Latin American Panel 13-14 September, 2010 Lima, Per ú GREENHOUSE GAS EMISSIONS FROM SHIPPING

1. Latin American Panel13-14 September, 2010Lima, PerúGREENHOUSE GAS EMISSIONSFROM SHIPPING Peter M. Swift

2. Reducing Greenhouse Gas Emissions from Shipping • Key Dates • UNFCCC and IMO Programmes • Market Based Mechanisms • Industry Initiatives UNFCCC = United Nations Framework Convention on Climate Change

3. Reducing Greenhouse Gas Emissions from Shipping Selected Key Dates 12/2009 UNFCCC COP15 Meeting, Copenhagen 3/2010 IMO MEPC 60 2010 IMO MBM-Expert Group IMO MEPC Intersessional (EEDI) 2010 UNFCC Interim meetings ------------ 9/2010 IMO MEPC 61 10/2010 INTERTANKO Council Meeting 11/2010 UNFCCC COP16 Meeting, Cancun 2010-2011 EU Council/Commission meetings ---------- 5/2011 INTERTANKO Council Meeting 7/2011 IMO MEPC 62 12/2011 EU Deadline for IMO/International Agreement 2012 Kyoto Protocol expires

4. UNFCCC - COP15 What was the outcome ? • NO targets • NO resolution of Kyoto/IMO Treaty conflict • NO direct reference to international shipping in Copenhagen Accord BUT in subsequent discussions: Shipping is “expected” to make its “contribution” to Climate Change measures with $$$$ (UNFCCC et al) International Aviation and Shipping should be regulated via UNFCCC and have targets as per other industries (EU Parliament)

5. IMO Programme To develop: EEDI for new ships (Mandatory) SEEMP (Mandatory) & EEOI (Voluntary) for all ships and, if possible/needed: Market Based Measures for shipping

6. IMO – UNFCCCConflicting principles remains a major issue IMO Principle: “No More Favourable Treatment” Versus Kyoto Protocol principle: “Common But Differentiated Responsibility”

7. IMO Intersessional Working Group To improve the text for mandatory requirements of EEDI and SEEMP in terms of: • coverage of ship types and ship sizes for the EEDI; • establishment of EEDI baseline(s); • frequency of reducing the mandatory value of EEDI (reduction in 3 phases); • reduction rate from the baseline for the phases for the EEDI; To develop various guidelines: • on the method of calculation of EEDI; • for the calculation of baselines for attained EEDI; • to support the regulatory framework for verification of the EEDI

8. IMO MBM – Expert Group Group of MBM schemes which would require all ships to pay a contribution: 1. International Fund for Greenhouse Gas emissions from ships – suggested by Denmark and supported in principle by Cyprus, Marshall Islands and Nigeria 2. Global Emission Trading System for International Shipping, as proposed by Norway, France and Germany with general support from the UK Group of MBM schemes which provide rewards to more energy efficient ships: 3. Leveraged Incentive Scheme based on the International GHG Fund - proposed by Japan. 4. Trading with Efficiency Credits based on Efficiency Standards for All Ships - proposed by the USA. 5. Vessel Efficiency System - proposed by the World Shipping Council. Some are in sector, i.e. shipping only; others are out of sector

9. Why are MBMs Proposed ? • Shipping is expected to become more energy efficient • IMO will adopt technical measures for new ships (EEDI) • Existing ships will also improve their energy efficiency BUT • CO2 emission reductions achieved through technical and operational measures may not be sufficient and their effect will not be seen in the short term • The increasing demand for transportation at sea could well lead to a net increase in CO2 emissions from ships even though each ship may become more efficient

10. Why are MBMs Proposed ? ETS or other MBM

11. Application of the GHG Fund EEDI BAU Offset (out of sector) Target line Actual emissions

12. Application of ETS EEDI BAU Offsetting (in sector & out sector) Target line Actual emissions Funds to UNFCCC

13. General comments on MBMs • Proposals at different level of maturity • All proposals need further development • All lack policy details with regard to • enforcement • administration • carbon leakage • fraud • vessels registered with non-party flags • harmonisation

14. Reducing Greenhouse Gas Emissions from Shipping Industry initiatives: • Work on EEDI (including Tripartite workshops) • Developing and assessing GHG reduction measures for new and existing ships (Tripartite) • Developing Marginal Abatement Cost Curves - what is achievable ? • Developing operational measures, such as “Virtual Arrival” • Developing industry SEEMPs, such as INTERTANKO’s TEEMP – Tanker Energy Efficiency Management Plan plus • Active participation in MBM Expert Group

15. Mitigation Measures

16. Mitigation Measures

17. MAC Curves - Industry study

18. “Virtual Arrival “OCIMF /INTERTANKO project Virtual Arrival is all about managing time and managing speed. It’s not about blanket speed reduction to match current market conditions. Virtual arrival is about identifying delays at discharging ports, then managing the vessel’s arrival time at that port/terminal through well managed passage speed, resulting in reduced emissions but not reducing capacity.

