Policy & Regulation

Policy and regulation will impact the business cases of all stakeholders in the shipping sector. It is the key to unlocking finance and investment as well as protecting our planet for future generations. 

The following is a selection of current, upcoming and proposed GHG related regulations that will impact global shipping.

EXISTING

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IMO ECA - Emission Control Areas

Part of MARPOL Annex VI, entered into force in 1997, revised in 2015.

Progressive reductions in NOx emissions from marine diesel engines installed on ships, with a “Tier II” emission limit for engines installed on a ship constructed on or after 1 January 2011; and a more stringent “Tier III” emission limit for engines installed on a ship constructed on or after 1 January 2016 operating in ECAs.

NOx and PM ECAs are the coasts of the United States and the Atlantic and Pacific coasts of Canada.
SOx ECAs are the Baltic Sea and the North Sea and the coasts of the United States and the Atlantic and Pacific coasts of Canada.

In 2015, the limits for SOx and particulate matter (PM) were reduced to 0.1%.

 

– Source: International Maritime Organization –

IMO Global Sulphur Limit

Part of MARPOL Annex VI, entered into force 2020.

The global fuel oil sulphur limit was reduced from 3.5% to 0.5%.

 

– Source: International Maritime Organization –

IMO EEDI - Energy Efficiency Design Index

Part of MARPOL Annex VI, entered into force 2013.

The EEDI is a non-prescriptive, performance-based mechanism that leaves the choice of technologies to use in a specific ship design to the industry. As long as the required energy efficiency level is attained, ship designers and builders are free to use the most cost-efficient solutions for the ship to comply with the regulations.

EEDI is the IMO’s principle technical measure to reduce GHG emissions. EEDI applies to any ship of 400 gross tonnage and above that are engaged in international waters. Requires calculation of Attained EEDI (Regulation 20) and Required EEDI (Regulation 21).

The formula for Attained EEDI (the actual EEDI of a ship, CO2 emissions/transport work) incorporates all innovative technologies by including propulsion power from the main engine, auxiliary engine(s), energy efficient power generation and auxiliary propulsion (e.g. wind propulsion).

Reduction Factors are in place for reducing ship emissions depending on the implementation phase. Each phase sees reductions of 10% below the reference line.

 

– Source: International Maritime Organization –

IMO SEEMP - Ship Energy Efficiency Management Plan

Part of MARPOL Annex VI, entered into force 2013.

Requires all ships of 400 gt and above to carry a specific Ship Energy Efficiency Management Plan (SEEMP), the operational energy efficiency measure of the IMO.

 

– Source: International Maritime Organization –

IMO IEEC - International Energy Efficiency Certificate

Part of MARPOL Annex VI, entered into force 2013.

An International Energy Efficiency (IEE) Certificate for the ship shall be issued after a survey in accordance with the provisions of regulation 5.4 to any ship of 400 gross tonnage and above, before that ship may engage in voyages to ports or offshore terminals under the jurisdiction of other Parties.

IEE Certificate is valid throughout the lifetime of a ship unless there is a major conversion or change of flag or ship withdrawal from service.

Requires Port State Control (PSC) to conduct energy efficiency inspections. The IEE certificate is the starting point for any PSC inspection. Any port State inspection shall be limited to verifying, when appropriate, that there is a valid International Energy Efficiency Certificate on board.

 

– Source: International Maritime Organization –

IMO DCS - Fuel Oil Data Collection System

Part of MARPOL Annex VI, entered into force 2018.

Requires ships of 5,000 GT and above to collect consumption data for each type of fuel oil they use, as well as other, additional, specified data including proxies for transport work. The aggregated data is reported to the flag State after the end of each calendar year and the flag State issues a Statement of Compliance to the ship.

 

– Source: International Maritime Organization –

EU MRV - Monitoring, Reporting and Verification

Entered into force 2015.

Ships above 5,000 gross tonnage must monitor, report and verify CO2 emissions released during their voyages from their last port of call to a port of call under the jurisdiction of a Member State and from a port of call under the jurisdiction of a Member State to their next port of call, as well as within ports of call under the jurisdiction of a Member State. (Article 2)

Shipping companies must create a Monitoring Plan for each ship, based on templates produced by the Commission. Each ship must monitor a number of parameters during each voyage including fuel consumed and Emission Factors of each fuel type and CO2 emissions emitted as well as methodologies for calculating emissions.

Companies should monitor for each ship arriving in or departing from, and for each voyage to or from, a port under a Member State’s jurisdiction. Exemptions are if all of the ship’s voyages during the reporting period either start from or end at a port under the jurisdiction of a Member State; and the ship, according to its schedule, performs more than 300 voyages during the reporting period. (Article 9)

Companies should also monitor annually for each ship, including total aggregated CO2 emissions and aggregated CO2 for each voyage and average energy efficiency. (Article 10)

An annual verified Emissions Report, containing total CO2 emitted and other relevant information including the ship’s EEDI value, must be submitted to the Commission and to the authorities of the flag States concerned. (Articles 11 and 12) The annual Emissions Report will be made publically available. (Article 21).

