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IBIA comments on IMO’s GHG strategy to MEPC 78

It is clear from MEPC 78 that revision of IMO’s initial GHG Strategy to decide on levels of ambition and discussions on further regulations to meet those ambitions will be challenging, says IBIA.

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The International Bunker Industry Association (IBIA) on Tuesday (14 June) published an article commenting on IMO’s GHG strategy revision, including IMO’s levels of ambitions (GHG reduction targets), that were discussed at MEPC 78:

There are strong signals that the revision of the IMO’s Initial Strategy on the reduction of GHG emissions from shipping will bring much more ambitious targets, significantly speeding up the sector’s transition to a carbon-neutral future. Agreement on the revised IMO GHG Strategy is still some way off.

The IMO’s Marine Environment Protection Committee continued discussions on the revision of IMO’s greenhouse gas (GHG) strategy at its 78th session last week (MEPC 78, 6-10 June), making no decisions, but after intense debate agreed to holding to hold an intersessional GHG working group (ISWG-GHG 13) before the next session (MEPC 79, 12-16 December 2022). The revised strategy is due to be approved at MEPC 79 with a view to adopting a revised strategy in mid-2023 at MEPC 80. There will be further sessions of the working group prior to MEPC 80 as well.

MEPC 78, like MEPC 77, once again saw a large number of Member States supporting a complete phasing out of GHG emission from shipping by 2050, compared to the current 50% reduction target. 

There were also proposals to strengthen the level of ambition for 2030, and to introduce additional milestones with targets to be met between 2030 and 2050.

There was, however, opposition to this approach from a significant number of Member States. They argued that it is premature to strengthen 2030 targets, that phasing out GHG from shipping by 2050 is not a realistic target, and would have a heavy impact on international trade and possible restrict trade. 

The impacts on developing states from the costs associated with the energy transition was stressed again and again. Increased freight rates as ships face higher fuel bills, and the cost of setting up production and supply infrastructure for carbon neutral fuels are major concerns.

Moreover, there were calls for the revision of the IMO’s GHG strategy to be evidence-based, not just focusing on targets, with a need for more data and a feasibility study before setting realistic goals.

The above, in a nutshell, summarises some of the main lines of division between Member States at the IMO. There are also varying views on the specific policies to support the IMO’s levels of ambitions (GHG reduction targets), such as how to calculate emissions from shipping (well to wake, or only tank to wake); the exact form, function and magnitude of market-based measures; and various other proposals for regulations to put shipping and the marine fuel supply industry on a path to reach short, mid-term and long-term GHG reduction targets.

IBIA took the floor during MEPC 78 to express our views on some of these issues.  

Regarding the calls for the revision of the IMO’s GHG strategy to be evidence-based, IBIA’s IMO representative, Unni Einemo, said: “We recognise the desire and need for analysis, reviews and impact assessments associated with the IMO’s GHG strategy, but we must also recognise that it is not possible at this stage to fully and accurately predict availability of solutions in 2050, or the full impact of 2050 reduction targets. Nevertheless, various stakeholders need clear targets to reach for; we need that certainty to have confidence in the investments required. The IMO has committed to adopting a revised GHG Strategy in 2023, so we believe an ISWG dedicated to this subject will be needed to make progress, which is evident from the various concerns raised. Moreover, agreeing now to dedicate an ISWG to the revision of the IMO GHG Strategy does not pre-empt the outcome.”

IBIA has not stated a specific position regarding the level of ambition for 2050, but we have noted the proposals for a “zero emissions” target, and therefore lent our support to a proposal from ICS.

Einemo told MEPC 78: If, as many have proposed, the revised GHG strategy ends up with an ambition to completely phase out GHG emissions from international shipping by 2050, we support the change of terminology to using “net zero” GHG emissions as outlined in MEPC 78/7/2 by ICS. This gives the flexibility to take full well to wake lifecycle emissions into account, which we see as a crucial element to ensure the IMO’s GHG policy is holistic and not causing increased GHG emissions elsewhere.”

IBIA also took the opportunity to comment on other proposals.

“Regarding MEPC 78/7 by the WSC, this document contains several elements that could help us in the task of reducing GHG emissions from shipping. For example, the idea of Green Corridors could be aligned with proposals for the phasing in of a GHG fuel standard, which in our view is an element that will be needed to send a clear demand signal.

In a similar vein, we note with interest the proposal in paragraph 16 of MEPC 78/7/24 by the US, to consider new formulations for the levels of ambition, such as calling for a percentage share of the deep-sea fleet to run on zero-emission fuels.

