The EU Regulation on the monitoring, reporting and verification of carbon dioxide emissions from ships entered into force on 1 July 2015 despite having prompted heavy criticism from the industry. The regulation, a result of the IMO’S slowness to act, is the first step of the integration of maritime transport in the EU pricing scheme to curb carbon emissions. It requires all ships above 5,000 gross tonnage calling at EU ports to accurately monitor, report and verify carbon emissions from 1 January 2018 onwards. The robust data reported will be made publicly available with the aim to combat the lack of transparency in the industry. Transparency is considered essential by the EU to overcome the existing market barriers and encourage the implementation of cost effective technical and operational measures. The regulation is also seen as a necessary step by the European Commission to put political pressure on the development of a global mandatory system.
Designed to curb emissions by using a similar approach taken in the aviation industry, it is more stringent in content and will impose increased cost to the industry. Under the new rule, ship-owners will be required to monitor per voyage activity data for each ship and report them to the European Commission on an annual basis. This presupposes drawing up a monitoring plan for each ship well in advance, which will be subject to approval by an independent and accredited verifier. The plan will outline how the company will monitor and record data essential for the EU MRV scheme, as well as contain information on quality assurance for the entire system.
In addition to the approval of the monitoring plan, the annual ship emission report will also be subject to review and approval by independent verifiers. Each year, accredited verifiers will conduct a site visit, focussing on reviewing documents and physical evidence and conducting spot-checks to determine the reliability of the reported data and information. The nature of the site visit is not yet defined, but it has already been subject to lengthy discussions during the EU MRV Subgroup meetings, where rules for the implementation of the regulation are being developed, with the industry raising concerns that any decision to require ship visits would escalate the cost of the regulation.
Unsurprisingly, site visits are not the only issue that worry the industry. The regulation also requires the monitoring of cargo carried. However, the determination of actual cargo carried, especially for ships that carry non-homogeneous cargoes or a large variety of cargo types, has generated endless discussions. According to the Commission, the rules should result in robust information on energy efficiency that allows for fair comparison between ships. In general the ship-to-ship comparison can be perceived as an opportunity to encourage charters to contract more energy efficiency ships and it can also be used from ports to offer different harbour fees and financiers evaluating retrofits. However, such an approach will require a fair and transparent system. The lack of a fair system may discourage the ultimate goal and become a risk particularly given the insufficient level of trust across the industry and thereby undermine progress. Although the verification approach, which requires a reasonable level of assurance, is perceived to be very robust, options to express actual cargo are considered problematic and in certain ship types fail the robustness and fairness criteria.
There is nothing wrong with wanting to include actual cargo carried, indeed it may provide a better picture of the industry’s progress and trends, however any approach is less likely to succeed when it is not well determined or understood and a system that will accurately measure energy efficiency and enable fair ship-to-ship comparison is unachievable. The theory that one method can fit all is unrealistic, misleading and lacks an understanding of the industry. The drawback of this approach is that all ships are assumed to have been designed, equipped and operated in the same manner. There is no single magical cargo parameter to measure a ship’s energy efficiency, but rather a combination of parameters. Also an accurate calculation of energy efficiency is a complex process and in particular if a simplistic approach that will reduce administrative and verification cost is desired. But neither can the use of design deadweight as a parameter be considered appropriate. The design DWT does not reflect actual operational conditions and cannot assist in the formulation of best practices for energy efficiency and further policy decisions. For example, the design DWT as a proxy does not explain whether a variation in fuel consumption is a contribution of payload utilisation or changes in the ship’s transport efficiency. In addition, as it assumes vessels are operating at maximum capacity it makes any further targets for ship energy performance improvements extremely difficult to achieve.
The legislation also includes a clause that requires the Commission to align its system with the IMO. It seems that EU pressure to speed up talks for the development of a global system have been effective with the IMO having achieved considerable progress during the last year and the industry being at the forefront of these development lobbying for a mandatory global system. The IMO MRV working group at its intercessional meeting last September agreed to recommend to the MEPC that the data reported will not be made public and ‘’design DWT’’ is to be used as a cargo proxy.
Undoubtedly, the IMO approach is fundamentally different from the EU system. Firstly, it does not focus on operational energy efficiency and ship-to-ship comparison, but rather on a fuel collection system as a first step, followed by data analysis and decision-decision making. Secondly, it has a low cost to the industry associated with monitoring and verification processes and third it does not apply to domestic shipping, probably leaving a considerable number of ship emissions unregulated.
The IMO approach has not been welcomed by non-governmental environmental agencies which argue that it does not go far enough as it is limited to a series of non-efficiency measures that may not be considered appropriate for setting future targets, thereby delaying any concrete policy decisions to drive further action. It also raises questions on the Commission’s wiliness to compromise. Clearly the European Commission is in favour of a global IMO scheme, as the most appropriate international forum to regulate maritime transport emissions. The establishment of a global system is essential for the EU Commission as it not only ensures a level playing field, but also in fulfilling its next steps, which is the setting of emission reduction targets and market-base measures or efficient standards. However, its intention to fully align its system remains enigmatic. It is therefore important that the Commission avoids taking a myopic approach to the regulation and is careful on the development of the implementation rules to minimise administrative costs and market distortions for it to be backed by the industry and thus achieve its goals. The COP21, which is meeting this month in Paris, may not only determine the future of the IMO system, but also decide on whether the EU MRV system will lead the global development or be led.