 

– Source: European Commission –

IMO EEXI - Energy Efficiency Existing Ship Index

Part of MARPOL Annex VI, entered into force in 2021.

Required to be calculated for every ship at its first survey following entry into force of the amendments. This indicates the energy efficiency of the ship compared to a baseline.

Ships with non-conventional propulsion (diesel electric, turbine or hybrid propulsion system) are exempt, except for cruise passenger ships and LNG carriers.

Ships are required to meet a specific required EEXI, based on a required reduction factor (expressed as a percentage relative to the EEDI baseline).

– Source: International Maritime Organization –

IMO CII - Carbon Intensity Indicator

Part of MARPOL Annex VI, entered into force in 2021.

Ships of 5,000 gross tonnage and above (approximately those who follow DCS requirements) must determine their required annual operational carbon intensity indicator (CII).

CII determines the annual reduction factor needed to ensure continuous improvement of the ship’s operational carbon intensity within a specific rating level.

The attained annual operational CII are required to be documented and verified against the required annual operational CII. This enables the operational carbon intensity rating to be determined.

The reduction rates are intended to achieve the levels of ambitions set out in the IMO’s Initial GHG Strategy, in particular, the 2030 level of ambition of reducing carbon intensity of international shipping by at least 40% by 2030, compared to 2008.

A CII rating is given on a scale – operational carbon intensity rating A, B, C, D or E. A ship rated D for three consecutive years, or E, must submit a corrective action plan, to show how the required index (C or above) would be achieved.

 

– Source: International Maritime Organization –

USA Ocean-Based Climate Solutions Act

Proposed by US Natural Resources House Committee Chair Raúl M. Grijalva, introduced in 2020.

Relevant aspects include:

    • Establishes a pathway forward to protect 30 percent of US ocean by 2030.
    • Promotes offshore wind energy and other marine energy research. Enhances the fuel efficiency of the fishing vessel fleet.
    • Protects marine mammals through vessel speed programs Expands climate mitigation efforts in the Arctic.

 

– Source: US Natural Resources House Committee –

UPCOMING

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IMO EEDI Phase 3

Part of MARPOL Annex VI, to enter into force in 2022.

Initially planned for 2025 but brought forward to 2022.

New design energy efficiency requirements for vessels built between 2021-2022 at least 30% below the EEDI reference line.

– Source: International Maritime Organization –

IMO Arctic HFO ban

To enter into force in 2022 and applied from 1 July 2024 onwards, except for category A and B ships constructed on or after 1 January 2017 with an aggregate oil fuel capacity of less than 600 m3.

Bans the use and carriage of HFO as fuel in Arctic waters. Exemptions and waivers mean that a complete ban would not enter into force until July 2029. Carriage of HFO as cargo is not banned. 

 

 

– Source: International Maritime Organization –

EU ETD - Energy Taxation Directive (ETD) Revision

To enter into force in 2023.

Revision of Energy Taxation Directive to include marine fuel.

 

– Source: European Commission –

EU ETS - Emissions Trading Scheme

To enter into force in 2021.

Upcoming amendment to Regulation 2015/757/EU.
Vessels over 5000 GT to be included in ETS. GHG reduction target of 40% by 2030. Calls for an ‘Ocean Fund’ for the period from 2023 to 2030, to make ships more energy efficient and to support investment in innovative technologies and infrastructure.

 

– Source: European Commission –

Norway World Heritage Fjords zero emissions regulation
To enter into force in 2026.

Requires all cruise and passenger vessels entering UNESCO World Heritage fjords to be zero-emissions vessels.

 

– Source: UNESCO World Heritage Centre –

PROPOSED

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IMO Mediterranean SOx ECA

Aim is to reach a consensus among Contracting Parties of the Barcelona Convention before submitting a proposal amendment to the IMO MARPOL
Annex VI to create a SOx Emission Control Area in the Mediterranean Sea.

 

– Source: United Nations Environmental Programme –

IMO IMRB - International Maritime Research Board

2$/t levy on fuel oil to set up $5bn fund to set up International Maritime Research Board (IMRB) to commission collaborative programmes for R&D of zero-carbon maritime technologies, including development of working ocean-going prototypes.

It will also assist CO2 reduction projects in developing countries, including Pacific island nations.

Proposed by nine global shipping associations including International Chamber of Shipping (ICS), backed by Japan, Greece, Singapore, Liberia, Malta, Georgia, Switzerland.

