ABS Proposes Using Efficiency Credits to Augment IMO Carbon Rules

The world's shipping interests are divided into two main camps on the question of carbon regulation at IMO. The first wants to stay within the bounds of the previously-negotiated Net Zero Framework, centered on a carbon levy and a fuel subsidy fund to be administered by IMO. The second camp wants to alter or remove the levy and reschedule the rollout with gradual implementation, with the timetable linked more closely to current operational realities. ABS has taken a technical view to bridging the gap and finding consensus, and has proposed a simple solution: crediting efficiency measures, not just green fuels.

Like most stakeholders, ABS recognizes the serious "chicken-or-egg" challenge for scaling up green fuels: they won't be available everywhere from day one, and some vessels will need a different solution. Not all ships trade on predictable routes, and it will be tough to distribute new fuels in far-flung ports visited by tramp-trade vessels. "Progress toward the IMO midterm-measures must be grounded not only in ambition, but also in the operational realities of the fleet it is intended to govern," says ABS.

Adding incentives to use all available alternatives - including LNG, the most widely-distributed option - is one way to get at this problem. Linking rule implementation with the pace of scaling of alternative fuels and clean energy technology is another way to avoid going faster than the industry can follow at an economical rate, ABS says. But the best compromise option for the immediate term could be to prioritize efficiency gains.

"Over the last decade we have seen efficiency gains in excess of 20 percent and significant additional gains remain achievable," the class society says. There are still more options to add efficiency, including voyage optimization, air lubrication and wind-assisted propulsion (where the service profile favors it). AI-driven routing and decision-making aids can also help.

On this basis, ABS sees potential for IMO to incorporate carbon credits for energy efficiency into the structure of the NZF rules, as envisioned by Liberia's alternative proposal. Since the rollout for green fuel is expected to be slow, and efficiency gains can be had right away, "this would provide industry with a credible bridging mechanism," ABS concluded.

This would create incentives for owners to act early and make investments in efficiency, cutting emissions by up to 20 percent without even a drop of green fuel. Surplus credits could be traded between fleets, allowing the ships that are easiest to make more efficient to "subsidize" the most difficult-to-decarbonize parts of the fleet. Credit-trading between shipowners would also de-emphasize reliance on the IMO-administered fund, which is a sticking point for the U.S. delegation.

"Our analysis indicates that the strongest path forward is one that combines a refined fuel-intensity approach with meaningful recognition of energy efficiency as a compliance pathway. This would provide the industry with a more resilient and workable basis for progress," ABS concluded.