Climate Report: "IMO Has Made Little Progress"

A new report released by the Global Commission on the Economy and the Climate identifies ten key economic opportunities that could close up to 96 percent of the gap between business-as-usual emissions and the level needed to limit dangerous climate change. Shipping is on the list.

The new report, Seizing the Global Opportunity: Partnerships for Better Growth and a Better Climate, states that because shipping companies operate in so many different countries, the transaction cost of having different policies in different states would be prohibitively high. “However, IMO has made little progress thus far.”

Systematic Failures

Two systemic market failures have kept the industry from embracing and rewarding energy efficiency measures. First, there is little reliable information on ship efficiency and the expected gains from different technologies and operational measures. Second, incentives are split between the ship owner and charterer. 

Fully embracing available efficiency measures could significantly reduce the sector’s emissions, states the report. Fuel represents 50 percent or more of a ship’s operating cost, and there are several cost-effective ways to increase fuel-efficiency. For example, polishing propellers more often can increase efficiency by four percent, and costs just US$13 per ton of fuel saved (at US$300–800 per ton). One company has found that a fouling-resistant hull coating applied to a bulk cargo vessel at a cost of US$360,000 saved about 5,400 tons of fuel over nine years, a 22 percent efficiency improvement. At a fuel cost of US$300 per ton, the technology would fully pay itself back in just over two years, and over US$1.2 million would be accrued in net savings over nine years.

Several independent initiatives have emerged to address the lack of transparency around fuel efficiency of ships in the industry, to enable charterers to inform their choice of carriers with information on expected fuel costs. For example, the organizations RightShip and Carbon War Room provide a public rating system of over 70,000 vessels that grades each ship on design efficiency. The Clean Shipping Index provides a similar service, rating carriers on all pollutants, including NOx, SOx, particulate matter, chemicals, and onboard waste. However, these voluntary initiatives do not yet have full industry-wide influence, and they lack a single, standardized methodology for evaluating efficiency.

Tailored financing schemes to support energy efficiency investments have also emerged, including the Sustainable Shipping Initiative’s Save As You Sail (SAYS) and the Self-Financing Fuel-Saving Mechanism (SFFSM) driven by Carbon War Room and University College London. In both models, a third-party financier pays for the upgrades, and the cost savings are shared between the third party, owner, and charterer (depending on who is paying for the fuel).

IMO Policy

The IMO has declared that shipping “will make its fair and proportionate contribution” towards achieving global climate change mitigation goals. It has adopted two key approaches: the Energy Efficiency Design Index (EEDI) and the Ship Energy Efficiency Management Plan (SEEMP). The EEDI and SEEMP are expected to save an average of US$200 billion in fuel costs and 330 Mt CO2 annually by 2030 at marginal cost in the near term.

Still, these policies are not enough to stem the rapid growth in shipping emissions due to increased transport demand, states the report. Several additional policy proposals were submitted to the IMO in 2010, including an emissions offset scheme, a fuel tax, and mandated energy efficiency targets, but they have not been taken up. In May 2015 the Republic of the Marshall Islands – the third-largest flag registry in the world – submitted a proposal to the IMO’s Marine Environmental Protection Committee (MEPC) for the adoption of a global emission reduction target. However, the Committee decided to focus instead on finalizing the emissions data collection system.

The report concludes that, given the constraints that have hindered take-up of cost-effective efficiency measures to date, there are strong grounds for the IMO to adopt operational efficiency requirements that apply to all ships. These could be complemented by a trading scheme that would permit highly efficient ships to sell their extra “efficiency credits” to less efficient ships. These requirements would need to be ramped up over time to motivate continual improvement and adoption of cutting-edge technologies.

“The IMO should adopt a global emission reduction target. To increase use of cost-effective fuel-saving technologies and practices, the IMO should create a transparent, global system to provide reliable data on operational efficiency and accelerate the process to establish ambitious operational efficiency standards for all ships. Charterers, banks and ports should incorporate fuel efficiency considerations within their operations, thereby creating incentives for more efficient ships. Broad adoption of these measures could reduce emissions by 0.4–0.6 Gt CO2e per year by 2030,” states the report.

Cooperation Needed

The report calls for stronger cooperation between governments, businesses, investors, cities and communities to drive economic growth in the emerging low-carbon economy.

“This report shows that success is possible: we can achieve economic growth and close the dangerous emissions gap,” said former President of Mexico Felipe Calderón, Chair of the Commission. “The low carbon economy is already emerging. But governments, cities, businesses and investors need to work much more closely together and take advantage of recent developments if the opportunities are to be seized. We cannot let these opportunities slip through our fingers.”

“More and more countries are committing to integrating climate action into national economic plans, from the recent G7 statement on the need to decarbonise the economy by the end of the century, to the development of low-carbon and climate resilient growth strategies in a number of developing and emerging economies,” said Lord Nicholas Stern, leading economist and Co-chair of the Commission. “Strong economic growth that is also low-carbon is going to be the new normal.”

The Commission’s 10 recommendations include:

•    Scaling up partnerships between cities, like the Compact of Mayors, to drive low-carbon urban development. Investment in public transport, building efficiency, and better waste management, could save around US$17 trillion globally by 2050.
•    Enhancing partnerships such as REDD+, the 20x20 Initiative in Latin America, and the Africa Climate-Smart Agriculture Alliance to bring together forest countries, developed economies and the private sector to halt deforestation by 2030 and restore degraded farmland. This would enhance agricultural productivity and resilience, strengthen food security, and improve livelihoods for agrarian and forest communities.
•    Governments, development banks and the private sector should collaborate to reduce the cost of capital for clean energy, with the goal of investing US$1 trillion in developed and developing countries by 2030.
•    The G20 should raise energy efficiency standards in the world’s leading economies for goods such as appliances, lighting, and vehicles. Investment in energy efficiency could boost cumulative economic output globally by US$18 trillion by 2035.
•    Action to reduce emissions from aviation and shipping under international treaties and from hydrofluorocarbons (HFCs) under the Montreal Protocol could reduce emissions by as much as 2.6 Gt in 2030. In shipping alone, higher efficiency standards are expected to save an average of US$200 billion in annual fuel costs by 2030.

The Commission calculates that its recommendations could achieve up to 96 percent of the emissions reductions in 2030 that are needed to hold the rise in global temperature to under 2°C, the level which governments have pledged not to cross.

Low Carbon Business

The report finds that businesses are already driving a growing US$5.5 trillion global market for low-carbon goods and services. It calls for new business partnerships to open new markets, share costs and reduce concerns about the international competitiveness impacts of climate policy.

“This report highlights the huge opportunity countries now have to scale up climate action while also driving growth and development,” said Helen Mountford, Global Programme Director of the New Climate Economy. “Global economic growth and carbon emissions are beginning to be decoupled: last year, for the first time in decades, emissions held steady while the global economy grew. But the pace of change needs to be accelerated if we are to meet our development goals and also reduce climate risks.”

Seizing the Global Opportunity is a follow-up to Better Growth, Better Climate: The New Climate Economy Report, which was released in September 2014. The Global Commission is made up of 28 leaders in the fields of government, business and finance from 20 countries.

The report is available here.