CO2 emission indexing scheme

The International Maritime Organisation (IMO), a specialized UN agency, has adopted a strategy with
regard to policies and measures, focusing mainly on further development of a CO2 emission indexing
scheme for ships and further evaluation of technical, operational and market-based solutions.

The basic idea behind a CO2 emission index is that it describes the CO2 efficiency (i.e., the fuel
efficiency) of a ship, i.e., the CO2 emission per tonne cargo per nautical mile. This index could, in the
future, assess both the technical features (e.g., hull design) and operational features of the ship (e.g.,
speed).

In June 2005, at the 53rd session of the Marine Environment Protection Committee of IMO (IMO, 2005),
interim guidelines for voluntary ship CO2 emission indexing for use in trials were approved. The Interim
Guidelines should be used to establish a common approach for trials on voluntary CO2 emission
indexing, which enable shipowners to evaluate the performance of their fleet with regard to CO2
emissions. The indexing scheme will also provide useful information on a ship’s performance with regard
to fuel efficiency and may thus be used for benchmarking purposes. The interim guidelines will later be
updated, taking into account experience from new trials as reported by industry, organisations and
administrations.

A number of hurdles have to be overcome before such a system could become operational. The main
bottleneck appears to be that there is major variation in the fuel efficiency of similar ships, which is not
yet well understood (Wit et al., 2004). This is illustrated by research by the German delegation of IMO’s
Working Group on GHG emission reduction (IMO, 2004), in which the specific energy efficiency (i.e., a
CO2 emission index) was calculated for a range of container ships, taking into account engine design
factors rather than operational data. The results of this study show that there is considerable scatter in
the specific engine efficiency of the ships investigated, which could not be properly explained by the
deadweight of the ships, year of build, ship speed and several other ship design characteristics. The
paper therefore concludes that the design of any CO2 indexing scheme and its differentiation according
to ship type and characteristics, requires in-depth investigation. Before such a system can be used in an
incentive scheme, the reasons for the data scatter need to be understood. This is a prerequisite for
reliable prediction of the economic, competitive and environmental effects of any incentive based on
this method.

Voluntary use and reporting results of CO2 emission indexing may not directly result in GHG emission
reductions, although it may well raise awareness and trigger certain initial moves towards ‘self
regulation’. It might also be a first step in the process of designing and implementing some of the other
policy options. Reporting of the results of CO2 emission indexing could thus generate a significant
impetus to the further development and implementation of this index, since it would lead to widespread
experience with the CO2 indexing methodology, including reporting procedure and monitoring, for
shipping companies as well as for administrations of states.

In the longer term, in order to be more effective, governments may consider using CO2 indexing via the
following paths:
1. The indexing of ship operational performance is introduced as a voluntary measure and over time
developed and adopted as a standard;

2. Based on the experience with the standard, it will act as a new functional requirement when new
buildings are ordered, hence over time the operational index will affect the requirements from ship
owners related to the energy efficiency of new ships;

3. Differentiation of en route emission charges or existing port dues on the basis of a CO2 index
performance;

4. To use the CO2 index of specific ship categories as a baseline in a (voluntary) baseline-and-credit
programme.

Economic instruments for international shipping

There are currently only a few cases of countries or ports introducing economic instruments to create
incentives to reduce shipping emissions. Examples include environmentally differentiated fairway dues
in Sweden, the Green Award scheme[43] in place in 35 ports around the world, the Green Shipping
bonus in Hamburg and environmental differentiation of tonnage tax in Norway. None of these incentives
are based on GHG emissions, but generally relate to fuel sulphur content, engine emissions (mainly
NOx), ship safety features and management quality.

Harrison et al. (2004) explored the feasibility of a broad range of market-based approaches to regulate
atmospheric emissions from seagoing ship in EU sea areas. The study focused primarily on policies to
reduce the air pollutants SO2 and NOx, but the approaches adopted may to a certain extent also be
applicable to other emissions, including CO2. According to a follow-up study by Harrison et al. (2005) the
main obstacles to a programme of voluntary port dues differentiation are to provide an adequate level
of incentive, alleviating ports’ competitive concerns and reconciling differentiation with specially
negotiated charges. Swedish experience suggests that when combined with a centrally determined
mandatory charging programme, these problems may be surmountable. However, in many cases a
voluntary system would not likely be viable and other approaches to emissions reductions may
therefore be required.

An alternative economic instrument, such as a fuel tax is vulnerable to evasion; that is ships may avoid
the tax by taking fuel on board outside the taxed area. Offshore bunker supply is already common
practice to avoid paying port fees or being constrained by loading limits in ports. Thus even a global fuel
tax could be hard to implement to avoid evasion, as an authority at the port state level would have to
collect the tax (ECON, 2003). A CO2-based route charge or a (global) sectoral emission trading scheme
would overcome this problem if monitoring is based on the carbon content of actual fuel consumption
on a single journey. As yet there is no international literature that analyzes the latter two policy options.
Governments may therefore consider investigating the feasibility and effectiveness of emission charges
and emission trading as policy instruments to reduce GHG emissions from international shipping.