adaption

Little understood by shipping people, some support from shipping (Belgian, Italian, Norwegian, Swedish and UK Shipowners’ Associations)

Reducing global warming

Global warming: Global warming: • A A global problem, to be addressed globally.problem, to be addressed globally.• A A long-run problem, the long-run levels of problem, the long-run levels of atmospheric

concentrations of greenhouse gases more important than the than the level of emissions in any particular year, as with level of emissions in any particular year, as with

The The costs of reducing the level of emissions will be much lower if of reducing the level of emissions will be much lower if it is done efficiently, i.e. comprehensiveness, covering all sources it is done efficiently, i.e. comprehensiveness, covering all sources of emissions, countries and ways of reducing atmospheric carbon of emissions, countries and ways of reducing atmospheric carbon concentrations. Then two conditions should be met:concentrations. Then two conditions should be met:1.1. we need a we need a global agreement, and a global agreement will and a global agreement will

require require equitable burden sharing. . 2.2. The The shadow price of carbon should be approximately the

same in all uses, in all countries, and at all datesin all uses, in all countries, and at all dates3.3. A system of taxes on carbon (that would operate like the A system of taxes on carbon (that would operate like the

VAT), would be a better approach than the "Cap and Trade" VAT), would be a better approach than the "Cap and Trade" system of carbon trading system of carbon trading

Joseph Stiglitz Nobel prize economics

Professor at Columbia University (United States) Formerly Chief Economist at the World Bank

Reducing global warming

On the "Cap and Trade" system, was On the "Cap and Trade" system, was easy to implement for major sources of emissions, but harder to implement for the multitude of small sources. It is also giving rise to distortions and transactions It is also giving rise to distortions and transactions costs. A key issue is how to allocate emission rights, which are a costs. A key issue is how to allocate emission rights, which are a valuable asset, worth perhaps valuable asset, worth perhaps $2 trillion annually (or 5% of global GDP). This issue has become a major stumbling block in reaching This issue has become a major stumbling block in reaching a global agreement, and the attempt to avoid taking on full a global agreement, and the attempt to avoid taking on full implications of this issue is one of the reasons for distortionary implications of this issue is one of the reasons for distortionary policies (or for carbon in different uses being priced differently).policies (or for carbon in different uses being priced differently).

Joseph Stiglitz Nobel prize economics

Professor at Columbia University (United States) Formerly Chief Economist at the World Bank

GHG Compensation Fund pros and cons

+1. Contributes to reduce emission as fund is

to be used to buy emission reduction credits, and to stimulate the development of and the use of emission reduction technology

2. Equal treatment of international trading vessels > 400 GRT regardless of ownership or flag state

3. Conceptually simple to implement4. Provides ship owner some certainty over

costs5. Use of bunker delivery note as evidence of

payment facilitates enforcement.6. Accuracy of the bunker oil consumption

baseline will improve as global compliance is achieved.

7. Data can be used for Annex VI supply/demand studies.

8. Introduces an ‘invest-or-pay’ concept

-1. May not reflect the price of carbon.2. Requires monitoring and adjustment of levy

to achieve desired outcome. 3. ‘Critical mass’ of major bunker supply

countries must be signatory for effective implementation.

4. Issues of principle, governance and administration need to be resolved.

5. For reductions in GHG emissions to be achieved, strict investment criteria and monitoring of fund expenditure are required.

6. Setting the contribution level to the fund is subject to political pressures.

7. The complexity of the bunker supply chain makes collection of funds by the Administrator unlikely to be 100% effective.

