Study on Reduction of Greenhouse Gas Emissions in Ocean-Going Shipping: June Japan International Transport Institute

Transcription

1 Study on Reduction of Greenhouse Gas Emissions in Ocean-Going Shipping: Evaluation of Possible Solutions June 2009 Japan International Transport Institute

2 Study on Reduction of Greenhouse Gas Emissions in Ocean-Going Shipping: Evaluation of Possible Solutions June 2009 Japan International Transport Institute

3 Committee Roster Study Group Members: James Corbett, Associate Professor, Marine Policy, College of Marine and Earth Studies, University of Delaware Virginia Hessenauer, Director of Environmental Affairs, APL Limited Paul Johansen, Assistant Director of Environmental Management, The Port of Los Angeles David Newman, Manager, Global Climate & Energy Department, NIKE Koichi Yoshida, Director, International Coordination Centre, National Maritime Research Institute, Japan (NMRI) Marcus Bowman, Director of Research, JITI Washington, D.C. Office Tadashi Kaneko, Senior Representative, JITI Washington, D.C. Office Iwao Matsuoka, Deputy Director, JITI Tokyo Office Professional Staff: Lisa Fukuda, Administrative Assistant, JITI Washington, D.C. Office Yoji Kawakami, Deputy Representative, JITI Washington, D.C. Office All titles current as of the study group s final meeting, January 29, 2009.

4 Table of Contents Section 1: Introduction Background and Basic Concept Involving International Shipping in a Post-Kyoto Framework Current Discussions Criteria to Evaluate Measures for GHG Emission Reductions...3 Section 2: Regulatory Methods New Ship Design Index Introduction Analysis of an EEDI Options for a Design Index R Reference Material Operational Index Introduction Rationale for an Operational Index Concerns regarding an Operational Index Implementation Aspects of an Operational Index Options for an Operational Index R Reference Material Linking Regulatory Methods...23 Section 3: Market Methods Overview of Market Methods Levy Overview Current Situation Policy Options for a Levy Options for the Levy R Reference Material Emission Trading System (ETS) Overview of ETS Current Situation of ETS Discussion Points on Introduction of ETS Points of Discussion in Setting the Framework Options for the ETS R Reference Material Linking Market Methods with Regulatory Methods...42

5 Section 4: Conclusion Regulatory Methods Economic Methods Concluding Themes...46 Appendix 1: Criteria for Evaluating Options for GHG Emissions Reduction Appendix 2: SAFE-Ships Analysis of an Energy Efficiency Design Index

6 1. Introduction Greenhouse gas (GHG) emissions from ocean-going shipping are currently outside the scope of the Kyoto Protocol. However, since it appears it will inevitably be taken into the Post-Kyoto framework, it is now an important time to discuss how it should be placed in the new system. As a matter of fact, the International Maritime Organization (IMO) is studying the GHG emission reduction system including mandatory fuel-efficiency indices and voluntary guidelines on efficient operation, and the European Union (EU) is planning to extend its own emissions trading scheme outside of its territory if the discussion at the IMO cannot be productive. There is no question that we are at the crossroads to think about the future of maritime transportation and the environment. The goal of this report is to propose mutually acceptable policy options for consideration by the experts and policymakers who are planning the next GHG emission reduction framework. The conclusions of the report are based on discussions of shipping industry stakeholders who agreed to participate in a study group on this topic. The study group met three times, once in Washington, DC, and twice in Oakland, CA. The roster of participants of the study group is listed at the front of this report. It should be noted that the conclusions and findings of this report are those of JITI and that the participants do not necessarily agree with any of the conclusions. At the outset, two overarching variables need to be pointed out since they affect the timing of these discussions. First, the recent economic turmoil has jolted confidence in even the most basic points, such as presuming the rate of future growth in freight traffic. For example, most forecasts and scenarios predict an extrapolation of the steady growth rates over the past six decades. However, consensus may no longer exist regarding how and whether future growth may be similar to the past. In addition, the economic turmoil makes consideration of added costs and regulatory burdens even more difficult. Second, fluctuations in crude oil prices over the past two years have significantly influenced the order of solutions for discussion. For example, during historically low marine fuel prices, ship service speed and high voyage frequency were major elements of supply chain planning. However, in July 2008, with skyrocketing oil prices, it became popular to reduce fuel consumption as a means to cut costs. Now, just a few months later oil prices are much lower and the same incentives, while important in the background, are not so urgent. Nonetheless, ship demand has also declined and reducing fuel consumption remains part of many companies strategies for maintaining profitable service. Therefore, the discussions of the study group were conducted amid uncertainty regarding the economy and oil prices. Keeping these backgrounds in mind, this report will develop its analysis for the framework for GHG reduction from ocean-going ships in the 1

