Do we need a fund to promote low emission fuels?
UNTIL very recently the International Chamber of Shipping (ICS), together with other shipping bodies, was pushing hard for a levy to support a research and development (R&D) initiative aimed at alternative fuels. But it didn’t quite cross the line at the International Maritime Organization (IMO), the United Nations agency regulating shipping.
Now ICS is taking a rather different tack and is proposing a global CO2 reduction fund to “reward ‘first movers’ using low emission fuels”. It is announcing the initiative just ahead of Cop27, which is being held in Egypt. ICS says its new proposal is relevant in the context of the total CO2 emissions from international shipping – regarded as a “hard to abate” sector – which account for between 2 and 3 per cent of the world economy’s total greenhouse gas (GHG) emissions.
The idea is that ships using low/net-zero emission fuels would be financially rewarded for the emissions they prevent. ICS says the measure would be aimed at ensuring at least 5 per cent of energy used by shipping globally is produced from alternative fuels by 2030.
This “fund and reward” system would be financed by a mandatory flat rate contribution by ships, per tonne of CO2 emitted.
ICS, which represents 80 per cent of the world’s merchant fleet, has announced proposals to accelerate the maritime sector’s transition to net zero by financially rewarding ships and energy producers that invest in low/net-zero emission fuels.
In a paper to IMO, ICS proposes a “fund and reward” system to “catalyse the adoption of alternative fuels, which currently cost at least two or three times more than conventional marine fuel”.
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According to ICS, a fund and reward (F&R) proposal combines elements of various recent GHG reduction proposals from a number of governments, plus a flat rate contribution system previously proposed by ICS and the bulk carrier owners organisation Intercargo as well as ideas recently put forward for a global IMO measure by the European Union (EU) 27.
ICS’ chairman, Emanuele Grimaldi, asserted: “With the ICS fund and reward proposal, IMO member states have a new but very short window of opportunity to put in place a global economic measure which can kick-start the development and production of alternative fuels for shipping. To achieve net zero mid-century, these new fuels must start to become available in significant quantities on a commercial basis no later than about 2030.”
Referring to the convoluted politics at IMO, he continued: “Compromise is always difficult but, in any negotiation, having a proposal like this can enable everyone to come together. I hope this proposal will act as a bridge between the climate ambitions of both developed and developing countries so that no part of the global shipping industry will be left behind.”
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ICS argues that the reward rate should be calculated based on CO2 emissions prevented, and funded via a mandatory flat rate contribution from ships per tonne of CO2 emitted. The industry body said the “fund and reward” system could be established by 2024, if governments can agree on the regulatory framework at IMO.
The earlier R&D proposal envisaged a globally administered fund, and this time ICS proposes that contributions from the global fleet be gathered in an “International Maritime Sustainability Fund”. Such a fund, the body said, could raise billions of dollars annually, which would then be committed both to narrowing the price gap, globally, between existing high carbon marine fuels and alternative fuels, and supporting much needed investment in developing nations for the production of new marine fuels and bunkering infrastructure.
The fund would reward ships according to annual reporting of the CO2 emissions prevented by the use of “eligible alternative fuels”. ICS says that, as an example, a ship powered by ammonia (among many other alternative fuels including methanol, hydrogen, sustainable biofuels and synthetic fuels) could receive a cost saving of more than US$1.5 million annually. Presumably carbon capture would also be rewarded, but what about offsets such as tree planting?
ICS’s secretary general, Guy Platten, commented: “We must narrow the significant price gap of new, very expensive, alternative fuels to accelerate their production and take-up, so that we reach a take-off point by 2030 on our pathway to net zero by 2050. But it is crucial that our industry also supports maritime greenhouse gas reduction efforts in developing countries.
“This fund has the potential to go beyond the traditional reach of the IMO, boosting investment for the fuel production and bunkering infrastructure in ports worldwide that will be vital for our global industry to decarbonise completely.”
The ICS proposal aims to ensure that at least 5 per cent of the energy used by the world fleet in 2030 is produced from alternative fuels. This would represent the equivalent of approximately 15 million tonnes of new fuels annually by the end of the decade, “a significant advance from a current figure of almost zero”.
A detailed impact assessment undertaken for ICS by Clarksons Research has identified that a financial contribution of up to approximately US$100 per tonne of CO2 emitted would not cause disproportionately negative impacts on the economies of states. However, ICS believes that contributions could initially be set much lower and then be subject to a five-year review as increasing quantities of new fuels become available.
The ICS proposal for a F&R measure will be discussed in December 2022 after Cop27 and ahead of the next IMO Marine Environment Protection Committee in London.
So yet again, shipping’s regulator is being urged to set up a global taxation and disbursement system. Is that really a good idea? As mentioned in this column more than once, IMO is a regulator. In general, it has been effective in implementing change in the global shipping industry by introducing rules. A good example of that is the sulphur in fuel regulation, which confounded the sceptics and was introduced with relatively few problems. It has not previously got itself into the money business.
No doubt, ICS sees its proposals as the least worst option and much better than, for example, letting the EU’s eurocrats impose its emissions trading system on much of the world fleet.
But surely it would be better to simply use the tools IMO is developing to assess the carbon intensity of individual ships and mandate milestones, in terms of how much CO2 is emitted, on the road to decarbonisation. Carrot and stick strategies are bound to be problematic when applied to the international shipping industry.
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