19. Virtual Arrival - Summary • Cooperation between Charterer (Terminal Operator) and Owner • Speed is “optimised” when ship’s estimated arrival is before the terminal is ready • Owners and Charterers agree a speed adjustment • May use an independent 3rd party to calculate / audit adjustment • Owners retain demurrage, while fuel savings and any carbon credits are split between parties Next Steps: • OCIMF-INTERTANKO running joint workshops • Charter Parties being reviewed (INTERTANKO/BIMCO/BP/Chevron) – indemnity and liability issues, including bills of lading • Individual oil majors and owners “trialling” system • Bulk carrier sector examining feasibility

20. Virtual Arrival • by taking advantage of known inefficiencies in the supply chain and • reducing speed when the terminal is not ready to discharge the cargo • In addition to directly reduced emissions, other benefits are: • Reduced congestion and emissions in the port area • Improved safety • Potentially increased use of weather routing Important pre-conditions: •   The safety of the vessel remains paramount • The authority of the vessel’s Master remains unchanged • The basic terms of trade remain the same

21. What is needed to do to make Virtual Arrival work? • A known delay at the discharge port • A mutual agreement between two (or more) parties to adapt the ship’s arrival time to take advantage of the delay • An agreed Charter Party clause that establishes the terms for reducing the speed to adapt to the new arrival time • An agreement on how to calculate and report the Virtual Arrival and the performance of the vessel • This may involve a Weather Analysis Provider (WAP) • OCIMF/INTERTANKO and class are producing transparent standards for verification of WAPs • But mainly it’s a win–win situation for all,based on trust and transparency

22. Council Discussion/Policy Review GHG reductions – INTERTANKO positions Support in principle for: • Mandatory EEDI – subject to acceptable formula • Targeted reductions in EEDI over time – subject to realistic assumptions • Mandatory SEEMP – subject to applicability of final version and EEOI remaining “voluntary” Regulation/legislation of GHG emission reductions to be coordinated through the IMO and to be flag neutral; i.e. applicable to ALL ships

23. Council Discussion/Policy Review Market Based Instruments: • As a MINIMUM must meet IMO and INTERTANKO principles Do we need an MBM for Shipping ? • Cost of fuel is already sufficient economic incentive (frequently 60-80% of total operating costs) • Without agreed “targets” for GHG reductions from shipping, how is any shortfall quantified and how is the “purpose” of an MBM defined?

24. IMO Principles • Effective in contributing to the reduction of total global GHG emissions • Binding & equally applicable to all flag States • Cost-effective • Able to limit or effectively minimize competitive distortion • Based on sustainable environmental development without penalizing global trade and growth • Based on a goal-based approach and not prescribe specific methods • Supportive of promoting and facilitating technical innovation and R&D in the entire shipping sector • Accommodating to leading technologies in the field of energy efficiency • Practical, transparent, fraud free and easy to administer

25. Muchas Gracias Thank you For more information, please visit: www.intertanko.com www.shippingfacts.com www.maritimefoundation.com London, Oslo. Washington, Singapore and Brussels

26. Kyoto Protocol • Established under UN Framework Convention on Climate Change (UNFCCC) and adopted in 1997 • Ratified by 181 countries – not the USA • Categorises Annex 1 (Developed) Countries and Non-Annex 1 (Developing) Countries • Annex 1 Countries are committed to make GHG reductions with set targets, but also flexible mechanisms • Runs through to 2012, with Conference of Parties (COP15) to meet in Copenhagen in Dec 2009 to develop successor • Kyoto recognises “common but differentiated responsibilities”, i.e. developed countries produce more GHGs and should be “responsible” for reductions • Kyoto looks to IMO to address Shipping and ICAO to address Aviation, and as such these emissions are currently excluded from Kyoto targets

27. MBM Proposals • Out of shipping sector mechanisms • International GHG Fund (Denmark et al.) • Emission Trading Scheme (Norway et al.) • Rebate Mechanisms (IUCN) • In shipping sector mechanisms • Leverage Incentive Scheme (Japan) • Ship efficiency & Credit Trading (USA) • Vessel Efficiency System (WSC) • Port State Levy (Jamaica) • Penalty on Trade and Development (Bahamas)

28. Ship Efficiency and Credit US EEDI (EIr) Efficiency Credit = (EIr – EIa) x Activity Efficient Credit >0 = Sells Credits Efficient Credit < 0 = Buys Credits Existing hip (EIa) New ship IMO EEDI (US EIa) IMO EEDI

29. Leverage Incentive Scheme EEDI Attained EEOI Req. EEDI 1 benchmark PATERN 1 Ship 1 0% Req. EEDI 2 Actual 50% Initial EEOI Ship 2 Req. EEDI 3 PATERN 2 100% 50% Ship 3 Reduced EEOI NEW BUILDING EXISTING SHIPS

30. Gas fuelled engines Electronic engine control Waste heat recovery Air cavity lubrication Contra-rotating propeller Fuels cells as auxiliary engines Frequency converters Exhaust gas boilers on auxiliary engines Energy efficient light systems Wing generator Wind power – kite Wind power – fixed sails or wings Solar panels Solar panels Trim/draft optimising Weather routing Voyage execution Steam plant operational improvements Speed reduction due to port efficiency Propeller condition Speed reduction due to fleet increase Hull condition Propulsion efficiency devices Cold ironing Engine monitoring Reduced auxiliary power usage Possible Abatement Measures