7 following way: After a brief review of current discussions related to the overall topic of GHG emissions from shipping, the report will analyze, chapter-by-chapter, some possible options. Finally, the report will include discussion of possible linkages between the options before concluding with some proposals for the future scheme. 1.1 Background and Basic Concept Involving International Shipping in a Post-Kyoto Framework The Kyoto framework aims at GHG emission reduction by setting reduction targets for the developed countries (Annex-I countries). In this meaning, the Kyoto framework is a national-based system. However, ocean-going shipping provides service across borders and emits GHGs on the international seas. Since it was so difficult to reach an agreement on how to allocate GHGs emitted from international transportation and how to involve it into the national reduction target, the shipping field was excluded from the original Kyoto framework. In considering the involvement of ocean-going shipping into the Post-Kyoto framework, the following issues need to be reviewed. (1) Difficulty in allocation of the GHG - How to handle GHG emissions from international transportation is a very difficult issue. Since a Post-Kyoto framework is likely to include international transportation, it is indispensable to find a standardized way of allocation of GHG emissions to each country OR a detour of the national allocation issue. - In addition, different nationalities characterize ship owners, shippers, and operators independent of the registry of the ship; therefore, management of emissions based on nationality as in other fields is definitely difficult. Accordingly, the shipping field may prefer its own management framework to fit its unique characteristics. (2) Increase of GHG from shipping in an environmentally-friendly society - Generally speaking, shipping is one of the most GHG-efficient modes of transportation compared with other modes such as trucking and aviation. Therefore, when shipping is an option, shipping can offer an environmentally-friendly alternative, and it can function as a receiver of cargo shifts from less GHG-efficient modes. However, if regulations set a simple absolute volume cap on shipping, as it is in the Kyoto framework, it may disturb such an environmentally-friendly modal shift. In this way, from the viewpoint of the unique characteristics of shipping as a receiver, GHG emissions control through an absolute volume cap is not necessarily adequate. 2

8 Taking these issues into consideration, this report will study effective measures to reduce GHG emissions from ocean-going shipping, mainly focusing on the framework which is based neither on nationality nor absolute volume caps like the Kyoto framework. Finally, while there are many regional and local efforts which can have great success, this report places greater emphasis on methods to achieve global consensus. The point is that without a strong global focus in such a scattered industry it could become very complex to track and comply with a patchwork of regulations Current Discussions The study group discussed several different policy options with a focus on both regulatory and market methods. Under the category of regulatory methods, the report addresses an efficiency design index for new ships and an operational index for new and existing vessels. Under the category of market measures, the report addresses a levy and emission trading system. In each of the chapters for all of these policy options we recognize current developments in the industry, the IMO, and the EU. For example, the IMO has ongoing discussions and a trial program for an Energy Efficiency Design Index (EEDI). And the IMO has discussed proposals for an operations index and levy. In addition, the EU is discussing methods for including shipping into their emission trading system. Thus, this report seeks to provide broad insights regarding the policy decisions that will be made regarding these topics in the coming years Criteria to Evaluate Measures for GHG Emission Reductions There are several policy options to realize the reduction of GHG emissions from oceangoing shipping including both regulatory measures and economic measures. This report will study the following four options discussed at the study group meeting: i) an energy efficiency design index, ii) an energy efficiency operational index as regulatory methods; and iii) a levy system and iv) an emission trading system (ETS). The following criteria are set in order to evaluate and compare the options in detail, and the matrix in Appendix 1 shows the evaluation of each option in accordance with the criteria. 1. Impact on emissions: Does it have direct impact on GHG reduction? 2. Economic Growth: Would it impede economic growth? 3. Coverage/Participants: Can it get wide participation? 4. Competition: Would it distort competition? 5. Time frame: How long does it take to achieve the GHG reduction? 6. Jurisdiction: Who takes the initiative for these measures? 7. Feasibility: How easy is it to implement? 8. Monitoring and enforcement: Are there effective monitoring/enforcement measures? 3

9 9. Cost Burdens: Who bears the cost burdens? 10. Cost performances: Is it cost effective? 11. Metrics: What is the index/unit to be measured? In these criteria, the followings items such as the participation of developing countries (item 2, 3, 4), the administrative organization (items 6, 8), and metrics to be used (items 8, 11) are critical points of consideration. (1) Involvement of developing countries (related to 2, 3, and 4) In creating a new framework, a balance between economic development and environmental issues is very important. Ocean-going shipping is forecasted to continue to grow, and due to the potential growth of developing countries, policy options which may impede economic growth (such as an option which depends solely on an absolute volume cap on GHG emissions) may not be easily accepted, especially among growing countries. In addition, since the ocean-going shipping industry has a global market where carriers of similar ship types compete in similar market conditions, policy options should cover the entire world to ensure fair competition. As these points demonstrate, in order to establish a new global framework, support and participation of developing countries is indispensable. In reality, the involvement of developing countries is not easy. Therefore, when we discuss the new framework, the objective is to consider proposals with potential to be acceptable to developing countries. And in some cases, special treatments for developing countries may be worth considering, but only if there is strict monitoring in order to minimize the negative impact on market competition. The important point is that if this opportunity is missed to take developing countries into the next framework, it could be as long as another decade before the next framework is agreed to. That is why the report emphasizes that policymakers may need to pay attention to some concessions based on Common but Differentiated Responsibility (CBDR) Principles of the UNFCCC. (2) Determining the forum for discussion (related to 6 and 8) As mentioned above, the shipping industry has some unique features such its function as a receiver of shifts from other transportation modes and the complexity of nationalities of the related parties. In order to take the unique characteristics of shipping into consideration and to discuss development with a good balance among society, the economy and the environment, the IMO is a better forum to handle this issue rather than being led at the UNFCCC level or by another organization. The IMO has expertise with regard to the characteristics of shipping and the relations between the industry and the environment. 4

