Next month, the IMO’s Marine Environment Protection Committee will hold an important meeting to discuss which short-term measures the UN body should adopt to reduce emissions from shipping. It should look to all tools that take a systemic approach to the challenge and consider setting a goal for carbon intensity reductions. The private sector-led Poseidon Principles are an example of how this approach can be successful.
Shipping faces a decarbonization challenge
Global seaborne trade is a vital part of our lives – more than 80% of all trade by volume is transported by sea. However, this activity generates [ds_preview]between 2-3% of global greenhouse gas (GHG) emissions, equivalent to the emissions of large economies such as Germany and Japan. What’s more, GHG emissions from shipping are set to rise significantly if no action is taken to address them.
The IMO’s initial GHG strategy acknowledges this fact. It aims to reduce shipping’s GHG emissions by at least 50% by 2050, with a strong emphasis on zero emissions. But for hard-to-abate sectors like the maritime industry, rising to this challenge will require collaboration across the entire value chain.
Shipping banks recognize all players have a role to play in reducing emissions
We as shipping banks are one part of the maritime value chain – and so have some influence, as well as responsibility, in shipping’s transition to zero emissions. By considering the climate impact of the vessels we finance – or don’t finance – we can incentivize the transition to the ships and fuels that will enable the maritime industry to at least halve its emissions by 2050.
This is the reason why shipping banks, in collaboration with leading maritime industry players, developed the Poseidon Principles. The Poseidon Principles establish a common, global baseline to quantitatively assess and disclose whether financial institutions’ lending portfolios are in line with the IMO 2050 target. In other words, they are a private-sector-led goal-based framework centred on an operational efficiency metric, the first of its kind, and could serve as an example to the IMO as it decides on further emissions regulation.
Regulation that incentivizes collaboration will be more successful
Between 30 March and 3 April 2020, the MEPC 75 will be debating two different measures of improving the energy efficiency of ships, with the aim of reducing their emissions in the short term. One of these is a technical measure which would mandate that ships meet set energy efficiency standards. The other would establish a set efficiency goal to be achieved, which could be reached through a variety of operational measures.
The goal-based operational measure would be more successful at capturing the opportunities for energy efficiency improvements across the maritime value chain. It would widen the scope of incentives to address this issue to include a range of industry players who have significant influence over these parameters.
The operational measure would not leave all the responsibility on achieving a carbon intensity reduction on the shipowner and the wider stakeholders disincentivised. The nature of chartering and the shipping business models call for policy and approaches that incentivise all stakeholders who have an important role in improving the energy efficiency of a ship. The operational measure would moreover lead to a more cost-effective way of decarbonizing the sector.
While it is true that no carbon intensity metric is likely going to be perfect for all the different types of operations, this should not stop us from broadening the range of incentives to all the maritime stakeholders who can achieve energy efficiency improvements.
As reaching the set goal for efficiency would depend on more stakeholders, this would also require new ways of working together to ensure the goal is reached. The Poseidon Principles demonstrate that parts of the industry are already taking this approach and are ready to do more.
By: Michael Parker, Chairman of Global Shipping Logistics & Offshore at Citi and Chair of the Poseidon Principles Association
