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IMO carbon cut plans could boost emissions, BIMCO warns

Calculations are essentially ambiguous and don’t recognise that fully-laden ships may be relatively more efficient even if absolute carbon output is higher, according to leading shipowner trade association

‘The incentives are a mixed bag with this formula. It’s probably not good business to emit more carbon to improve your carbon efficiency,’ argues Lars Robert Pedersen

INTERNATIONAL Maritime Organization plans for ships to cut CO2 intensity by 2% a year between 2023 and 2026 could actually boost overall emissions, according to a leading shipowner trade association.

The measures may also infringe charterers’ basic rights, BIMCO deputy general secretary Lars Robert Pedersen added.

His comments come after the IMO’s intersessional working group on greenhouse gas emissions last Friday provisionally backed the proposals, as a short-term step towards cutting shipping’s CO2 intensity by at least 40% on 2008 levels by 2030.

Although voting was confidential, sources indicated that the package only got through by a slim majority, with the backing of key Asian and Latin American countries. The US and EU opposed the scheme as insufficiently ambitious.

It still needs approval from the IMO’s Marine Environment Protection Committee at its next meeting from June 10 to June 17, although this is expected.

The technical stipulations essentially amount to retrospective application of the Energy Efficiency Design Index yardstick for newbuildings, known as EEDI, to the existing world fleet.

This is to be achieved by calculating an Energy Efficiency Existing Ship Index, known as EEXI, based on the same formula.

“You cannot easily change the design on an existing ship. What you can do is limit the power of the main engine,” said Mr Pedersen.

“So it becomes a sort of design-specific speed limit for ships. Obviously there are commercial implications if a ship cannot sail as fast as it did anymore.”

However, the process is manageable and predictable, and therefore a reasonable policy given the desired end.

The bigger problem is the mandated year-on-year improvements to carbon efficiency. This will be calculated on an annual efficiency ratio formula, which boils down to emissions per deadweight tonne mile.

Speed for speed, a fully-laden vessel generates more emissions in absolute terms than a ship carrying less cargo. But at the same time the former could be the most carbon efficient carriage, relatively speaking.

“To put it simply, the incentives are a mixed bag with this formula. It’s probably not good business to emit more carbon to improve your carbon efficiency.

“But if you are forced to do something by regulation, it may be an option you need to choose, because commercially it’s the only thing you can do.

“You have this ambiguity in the incentive formula. It might go the right way, or it might go the wrong way. It’s difficult to say.”

There are also legal implications that do not appear to have been taken into account.

It is traditionally a charterer’s prerogative to use a ship as they see fit, which may not be compatible with slower steaming to improve carbon efficiency.

“We are trying, as BIMCO, to develop some clauses that facilitate implementation. But as it stands at the moment, it’s not an easy task.

“There are some fundamental rights you enjoy as a charterer that maybe won’t be your rights anymore.”

BIMCO has observer status at the IMO and has done its best to keep governments informed of practicalities, but now accepts the latest developments as more or less a fait accompli.

“This is a first for any industry in the world to be regulated this way. There’s no other industry, to our knowledge, that is regulated operationally.

“It’s akin to requiring you to improve the mileage on your car every year or to improve the consumption of your refrigerator.”

Mr Pedersen reiterated that nobody in the shipping industry is in any doubt about the need for decarbonisation, but urged clarity for how this can best be achieved in the real world.

Meanwhile, law firm HFW has produced a briefing examining some of the issues from a legal standpoint.

Meeting the EEXI regime may require the renegotiation of charterparties, for instance to agree the allocation of risk and responsibility for compliance, and details of when, where and how a vessel should undergo any modifications needed to meet requirements.

A balance will need to be struck between the needs of the owners and the needs of the charterers, and this will depend on the willingness of charterers to accept compromise.

“Charterers may also contribute expertise and possibly finance towards the modification(s), especially in long term time charterparties where this could lead to an improvement in energy efficiency,” HFW suggests.

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