10 (3) Determining the metrics and reporting methods (related to 8 and 11) To measure the reduction of GHG emissions, the units to be used in each case need to be agreed on; for example, measuring in gross amount of emitted GHG, mileage, or rate of improvement, etc. based on the capacity of ships, number of containers, gross weight of cargo, or ton-kilometer, etc. It is very important to select the best combination for the reduction of GHG emissions. The establishment of a reporting system is also helpful for discussion on countermeasures of global warming. Detailed contents to be reported need to be arranged and standardized in an international organization such as the IMO. 5

11 2. Regulatory Methods 2.1. New Ship Design Index Introduction To improve fuel efficiency and reduce environmental impacts from shipping, a commonly discussed solution is a design index for construction of new vessels, either mandatory or voluntary. Since 2008, the International Maritime Organization (IMO) has conducted a trial application of an Energy Efficiency Design Index (EEDI). The EEDI would act as a guide for the production of energy efficient ships in the future. We recognize that the IMO has ongoing discussions to establish an EEDI. In this section we present results of a technical study of the potential emission reductions from an EEDI. The model is useful for assessing future scenarios under a set of assumptions to make conclusions on the relative merits of different implementations. This section includes points for consideration by the IMO and global policymakers Analysis of an EEDI The study group discussed the merits and procedural aspects of an Energy Efficiency Design Index (EEDI) based on discussions related to MARPOL Annex VI Part 2. There are many details that need to be agreed to with respect to establishing an effective EEDI; for example, appropriate index calculations, vessel thresholds, type of vessels, route differences, feasibility from a design and construction point of view, certification, baselines, and target levels. Given ongoing debate about these topics at the IMO it is nonessential for the study group to decide those details. However, as part of this project, it is important to understand some of the broader ramifications to decisions in establishing an EEDI. Therefore, a model was developed to assess the emission reduction potentials from an EEDI. The analysis is based on a statistical evaluation using an emission reductions model. The details of the findings can be found in Appendix 2 of this report. We will summarize this discussion into two sections: (1) assumptions and scenarios, (2) results and conclusions. (1) Assumptions and Scenarios of the Model The model consists of four subsystems that capture the fleet-wide impacts of an EEDI. Several assumptions were necessary as a foundation for the model. First, in consideration of a baseline, it is possible to assume that there will be no improvement in ships over time and that the baseline level remains today s emissions level. However, the assumption in this model is that market-driven technological changes could improve efficiency of ships from 0-1% per year. Another baseline assumption is that demand for shipping will increase 2.5% per year. 6

12 To study results of various implementations of an EEDI, seven scenarios were modeled. The first one is a baseline scenario called No EEDI. For the baseline scenario, the model assumes ships improve efficiency 0.5% every year for technological and competitive reasons. The remaining 6 scenarios are divided on geographic basis. There are 3 scenarios conducted where the fleet includes the entire population of vessels in the world. These are the global scenarios. The second set of 3 scenarios is a regional analysis of only the vessels registered in Annex I nations as defined by the UNFCCC. These are called the A1 scenarios for Annex I. This is a partial EEDI scenario. The model bases the partial EEDI on the primary flag of the vessel. An alternative approach would base the decision on the carrier, not the flag. However, this approach was not used in this study due to a lack of available data. For this report, the A1 scenarios are based on the primary flag of the vessel being from an Annex I nation. Approximately 16% of new vessels are considered to be Annex I for the purposes of this study. Another option, such as a regional approach which requires each vessel entering a region/port to meet a standard could be possible; but at this moment further study is necessary to evaluate its effects. The Global and A1 scenarios are each analyzed three different ways. First, an EEDI is applied. Second, the impacts of cost effects are considered, regarding the effectiveness of the EEDI. Third, the last scenario runs are with an EEDI including cost impacts as well as an Accelerated Phase-out (APO) rule. Table below illustrates these seven scenarios. Table All Scenarios Conducted for this Study Scenario EEDI Cost Impacts Accelerated Phase Out (APO) No EEDI (baseline scenario) No No No Global: EEDI Yes No No Global: EEDI w/ cost effects Yes Yes No Global: EEDI w/ cost effects and APO Yes Yes Yes A1: EEDI Yes No No A1: EEDI w/ cost effects Yes Yes No A1: EEDI w/ cost effects and APO Yes Yes Yes The scenarios are calculated for all years from The model begins with the basic assumption that an EEDI would first take effect in A 10% improvement in new vessel efficiency would be required, calculated with 2009 set as a reference year. Every five years from 2011, an additional 10% improvement is required. Figure demonstrates the EEDI relative to the No EEDI baseline scenario. 7

