In our March alert on this subject, we looked ahead to the 69th meeting in London of the Marine Environmental Protection Committee (MEPC) of the International Maritime Organisation (IMO) (MEPC 69).

MEPC 69 has now taken place (from 18–22 April 2016). This article discusses the outcome of that meeting on maritime greenhouse gas (“GHG”) issues and its implications.

In particular, we look at the detail of the agreed text of the proposed global monitoring, reporting and verification (“MRV”) scheme which proposes the agreed amendments to MARPOL Annex VI with a view to their adoption at MEPC 70 (24 – 28 October 2016).

Expectations going into MEPC 69 No one expected a sectoral GHG emission reduction target or market-based measures as such to be agreed at MEPC 69.

However, expectations were fairly high that MEPC 69 would at least settle on an expeditious work plan to generate future agreement of an overall GHG emissions reduction target and, as a critical stepping stone towards that, the agreement in outline of a global mandatory MRV (i.e. data collection) system.

Outcome In the end, MEPC 69 achieved one but not both objectives. It reached agreement on a global mandatory MRV system, but no framework for future action on GHGs.

Most of the published commentary so far from interested parties in the immediate aftermath of MEPC 69 seems to fall at one of two opposite ends of the spectrum.

On the one hand, the IMO itself hails MEPC 69 as a success and concentrates on the achievement of securing unanimous approval for the proposed mandatory global MRV system, which it says “sends a clear and positive signal about the organisation’s continuing commitment to climate change mitigation”.

On the other hand, other commentators have said variously that the failure at MEPC 69 to agree a GHG reduction target, or even road-map for getting to such a target, “risks industry’s reputation”, that MEPC 69 only managed to “kick the can down the road”, “failed to achieve the required minimum outcome” and that “the IMO has fallen flat on its face” and “runs the risk of external regulators taking the matter into their own hands and circumnavigating the IMO…”.

So what exactly was and was not achieved on regulating GHG emissions at MEPC 69, why was more not achieved, and what are the implications for the future?

Proposed global, mandatory MRV scheme In our March alert looking forward to MEPC 69, we flagged that agreement on the basic outline of a global MRV scheme seemed most likely but that key issues still to be decided included the following. These have now been answered as below:

• When the scheme will start The basic outline of the MRV scheme is scheduled to be adopted at the 70th MEPC session in October 2016. Assuming that happens, it is possible – but by no means certain – that the IMO’s MRV system will enter into force in 2018 (the same year that the EU MRV system is also set to commence).
  
  However, the IMO’s own press briefing on the outcome of MEPC 69 goes no further than to say that the MRV “could enter into force in 2018” (emphasis added).
• Whether the scheme will be mandatory or voluntary One outcome of MEPC 69 is unanimous agreement that the MRV scheme will be mandatory, not merely voluntary.
  
  It will take the form of amendments to MARPOL Annex VI, in particular a new Regulation 22A. These amendments are set out in Annex 3 to the circular letter sent out to IMO members at the end of MEPC 69, proposing various amendments to MARPOL Annex VI with a view to their adoption at MEPC 70 (24 to 28 October 2016).
  
  Like the EU MRV system (which is already established and coming into effect from 1 January 2018), the IMO scheme will only apply to ships of 5,000 gross tonnes and above.
• Whether MRV data will be made public The planned IMO scheme differs from the EU scheme in a number of important respects, including the fact that under the IMO scheme, data will be collated by the IMO on the IMO Ship Fuel Consumption Database in anonymised form, such that public identification of specific ship data will not be possible.
• What information will need to be collected and how? Ships will be required to collect and report annually their fuel consumption data in metric tonnes for each type of fuel they use. Data collection methodology will need to follow the methodology and process set out in the ship’s energy efficiency management plan (SEEMP).
  
  Ships will be required to collect a narrower suite of information than under the EU scheme (for example, not including data on speeds or cargo carried).
  
  It remains to be seen how the EU will react to these proposals and whether, in light of them, the EU will still press ahead with its more robust approach, thus creating competing rather than fully harmonised MRV systems.
  
  Annual data will have to be verified and reported to the flag state within three months after the end of each calendar year.
  