8. Once introduced, a levy is unlikely ever to be removed even if the CO2 reduction target is achieved – regarded as tax

9. No current precedence

Source: OCIMF with some adaption

Supported by BIMCO, INTERCARGO, JSA, MAS, HKSOA, UGS and INERTANKO under certain preconditions

a tax is “a sum of money demanded by a government for its support or for a tax is “a sum of money demanded by a government for its support or for specific facilities or services, levied upon incomes, property, sales, etc”, specific facilities or services, levied upon incomes, property, sales, etc”,

Gasoline price at the pump

0.00

0.30

0.60

0.90

1.20

1.50

USA Japan Germany UK

Long haul freightratesMarketing*

Oil price

Tax

Cost elements making up the gasoline price:

* Refining/marketing and profit. Based on Dec 08/Jan 09 figures from IEA and the Baltic Exchange

Dollar per litreDollar per litre

LevyLevy

Contributing to the adaptation of Contributing to the adaptation of developing countries and to investmentdeveloping countries and to investment

to reduce CO2 emissionto reduce CO2 emission (Compatibility of CBDR principle and(Compatibility of CBDR principle and

uniform application of rules )uniform application of rules ) 　　

Contributing to the adaptation of Contributing to the adaptation of developing countries and to investmentdeveloping countries and to investment

to reduce CO2 emissionto reduce CO2 emission (Compatibility of CBDR principle and(Compatibility of CBDR principle and

uniform application of rules )uniform application of rules ) 　　

Mitigation/Adaptation projectMitigation/Adaptation project

R&D for highly efficient shipsR&D for highly efficient ships

International International GHG FundGHG Fund

IMO-TCIMO-TC

ContributionsContributions( per unit fuel)( per unit fuel)

GHG Fund proposed by Denmark

MBIs - INTERTANKO PRINCIPLES

1. Effective in contributing to the reduction of total GHG- funds collected be used to buy credits in accordance with JI & CDM.- stimulate leading energy efficiency technologies- stimulate innovation and R&D- encourage terms and conditions to improve logistics

2. Environmentally sustainable without negative impact on global trade and growth and should:- be cost effective- be able to limit distortion of competition - give credit for actions already taken which have already resulted in GHG reductions

3. Comprehensive, efficient, transparent and credible enforcement & monitoring- ship specific and based on actual fuel burned- governed by IMO- binding and equally applicable to all ships- practical, transparent, fraud-free and easy to administer- able to demonstrate compliance through proper monitoring

- certainty & predictability of the scheme

Other initiatives to reduce GHG emission

Ship Efficiency Management Plan SEMP

• SEMP for each ship in operation• SEMP to contain:

Best practices to save energy Voyage optimization Propulsion Resistance Management

Programme Other technical/operational measures

Voluntary Operational Index (for each voyage & over a period of time/voyages)

• When IMO SEMP guidelines completed, INTERTANKO will based on this work out SEMP for tankers by pooling information

Industry initiatives

Ship efficiency management plan• OCIMF “Energy Efficiency

and Fuel Management” – an appendix to TMSA 2*

• OCIMF opens for consideration of c/p clauses to optimise the voyage and other operations to save energy during transportation

*TMSA Tanker Management Self Assessment

Best Practices

Participation from a wide range of

tankers

INTERTANKOMembership3,100 tankers

Applicability/effectiveness

Depend on fleet characteristics

Dynamic continuous improvement

Various, individual measures Monitoring, assessmentAdjustment/corrective action

INTERTANKO a forum for sharing information and experience

Advice, input:*Class*Charterers*Yards*Other owners*Others

Conclusion

Conclusions on emission to air

• Shipping wants to be proactive and reduce emissions• Annex VI – industry initiative using cleaner fuels also reduce GHG emission (alt. abatement technology) • Reducing GHG emission

• High costs for marginal effects on existing ships• ETS - large part of shipping sceptical, shipping expected to mainly be a buyer of credits • Levy - many governments sceptical (taxation), no precedent world wide• SEMP main mean to reduce emission from existing ships

• Shipping prepared to contribute but shipping involves more than just the owner/operator – there is a chain of responsibility

Cypriot oil tanker "Haven" burning in the Gulf of Genoa

The sea get sick, but it never dies

Healing is a matter of time,

But also of opportunity

Greek proverbs

Thank you

Appendices

Leveraged Incentive for Leveraged Incentive for Efficiency ImprovementEfficiency Improvement

(improvement effort will be rewarded (improvement effort will be rewarded in the form of refund.in the form of refund.