13 Figure Baseline and EEDI Scenarios as a Percentage of 100 ( ) Percentage of Baseline Efficiency (%) BAU EEDI Reference Year (2) Results from the Analysis The results of the study demonstrate the relative impacts of different EEDI scenarios for the international container vessel fleet. These relative impacts are perhaps more important than the specific numerical results that were obtained by the model. However, the relative relationships across scenarios would hold across a broad range of input assumptions. Figure shows the total fleet emissions under all seven scenarios. Overall emissions increase from today s levels under every scenario since shipping is calculated here to grow 2.5% per year. Therefore, even given the strong EEDI applied in this model as well as the APO considerations, emissions would still not decline on an absolute basis. 8

14 Figure Total Fleet Emissions (MMtC/year) under All Scenarios ( ) Carbon Emissions (MMtC/year) No EEDI A1: EEDI/Cost A1: EEDI A1: EEDI/Cost/APO Global: EEDI/Cost Global: EEDI Global: EEDI/Cost/APO Year Another point to notice in Figure is the differences between the Global scenarios and the A1 scenarios. Relative to the No EEDI baseline, the Global scenarios have a noticeable impact while the A1 scenarios exhibit very little change. This is a reflection of the fact that most ships are not registered in Annex-I countries. This is an important difference between shipping and the rest of the sectors in the world economy. With respect to wealth and consumption, Annex-I nations represent a considerable percentage of global activity. However, shipping is much more fragmented globally, with countries such as Panama and Liberia commanding disproportionate shares. The increasing emissions of Figure are contrasted by Figure which shows continuous improvement in carbon intensity, measured as the average gco 2 /ton-mile in the fleet. Figure shows that the introduction of a global EEDI may lead to fleet-wide carbon intensity improvements of 10-15% by 2035 compared to the No EEDI case. Nevertheless, even with these improvements, emissions continue to increase (see Figure 2.1.2). This implies that a very aggressive EEDI in combination with an APO may be needed to achieve any kind of significant emission reductions over time. 9

15 Figure Carbon Intensity (gco 2 /ton-mile) under All Scenarios ( ) 34 Carbon Intensity (gco2/ton mile) No EEDI A1: EEDI/Cost A1: EEDI A1: EEDI/Cost/APO Global: EEDI/Cost Global: EEDI Global: EEDI/Cost/APO Year The use of an Accelerated Phase-Out (APO) requirement mitigates a key weak point of a design index. Since vessels generally have a useful shipping life of around 40 years, a design index will take a long time to show meaningful emission reductions. In order to achieve emission reductions in a shorter period of time, some measures are necessary to encourage the replacement of existing vessels. This is the reason why the model included a test for the establishment of an APO requirement that would reduce the amount of time for efficiency improvements to occur. A more important result from the study is that implementation of an EEDI would need to be global in order to have broad impact. As previously mentioned only 16% of the vessels in the world are flag-registered in Annex-I nations. Therefore, solutions in shipping that target only Annex-I nations will not have a meaningful impact on emissions reductions. Possible solutions include a port-based approach, or a carrier-based approach, to applying an EEDI. Still, the general conclusion is that an EEDI only assigned partially to certain nations will not be as effective. A global EEDI is very important to successfully reducing greenhouse gas emissions. Regarding the APO in an Annex-I or global application, the results demonstrate that an APO has very little effect in A-1 scenarios. However, the Figure and Figure graphics illustrate that an APO would lead to meaningful GHG emission reductions in a global scenario. 10