Both the Green Corridor concept and the US proposal would work alongside the idea of combining a GHG fuel standard requirement with pooling, meaning a group of ships could achieve such targets rather than individual ships. Pooling could provide the same overall net emission reductions from international shipping, but facilitate a gradual uptake in the global fleet of fuels and technologies that cannot be used directly by existing ships due to major technical barriers.

We wonder if there is also a way to combine pooling and Green Corridors with elements proposed by Japan in MEPC 78/7/5 to reward early adopters of low or zero emission ships, to provide incentives for first movers.

Combining these various elements could serve the purpose of providing certainty of demand for those investing in production and supporting supply infrastructure of carbon-neutral fuels and technologies, while achieving specific GHG reduction targets for the global fleet in a way that allows the gradual phasing in of ships that are ready to use new fuels and technologies,” Einemo told MEPC 78.

It is clear from MEPC 78 that the revision of the IMO’s initial GHG Strategy to decide on levels of ambition will be challenging, as will discussions on the further regulations that will be needed to meet those ambitions.

 

Photo credit: IBIA
Published: 17 June, 2022

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LNG Bunkering

Titan completes first STS LNG bunkering operation in Cuxhaven

Port of Cuxhaven in Germany had previously only seen LNG operations conducted via truck and currently only permits LNG bunkering at one berth, says Titan.

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Titan completes first STS LNG bunkering operation in Cuxhaven

LNG bunker fuel supplier Titan on Thursday (11 July) said it completed the first-ever LNG bunkering operation by ship in the port of Cuxhaven.

Titan’s bunker vessel Optimus successfully delivered LNG to dredger Vox Ariane operated by its long-term client Van Oord. 

“Our ship-to-ship bunkering in Cuxhaven represents a pioneering step in the region's LNG infrastructure development, as the port had previously only seen LNG operations conducted via truck and currently only permits LNG bunkering at one berth,” it said in a social media post. 

“LNG infrastructure development is part of a broader trend, with more ports across Germany adopting LNG operations to support shipping’s clean fuels transition.”

Titan added the improved LNG bunkering capabilities in Cuxhaven, a Niedersachsen Ports GmbH & Co. KG port, also opened up the pathway to maritime decarbonisation via liquified biomethane (LBM) and then renewable e-methane going forward.

 

Photo credit: Titan
Published: 12 July, 2024

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LNG Bunkering

UECC “Auto Achieve” receives first LNG bunker fuel delivery by barge in home country

Firm said it received the first ever supply of LNG by barge to their multi-fuel LNG battery hybrid car carrier in the Port of Drammen, Norway.

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UECC “Auto Achieve” receives first LNG bunker fuel delivery by barge in home country

Norwegian roll-on/roll-off shipping line United European Car Carriers (UECC) on Wednesday (10 July) said it received the first ever supply of LNG by barge to their multi-fuel LNG battery hybrid car carrier Auto Achieve in the Port of Drammen on 4 July.

The firm said this was the first time UECC received LNG by barge to any of their vessels in their home country Norway. 

“We also believe that it was the first time LNG was delivered by barge to any vessel in Drammen, and most likely the entire Oslofjord,” UECC said in a social media post.

The LNG was supplied by the Molgas Energy Holding vessel Pioneer Knutsen, owned by Knutsen Group OAS.

“UECC is very pleased to see the expansion of the LNG barge network in Norway,” it said. 

 

Photo credit: UECC
Published: 12 July, 2024

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FuelEU

OceanScore reveals ship segments set to feel EUR 1.3 billion sting of FuelEU penalties

Container segment will bear the brunt of FuelEU costs, accounting for 29% of gross penalties, followed by RoPax on 14% with tankers and bulkers each on 13%, says firm.

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OceanScore Managing Director Albrecht Grell

Hamburg-based technology platform OceanScore on Tuesday (9 July) said the financial impact of FuelEU Maritime is focusing the minds of shipping companies as they face potential penalties for non-compliance with greenhouse gas (GHG) intensity reduction targets - and OceanScore has identified those segments set to be hit hardest.

The following is an article by OceanScore elaborating on the matter:

Vessels in the passenger/cruise, container, RoPax, bulker and tanker segments will have significant cost exposure from the complex regulation due to be implemented from 1 January next year, despite a relatively modest initial target of a 2% cut in GHG intensity, according to OceanScore.

The firm’s data analytics team has calculated that shipping will rack up total FuelEU penalties of €1.345 billion in 2025 through analysis of the 13,000 vessels over 5000gt trading within and into the EU/EEA that are subject to the regulation. This is based on data on trading patterns and fuel mix from 2022 - the last full year currently available.

Containers bear burden

The team has been able to determine FuelEU compliance balances and resulting penalties for each vessel using OceanScore’s proprietary data modelling incorporating AIS data, Thetis emissions data, bunker intelligence and advanced analytics/AI. It has factored in the likely fuel mix for each vessel between EU ports and to/from the EU, as well as in ports.