Leveraged Incentive for Leveraged Incentive for Efficiency ImprovementEfficiency Improvement

(improvement effort will be rewarded (improvement effort will be rewarded in the form of refund.in the form of refund.

Contributing to the adaptation of Contributing to the adaptation of developing countries and to investmentdeveloping countries and to investment

to reduce CO2 emissionto reduce CO2 emission (Compatibility of CBDR principle and(Compatibility of CBDR principle and

uniform application of rules )uniform application of rules ) 　　

Contributing to the adaptation of Contributing to the adaptation of developing countries and to investmentdeveloping countries and to investment

to reduce CO2 emissionto reduce CO2 emission (Compatibility of CBDR principle and(Compatibility of CBDR principle and

uniform application of rules )uniform application of rules ) 　　

Mitigation/Adaptation projectMitigation/Adaptation project

R&D for highly efficient shipsR&D for highly efficient ships

Recycling capacity buildingRecycling capacity building

International International GHG FundGHG Fund

Assistance to infrastructure Assistance to infrastructure development development

Human Resource developmentHuman Resource development

IMO-TCIMO-TCRefundRefund (based on (based on evaluation)evaluation)

ContributionsContributions( per unit fuel)( per unit fuel)

[ 60% ] [ 60% ] [ 40% ] [ 40% ]

Leveraged Incentive Scheme for GHG Fund(proposed by Japan)

LabelingLabeling(Evaluation of efficiency (Evaluation of efficiency

improvement)improvement)

UNFCCC EU ETSIMOCentral Registry

•Flag

•Ship

•DOC

•Fuel Quantity

•CO2 Emissions

•Allowances

Verifier

Shipping Companies

Fuel Input

Other EntitiesCountries

Quanti

ty

Carb

on

Fact

or

Surr

ender

Allo

wance

s

ISM Audit

Carbon Management process

Global Sectoral Report

Allocate allowances to Industry

Gra

nt

allo

cati

on t

o

ship

s

Other Shipping

CompaniesBuy & Sell

creditsShip

s ca

n b

uy

AA

Us

from

C

ountr

ies

via

the

IMO

Ship

s ca

n b

uy

CER

s &

EU

As

dir

ect

fro

m o

ther

enti

ties

Shipping companies can

invest directly in CDMs and JIs

ETS proposal for the shipping industry

suggested by SEAaT

Shipping Company

Bulk carrier Ro-Ro Aframax VLCC

IMOStart of

compliance period

During the compliance

period

End of compliance

period - reporting

UNFCCCAllocation to industry

Allo

cati

on

to c

om

pany

e.g

10

00

to

nnes

base

d o

n

fleet

shape

Operates fleet within 1000 tonnes

allocation

400 tonnes

300 tonnes

200 tonnes

100 tonnes

Actual 150

tonnes

Actual 150

tonnes

Actual 250

tonnes

Actual 450

tonnes

Total allocation = 1000 tonnes

Total actual emissions = 1000 tonnes

Therefore no credits to sell or buy

How would this work on a shipping company level?

(suggested by SEAaT)

Best practice on tanker

emissions & energy efficiency 1. Programme for measuring and

monitoring ship efficiency

2. Voyage optimization programme Speed selection optimization Optimised route planning Trim optimization (ESP 2 - 4%)

3. Propulsion Resistance Management Programme

Propeller Resistance Hull Resistance (ESP 1 - 6%)

162

168

174

20 30 40 50 60 70 80 90 100 110 % SMCR

Engineshaft power

SFO

C

ME/ME-C 100% SMCR optimised

MC/MC-C 100% SMCR optimised

ME/ME-C Part load optimised

3-4g/kWh

Economy mode:

3-4g/kWh

World primary oil demand IEA the Reference Scenario

Source: IEA

mbdmbd

0

5

10

15

20

25

1980 2000 2007 2015 2030

N America

Europe

Pacific

E.Euro/Eurasia

Other asia

China

India

Middle East

Africa

L America

Marine bunkers