IMO Green Climate Fund and IMRF

The policy, put forward by the Marshall Islands and Solomon Islands and supported by China Navigation (based in Singapore), is a GHG levy following the Polluter Pays Principle (PPP). Aims to establish a $100 per tonne CO2 levy to support Climate Fund.

If the proposed levy were applied to all ships it would raise $91.9bn per year based on 2018 emissions levels. Adverse side-effects would be compensated for using revenues from the new levy.

Funds from the levy would be allocated in the following manner:

  • 51% to Green Climate Fund
  • 33% to International Maritime Research Fund (IMRF)
  • 16% admin costs.

 

– Source: Informa plc. –

IMO Arctic Black Carbon Resolution

Proposed at MEPC 76 by Clean Arctic Alliance

    • Calls for a voluntary switch to distillate or alternative, cleaner fuels while operating in or near the Arctic.

 

– Source: International Maritime Organization –

IMO Arctic Scrubber Ban

Proposed at MEPC 76 by Clean Arctic Alliance. Bans the use of scrubbers in Arctic waters.

Scrubbers allow the continued use of heavy fuels with a high sulphur content since the sulphur is removed from the exhaust emissions, but the wastewater from the scrubber, which also contains heavy metals and polyaromatic hydrocarbons, is dumped in the ocean.

 

– Source: Clean Arctic Alliance –

IMO Carbon Taxes

Numerous proposals for a worldwide tax on CO2 emissions have been called for by IMO member states and shipping industry actors. While only member states can submit their proposals to the IMO, industry actor announcements may influence member state proposals.

Marshall Islands and Solomon Islands proposed a mandatory and universal $100/ton CO2 equivalent (CO2e) charge on shipping companies by 2025. The majority of funds would go towards climate vulnerable countries, such as SIDS, while another portion would go towards subsidising R&D and deployment of low-carbon technologies and fuels. Source: Informa UK Limited

Mærsk Mc-Kinney Møller called for a $150/ton CO2 tax on shipping fuel. They plan for tax to be implemented at about $50/ton in 2025, then increasing to at least $150/ton in later years. Money raised from the tax would be used to subsidize clean fuels, and, to support developing countries. – Source: Bloomberg –

Trafigura called for a $250 to $300/ton CO2 equivalent (CO2e) tax (or ‘partial feebate’) on shipping fuel that has a CO2e well-to-wake intensity above an agreed benchmark level. Concurrently, when a fuel is used that has a CO2e intensity below the benchmark, a subsidy is awarded. Revenue would be used mostly for subsidies, with further funds going to R&D for zero- and low-emission fuels and supporting climate change mitigation in Small Island Developing States (SIDS). – Source: Trafigura –

EU FuelEU Maritime

Aims to increase the use of sustainable alternative fuels in European shipping and ports by addressing market barriers that hamper their use and uncertainty about which technical options are market-ready.

 

– Source: European Commission –

China ETS - Emissions Trading Scheme
The aim ultimately is to include any company that discharged over 26,000 tonnes of carbon dioxide (or its equivalent) in any year between 2013 and 2019. The 26,000 tonnes threshold will likely impact a swathe of shipbuilders as well as top shipping lines.

Follows a successful Shanghai ETS pilot program which covered emissions from shipping.

 

– Source: International Carbon Action Partnership (ICAP) –

USA NDC - Nationally Determined Contribution

The US is proposing the inclusion of shipping in the NDC.

USA GHG Taxes

Taxes on greenhouse gas emissions in all sectors have been proposed by a number of US senators. They include:

    • MARKET CHOICE Act, 2019 (H.R.4520. Fitzpatrick): Transfers specified revenue from the tax to a Rebuilding Infrastructure and Solutions for the Environment Trust Fund (RISE Trust Fund) established by the bill, and other bodies.
    • Energy Innovation and Carbon Dividend Act, 2019 (H.R.763. Deutch): A fee equal to the GHG fuel content multiplied by a carbon fee rate beginning at $15 and increasing by $10 each year. It would be imposed on the producers or importers of fossil fuels, subject to adjustment depending on progress in meeting emission targets. Also imposes a specified fee on fluorinated GHGs, such as those emitted by gas tankers and refridgerated carriers (according to the EPA). The bill includes border adjustment provisions that require certain fees or refunds for carbon-intensive products that are exported or imported. Revenue would go to a Carbon Dividend Trust Fund.
    • Stemming Warming and Augmenting Pay (SWAP) Act, 2019 (H.R.4058. Rooney): Imposes a $30 per metric ton of CO2-e increasing by 5% plus inflation each year and increasing by $3 per ton every two years if the previous year’s emission goals are not met. The revenue is divided: 70% for the reduction of payroll taxes; 10% for additional payments to Social Security beneficiaries; and 20% to establish a carbon trust fund.

 

– Source: United States Congress –