Vessels will be hit with a penalty of €2400 per tonne of VLSFO-equivalent for failing to meet the initial 2% reduction target relative to a 2020 baseline for average well-to-wake GHG intensity from fleet energy consumption of 91.16 gCO2e per megajoule (MJ) - or emissions per energy unit. The GHG intensity requirement applies to 100% of energy used on voyages and port calls within the EU/EEA and 50% of voyages into and out of the bloc.

As with the EU Emissions Trading System (EU ETS), it is the container segment that will bear the brunt of FuelEU costs, accounting for 29% of gross penalties, followed by RoPax on 14% with tankers and bulkers each on 13%.

“It is critical for shipping companies to determine a baseline for expected FuelEU costs to secure proper planning and budgeting processes to compare different mitigation options, as well as to decide what to do with outstanding compliance balances,” says OceanScore Managing Director Albrecht Grell.

“This will require, to a higher degree than the EU ETS, a corporate strategy to determine how to reduce the compliance balance/deficit, how to commercialise a surplus and deal with deficits that remain.”

Wide spread of vessel liabilities

OceanScore has found that liabilities per vessel will differ widely across the various segments due to increasingly diversified fuel choices, including greater uptake of biofuels and LNG. Passenger vessels will be penalised the most with an average of €520,000 per vessel annually, followed by RoPax at €480,000 and RoRo at €314,000, with an average penalty for container ships of only €214,000, according to OceanScore.

Grell points out there are also massive discrepancies between vessels within these segments, with a number of ships in the passenger and RoPax segments exposed to penalties of between €1.8m and €2.5m, and payment obligations for some container ships approaching €1m. This is driven by higher energy consumption simply due to vessel size and trading profile.

While penalties will arise from so-called compliance deficits for vessels using conventional fuels, surpluses totalling an estimated €669m will be generated mainly by vessels fuelled by LNG and LPG with significantly lower carbon intensity.

LNG carriers will account for 78% of the total market surplus and gas carriers 8%, while a further 8% will be generated by container ships that have seen a modest uptake in alternative fuels in recent years.

Pooling can halve costs for the industry

Taking into account this estimated compliance surplus, the net cost of FuelEU penalties for shipping from 2025 would be €680m, which indicates that pooling of vessels can roughly halve the gross burden for the industry.

Penalties will, in segments typically using conventional fuels with comparable carbon intensities such as HFO, LFO or MDO, be roughly proportional to the overall fuel consumption, thus correlating with the EU ETS cost.

Initial costs of FuelEU for most conventionally fuelled vessels, prior to pooling, will be around one-third of those associated with the EU ETS next year when the latter regulation will have 70% phase-in. But ultimately FuelEU is likely to prove a much more costly affair as the requirement for GHG intensity cuts rises to 6% by 2030 and then accelerates to reach 80% by 2050.

“It is therefore incumbent on shipowners to define their strategies not only towards fuel choices and the use of onshore power but also towards handling of residual compliance balances such as pooling, banking and borrowing of balances, to mitigate the financial impact of FuelEU. However, pooling will also come at a cost, while banking and borrowing will incur interest costs and only push liabilities into the future,” Grell explains.

‘Sound administrative processes’

He further points out that pooling compensations paid between different shipping companies will effectively divert cash flow away from the EU that it would otherwise have earned from FuelEU penalties – but that this effect is intended by the regulator to “reward” early adopters of clean fuels.

Another factor that will curb potential income for the EU from this regulation is that the compliance gap has been reduced to only 1.6% by 2022, as average GHG intensity from shipping has come down by 0.4% to 90.82 gCO2e per MJ, mainly due to increased LNG carrier calls to Europe after gas supplies via pipelines from Russia were halted when the latter invaded Ukraine. Given this trend and increasing adoption of biofuels, the 2% compliance gap will probably be closed before the first tightening of reduction targets in 2030.

Grell says the priority for shipping companies, especially at this early stage while cost exposure is relatively low, is to get to grips with the complexity of the regulation and tackle the risks arising from the fact the party liable for penalties - the DoC holder, or possibly shipowner - is not the one responsible for emissions, which is typically the charterer.

“As well as having costs oversight, companies require reliable monitoring and reporting mechanisms with high-quality emissions data. They must also have in place complex contractual arrangements and sound administrative processes to manage compliance and mitigate the financial consequences of the new regulation,” Grell concludes.

Related: FuelEU: New regulation leaves DoC holder with fuel liabilities risk, says OceanScore
Related: ‘Big opportunity’ for bunker traders, suppliers on upcoming FuelEU regulation, forecasts OceanScore

 

Photo credit: OceanScore
Published: 12 July, 2024

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