16 In continuing discussion regarding the differences between a Global approach and an Annex-I partial approach, there is another issue. Ships from Annex-I nations would likely linger in the global fleet by simply moving from Annex-I nations to non-annex-i nations once they have been regulated out of service Options for a Design Index Based on the analysis, five major findings from the research were identified: 1. For an EEDI to have near term impacts, it must be quite aggressive due to the length of time it takes EEDI modernization to percolate through vessel fleet turnover. 2. Increased costs of new vessels due to an EEDI can create disincentives for ship owners to retire vessels, such that older vessels linger in the fleet. 3. An accelerated phase-out (APO) program can work in synergy with an EEDI regulation to enhance its effectiveness. An APO helps balance the influence of EEDI costs on extending vessel service lifetimes. 4. A partial EEDI will likely change the distribution of vessels among registered nations in ways that will undermine EEDI objectives. A partial EEDI creates cost differentials among different segments of the fleet, one may expect a market shift of new vessel purchases from EEDI vessels to non-eedi vessels, all else equal. 5. In a partial fleet EEDI with cost effects, an APO within nations requiring EEDI simply incentivizes the removal of the oldest vessels in the regulated fleet and the purchase of non-eedi replacements (due to the cost effects). The conclusion from this research demonstrates that a global EEDI would be necessary for a meaningful impact on GHG emissions. Another important insight from this analysis relates to the unique characteristics of the shipping industry. Due to international trade, it is very difficult to identify a nation-based solution. In addition, the usual major Annex-I countries represent a disproportionately low portion of the shipping market, as measured by flag registration. It may be possible to more appropriately target a higher percentage of ships by carrier or by port. An additional insight to reiterate is that growth in shipping may overwhelm in terms of net annual emissions the avoided emissions produced by improving vessel efficiency through an EEDI. Although an EEDI can stimulate an overall decline in the average carbon intensity of goods movement, even modest growth rates in international shipping (2.5%/year in this case) lead to higher emissions in 2035 than in the present (Figure 2.1.2). In other words, other policy instruments may be needed even with an aggressive EEDI to stabilize or reduce GHG emissions in the face of continuing economic (and shipping) growth. Therefore, an EEDI represents one of several additional policy mechanisms that working synergistically may achieve GHG targets for shipping. 11

17 Finally, as mentioned in the opening paragraph of this chapter, actual establishment and implementation of an EEDI will require much more discussion as related to the detailed aspects. For example, further discussion would be necessary regarding the problems and difficulties of determining an appropriate baseline EEDI for all vessels. Perhaps, the baseline could be set based by the type of ship. 2.1.R. Reference Material 1. Buhaug, Ø.; Corbett, J. J.; Endresen, Ø.; Eyring, V.; Faber, J.; Hanayama, S.; Lee, D. S.; Lee, D.; Lindstad, H.; Mjelde, A.; Pålsson, C.; Wanquing, W.; Winebrake, J. J.; Yoshida, K. Second IMO Greenhouse Gas Study 2009; International Maritime Organization: London, 30 March,

18 2.2. Operational Index Introduction In addition to the design of vessels, the IMO has identified the operation of vessels as a means to reduce environmental impacts and improve fuel efficiency in shipping. The discussions at the IMO refer to an Energy Efficiency Operational Index (EEOI). An operational index, such as EEOI, for GHG reductions represents a way of quantifying a range of measures for increasing energy efficiency for new and existing ships. In addition to indexing or ranking specific operational actions, the operational index can score combinations of measures. The IMO has applied an EEOI on a trial basis since The IMO has calculated the index based on grams of CO 2 per ton mile of travel. An operational index has also been discussed within the shipping industry for several years. Recently, in June 2008, Costamare, a Greek shipping company, announced that 5 of their ships would operate using a CO 2 operational index. Costamare is basing index calculations on the July 2005 Interim Guidelines for Voluntary Ship CO 2 Emission Indexing [1] which calculates distance sailed, fuel consumption, ship type, and cargo. In August 2008, the IMO published Marine Environment Protection Committee (MEPC) 58/4/13, Guidelines for the implementation of The Ship Operational Index as submitted by Intertanko, Oil Companies International Marine Forum (OCIMF), and the Baltic and International Maritime Council (BIMCO). The document states that the IMO GHG working group agreed an operational index would be a useful ship efficiency management tool for ship operators. However, the operational index was not suited for mandatory application [4]. Nevertheless, other MEPC documents convey that the operational index appears to be consistent with transparent, non-discriminatory, outcomes-based goals identified by the IMO GHG working group, insofar as the index can be implemented multi-laterally and leave the industry free to determine its operational response [2] Rationale for an Operational Index The following benefits are among a list of rationales for an operational index that have been identified by advocates [3]. These include: 1. Reduced fuel costs for ship operators due to increased efficiency across the entire fleet of new and existing vessels; 2. Reduced greenhouse gas emissions due to increased efficiency; 3. Allows the maximum flexibility to ship operators for many different options in determining how to comply; 13