  Annual reports will also need to identify the relevant ship (by IMO number), various technical characteristics of the ship, distances travelled from berth to berth, and hours not at berth.
• Responsibility (ship owner/operator) The duty falls on the registered owner of the vessel. If ownership changes part way through a year, the ship shall separately report the data for the period of the year corresponding to each owner.
• Enforcement/penalties for non-compliance Compliance will be confirmed by flag state administrators who will issue statements of compliance to the ship annually, which must be carried on board. Further details are yet to be decided.

Further technical work will be needed to facilitate the implementation of the MRV system, including guidelines on the methodology of data collection, on the submission of data and on the verification of collected data, as well as amendments to the guidelines for the development of the SEEMP. Those concerned by the practical implications for day-to-day ship operation should ensure that they have their say in this technical work.

Further measures to mitigate shipping GHG emissions Significantly less progress was made on this subject, and it is towards this outcome of MEPC 69 that the critical comments noted above have mainly been targeted.

The reason for lack of progress on working towards setting a global GHG reduction target for the sector has been reported as deep-rooted opposition from the so-called BRICS group of nations (Brazil, Russia, India, China and South Africa), and certain others. Concerns about the impact of GHG reduction measures on economic growth, coupled with the view that, at least currently, the shipping sector does not make a particularly material contribution to global emissions, lie at the heart of this opposition.

It appears very clear at this point that, even if constructive dialogue on this issue takes place at MEPC 70 in October, any sort of IMO brokered deal on curbing maritime GHG emissions remains a long way off. The IMO’s own press briefing states:

“The mandatory data collection system is intended to be the first in a three-step process in which analysis of the data collected would provide the basis for an objective, transparent and inclusive policy debate in the MEPC. This would allow a decision to be made on whether any further measures are needed to enhance energy efficiency and address greenhouse gas emissions from international shipping. If so, proposed policy options would then be considered.” (Emphasis added).

Given that the MRV system is by no means bound to start in 2018, so will not produce first data until mid-2019 at the absolute earliest, and given also that according to this comment from the IMO there will be no detailed debate (even about whether further measures might be needed) until the collected data is collated and analysed, that would seem to push off any meaningful progress towards the shipping sector agreeing any further GHG mitigation measures well into the 2020s.

Will the EU or other nations go it alone? At least one commentator has raised the spectre of external regulators (i.e. those outside the IMO) now taking GHG into their own hands, but whatever frustrations may be expressed, is this really likely?

The most likely source of intervention would be the EU, given (i) its strong support for proposals tabled in advance of MEPC 69 for the sector to agree its own sectoral GHG mitigation targets and (ii) the fact that the EU has previous ‘form’ for taking on large global mobile emissions sources, namely in relation to the aviation sector.

However, the EU’s actions in seeking to unilaterally regulate the aviation sector’s GHG emissions caused a legal and political firestorm back in 2012 from which the EU ultimately had to back down, suspending the extra-EU features of the EU Aviation Emissions Trading Scheme (ETS) to stave off a trade war with the same Brazil, Russia, India, China, South Africa (BRICS) nations. While the EU has always painted that as a victory (in forcing aviation to put its own house in order through International Civil Aviation Organisation (ICAO), that experience is certainly likely to make the EU think long and hard before taking unilateral action against the shipping sector.

Also, there are a number of added complexities that would make it all the more difficult to introduce a cap and trade, carbon off-setting or similar scheme for the shipping sector, compared to the aviation sector, for example less clearly defined routes.

On the other hand, the EU undoubtedly feels that the unilateral action it took against the aviation sector has been a major contributing factor in securing progress at ICAO.

Certainly there is now, almost for the first time, a real prospect of a gap opening up between the progress that is seen to be made by the shipping and aviation sectors on this subject.

As things stand today, ICAO has an advanced draft text being prepared for approval at the 39th ICAO General Assembly in Montreal in September 2016, which, if passed, would introduce a mandatory global carbon off-setting scheme for international aviation from 2020. A great deal of progress would need to be made in a very short space of time if the shipping sector is to follow suit. At present, unlike the position in the aviation community, there is no consensus as to whether the shipping sector should even try to do so.

Client Alert 2016-105