19 4. Familiar implementation, able to be put in place and implemented in a way that is patterned after other technical Annex VI programs 1 ; 5. Minimizes administrative burdens for the IMO; and 6. Considers differing circumstances of ships in a manner consistent with the IMO mandate for other operations such as ballast management; 7. Can be implemented more quickly than options that may require retrofit or replacement of fleet technologies, leading to more immediate reductions in GHG emissions. In addition, if operational changes conform to a transparent and verifiable index, the costs of achieving GHG goals through operation can be effectively compared with potential costs for new vessels or recapitalized fleets meeting design index requirements. Where operational measures achieve equal or greater reduction at lower cost, some level of fleetwide GHG improvements may occur sooner. Moreover, if operational measures are not incompatible with new ships achieving design index targets, the operational index may apply additional capacity for modern, well-designed fleets to achieve GHG performance targets Concerns regarding an Operational Index The study group identified four areas of concern in the discussion among IMO working group minutes and submitted documents. These include a) uncertainty regarding anticipated costs of new operational practices, b) potentially voluntary participation suggested in current discussions, c) opportunity for monitoring required by other instruments to use an operating index for reporting performance, and d) involving developing countries. These are discussed briefly below. (1) Costs Some concerns about the operational index relate to potential challenges and costs to implement best practices among fleets [4]. Notwithstanding the shared belief that operational measures may reduce fuel costs, current analysis has not removed the potential for administrative costs of monitoring, verification, and compliance reporting. A review of the administrative costs should consider the style of index and whether significant costs are imposed in order to evaluate compliance options and record operational index score data. This type of review can enable the IMO to consider whether non-annex I countries may need financial and technological support from Annex I countries in order to comply with indexing requirements. If the operational index can be developed such that costs are minimal, transparent, and diminish through 1 For example, Annex VI, Regulation 14 operational requirements for lower-sulfur fuel in Emission Control Areas; Annex VI, Regulation 15 operational requirements regarding VOC controls during tanker operations; and Annex VI, Regulation 16 operational requirements regarding incineration procedures and prohibitions. 14

20 implementation, then applying CDM or economic instruments differently to non-annex I nations may be less important for operational indexes than for other measures. (2) Mandatory versus Voluntary Operational Index The IMO GHG working group initially suggested that, while an operational index could prove a useful tool for ship operators, it may not be well suited for mandatory application. While this opinion may become a recommendation for the IMO Secretariat, performance based examples exist where operational requirements have been successfully implemented, on a mandatory basis, by industry including examples under international administrative authority such as the IMO. For example, the IMO has mandatory ballast water management measures, mandatory oil discharge prevention practices, and mandatory international safety management measures. In addition, the members of the study group recognized that a voluntary operational index may not achieve meaningful reductions in GHG emissions. The study group also recognized that it may be too difficult for all parties to agree to a mandatory operational index. However, mandatory reporting in the context of a voluntary operational index scheme could prove valuable toward the cause of reducing GHG emissions. In addition, simply implementing a voluntary index would not be sufficient to provide non-annex I nations with evidence of performance under potential common but differentiated responsibility. In other words, without mandatory reporting, the operational index serves little value for operators and fleets that need to compare operational measures with other means to achieve low-ghg goals. (3) Verification and Transparency of Monitoring Whether voluntary or mandatory, monitoring is indispensable. Under a voluntary system, monitoring may be set more flexibly by making transparent the expected variation of confidence in reported operational indices for less rigorous documentation. For mandatory operational indices, the monitoring standard can be explicit and potential burden for necessary monitoring would not be arbitrary but shared among the participating vessels. To make the operational index functional, metrics and measures are to be self reported by the operator, similar to mandatory reporting requirements under other IMO regulations, e.g., International Safety Management (ISM) requirements. Generally, the process by which an operator monitors and documents their performance is certified by an independent third party, such as a classification entity, and this process is periodically audited or auditable by either a third party or enforcement authority like a port state. There is significant precedence for this kind of compliance verification to work, both standardizing the burden on operators and minimizing the cost of administrative efforts by states and third parties that would presumably be paid by operators through fees or charges. Moreover, a transparent and robust index could be used to help identify maximum feasible performance (or some theoretical maximum) for one or a group of ships (e.g., 15

21 similar by age, class, size, etc.). This is similar to what is suggested in MEPC 54-4-INF.7 [1], perhaps with third-party input and certification. (4) Involvement of Developing Countries The IMO Working Group on GHG Emissions from Ships has continued discussing to improve the interim CO 2 Operational Index first published by the IMO in July In August 2008, Brazil, representing the interests of developing countries, expressed concerns about an operational index. Brazil stated that a mandatory reporting scheme would be impractical. Brazil is concerned about insufficient transparency, due to lack of reliable data, reporting, and verification and believes additional research is needed to improve methodologies of estimating GHG emissions from shipping and that further study is needed to give developing countries financial and technical support to track CO 2 emissions [5]. One would want to reflect on the trends in national registries to confirm that nations identified as developing with regard to their in-nation status are also developing their maritime status relative to other nations. For example, national ship registries among non-oecd nations (e.g., Panama, Liberia, etc.) grew to include newer and larger fleets much more rapidly than some OECD nations Implementation Aspects of an Operational Index The operational index can be implemented through thoughtful consideration of units/metrics, application of operational criteria, and alternative improvement measures. These are discussed below. (1) Operational Index Units Units for operational indices are similar to operational measures for other transportation processes and need to address three dimensional contexts. Units of meaningful comparison are being used to address aspects within the multimodal energy and environmental transportation models [5]. For example, annual or per-period totals need to be reported, such as the carbon dioxide per route or per year. These figures need to be estimated in order to determine the contribution of GHG emissions. Also, GHG emissions can be reported on a per work done basis such as units moved or distance traveled to measure the relative efficiency of operations. Examples of metrics include energy-based metrics such as MWh/Gtkm (megawatt-hours per gigaton-kilometer). This metric would vary by category of ship. Also, the ratio is easily adapted to operational changes, such as lower-carbon fuels or per container or per vessel loading capacities. Other measures based on an energy-work metric include mass of CO 2 per ton-kilometer (e.g., kg CO 2 /Gtkm), and per cargo unit (kg CO 2 /TEU-km). For comparative purposes, the link to distance is an important component of per work done calculations. 16

22 (2) Application of Operational Criteria Some have suggested the operational index criteria will be most useful in the context of a rolling average or trend index for a given vessel or fleet of vessels, rather than a relative performance index that is fixed on a specific time frame and/or a best-in-class standard [6]. Given the desire for sustained benefits of an effective operational index, an interperiod comparison offers some advantages in combination with a comparison to a bestin-class operating standard. This leads to consideration of functional criteria to evaluate proposed operational index designs, including: i) selection of operational elements to modify, ii) metrics and units to measure performance improvements and baselines, iii) choice of aggregation for reporting, and iv) monitoring for baseline and continuous improvement. Operational criteria performance may not be easily demonstrated without a time-series reporting context. For example, fuel economy of a vessel or fleet can be compared interannually, either with monitored consumption or transparent estimates from firstprinciples using activity based data. Another view is to track a set of several criteria within each category of ships. This could enable vessels to target a total score in which the fleet or vessel achievement of individual criteria can vary while still reporting performance improvements on average. (3) Measures for Improvement to Meet the Operational Index A key attribute and potential advantage of the operational index is the flexibility for operators to choose various innovative methods to meet the index. In this context, the operational index is a performance standard more than a prescriptive requirement. For example, actions such as speed reduction, cargo storage utilization, weather routing, etc., can contribute to the achievement of target operational index scores. And, improving the mileage performance (e.g., kg CO 2 /Gtkm, or kg CO 2 /TEU-km discussed above) could allow for a combination of measures more flexibly than a mandated speed reduction. These improvements would then account for economic tradeoffs, such as longer transport time, possible increased crew costs, additional vessel requirements for route service, etc. (4) Operational Index Characteristics to be Considered Fuel consumption and distance data are both indicators intrinsic to understanding the low-ghg benefits of operational efforts, and these are explicit elements of the calculation indicative of high scoring operational indices. Therefore, the operational index integrates the results of a diverse number of potential best practices that can be employed to reduce emissions and increase fuel efficiency, providing a better assessment of the overall GHG efficiency of vessel or fleet operations [7]. This performance data is important for judging individual ship performance because the method takes into consideration voyage factors external to the ship crew s operational 17

23 efforts. In other words, the ship operator can document differences in operation due to weather routing, variable cargo routing logistics, and vessel specific factors such as age, original design constraints, and current service requirements. Over time and across the fleet, these operating characteristics can be grouped into categories so that the operational index effectively reports the GHG benefits of efforts. For example, Figure shows aggregate typical differences among vessel types in terms of their CO 2 emissions per tonkilometer, using annual average input data. Figure Typical ranges for operational performance of different modes, reported in terms of carbon dioxide emissions per ton-kilometer (metric). [8] Crude General Cargo Reefer LNG Chemical Bulk Container LPG Product RoRo/Vehicle Rail Road g CO2 / ton*km By developing and reporting operational indices for a fleet of vessels across various routes under diverse conditions, a fleet operational index profile emerges. Categorization of these data is conceptually illustrated in Figure as different dimensional categories of operating performance. This is a typical example of the type of information developed and applied by fleet managers to measure operational efficiencies at these aggregate levels. 18

24 Figure Conceptual example of operational index score comparisons. Each series could represent the average (or rolling average) operational index value, with the ranges indicating maximum and minimum of a) the past performance for this vessel or fleet; or b) the best and worst in category from all reported vessels/fleets. 100 Operational Index (Annual Average) Tanker Unitized Bulker Passenger Good Weather Fair Weather Rough Weather This information can be used to demonstrate vessel or fleet operational performance for carrier customers interested in supply chain efficiency [7]. If upper ranges of performance are set considering a maximum feasible performance level by category like an Energy Savings Potential (ESP) score [9], then the operational index can serve to a) document baseline performance, b) measure improvement from benchmarked levels at the individual or fleet levels, and c) evaluate remaining potential for future improvements. (5) Possible Reporting Requirements, Compliance Incentives and Conditions Industrial processes like ship operations rely on metrics for cost-effective and efficient performance. To reduce GHG emissions, an operational index needs to be implemented within recognized emission reduction schemes. Where the economic value of improving operational performance improves corporate profitability, one may assume that a company internal incentive is sufficient. However, there are several reasons why operational indices would likely need to be required for additional GHG reductions. Because of this, a reference level (benchmark) is needed to evaluate performance. Without required participation in the index, a ship or fleet of vessels cannot identify its performance respective to the benchmark. With participation, the gap between the benchmark and operational performance can be used to document achievement with respect to goals. Even if targets are voluntary, without mandatory reporting participation the vessels cannot be ranked or evaluated by policymakers. Similarly, a transparent, mandatory and 19

25 public reporting requirement even without targets could motivate additional best operational practices and produce higher index performance by fleet operators. A mandatory reporting requirement could avoid more strict compliance requirements and penalties, including operating limitations or port entry limitations Options for an Operational Index Establishing an operational index would involve acknowledgement of similar issues to those discussed in the section for a design index. For example, a central question to be addressed in setting an operational index is whether similarities in preferred operation exist among different voyages, and/or among similar vessel types or fleets. A related issue is whether operational measures represent best practices that can become industry standards to support directly measurable GHG improvement or if they are management tools for incremental and relative improvement over time [6]. This is an important distinction, given the desire for policy mechanisms that can be applied equally to all ships [2]. A widely recognized attribute of other regulations that meet the equal treatment criteria is whether the index can be applied to the international fleet rather than whether ships complying with the operational index choose different means to maximize their GHG performance and index score. The operational index equations could be developed to explicitly differentiate among vessel types, and could be aggregated to represent best practices among different fleets without imposing inordinate burden of action on fleets that may be older, less able to implement as many high-performing operational measures. Additional study underway by national delegations and industry interests is needed to better describe the potential variation in how the operational index would be implemented among different ships, diverse fleets, and across different groups of shipping flag nations. Taking these points into consideration, the study group focused the discussion on three basic approaches to an effective operational index. One is the combination of a voluntary index and incentives such as awards and other forms of recognition, and/or reduced fees. The second option is a mandatory index at least for some categories of vessels. The third option is a hybrid approach in which a voluntary index would include a mandatory reporting requirement. Mandatory reporting can act as a de facto requirement since operators would have to report their results and would therefore have an incentive to improve their performance. Mandatory reporting in a voluntary system could also solve difficult issues regarding enforcement because strong penalties, such as denial of access to ports, may not be realistic. The discussions indicated that an operational index may be more suitable for combination with market-based economic penalties and/or incentives. An operation index, such as the Energy Efficiency Operation Index (EEOI), has been discussed by the IMO to be included as part of a Ship Energy Efficiency Management Plan (SEEMP) framework. Under this IMO concept, companies would establish a SEEMP for review. This type of 20

26 process, led by the IMO, can act as a reputable basis for linking an EEOI to a marketbased system such as emissions trading. These possibilities are explored in a subsequent chapter on linking regulatory and market methods. An important finding of the discussion is that methods which involve all countries significantly reduce uncertainties and reduce the potential of competitive disadvantages. A regional implementation of an operational index would be complicated by the nature of the international shipping industry. Finally, monitoring of the operational index is another difficult issue. The study group suggests that a potential solution for monitoring would be for the carriers and fuel suppliers to cross check their data. 2.2.R. Reference Material 1. International Maritime Organization Interim Guidelines for Voluntary Ship CO 2 Emission Indexing for Use in Trials; International Maritime Organization: London, UK, 29 July, 2005; p Australia, PREVENTION OF AIR POLLUTION FROM SHIPS: Principles for the development of an IMO regulatory framework to address greenhouse gas emissions from international shipping. In MEPC 58 Submittal, Ed. International Maritime Organization: London, 2008; Vol. MEPC 58/4/ United States, PREVENTION OF AIR POLLUTION FROM SHIPS: Possible Framework for Action for Addressing Greenhouse Gas Emissions from International Shipping. MEPC 58 Submittal, Ed. International Maritime Organization: London, 2008; Vol. MEPC 58/4/ Brazil, PREVENTION OF AIR POLLUTION FROM SHIPS: IMO Action on GHG Emissions from Ships. In MEPC 58 Submittal, Ed. International Maritime Organization: London, 2008; Vol. MEPC 58/4/ Winebrake, J. J.; Corbett, J. J.; Falzarano, A.; Hawker, J. S.; Korfmacher, K.; Ketha, S.; Zilora, S., Assessing Energy, Environmental, and Economic Tradeoffs in Intermodal Freight Transportation. Journal of the Air & Waste Management Association 2008, 58, (8). 6. INTERTANKO; OCIMF; BIMCO, PREVENTION OF AIR POLLUTION FROM SHIPS: Guidelines for the implementation of The Ship Operational Index Ship Efficiency Management Tool. In MEPC 58 Submittal, Ed. International Maritime Organization: London, 2008; Vol. MEPC 58/4/ Canada, PREVENTION OF AIR POLLUTION FROM SHIPS: Comments on the relationship between the Design and Operational CO 2 Indices. MEPC 58 Submittal, Ed. International Maritime Organization: London, 2008; Vol. MEPC 58/4/37. 21