Shipping emissions: Negotiating bunker fuels in Cancun

26 November 2010

Aviation and maritime shipping are critical elements of the global economy and trade. More than 90 percent of world trade is transported by sea, while eight percent of global economic activity depends on aviation that transports 40 percent of total freight value. But despite the economic benefits provided by the sector, international transport is one of the main drivers of human-induced climate change. Maritime shipping emissions account for three percent of global anthropogenic carbon emissions while four to nine percent of the climate change impact of human activities is caused by aviation. Aviation and shipping are an important element of the climate negotiations for several reasons, and the UNFCCC Conference of the Parties (COP) in Cancun is set to bring these sectors more to the forefront.

Inclusion of international transport emissions in a global climate policy framework has proven to be difficult, primarily because the responsibility for reducing emissions does not fall directly within the jurisdiction of any single country. Due to the global nature of the industry, some experts say that sectoral approaches may be more appropriate for tackling emissions reduction in international transport.

Many issues that were scheduled to be addressed in Copenhagen last year are expected to come back in Cancun: the governance of bunker fuels, trade and development issues (including competitiveness concerns in both developed and developing countries), implications for the tourism sector, and the relationship between climate and trade financing will be part and parcel of the underlying issues to take into account.

Given that aviation or maritime emissions reductions are not addressed in the Copenhagen Accord, there is continuing uncertainty regarding how to proceed and under which forum. The Kyoto Protocol calls on Annex I Parties (developed countries) to work on international transport through the International Civil Aviation Organization (ICAO) and the International Maritime Organization (IMO). While there are many proposals on the table, there is no clear mandate from either the ICAO or the IMO regarding an emissions reduction strategy. Instead, the industry faces an increasing risk that a patchwork of domestic policies will emerge as individual countries or regions implement their own measures to deal with emissions. In 2012 for example, the EU’s Emission Trading Scheme’s (ETS) measures will be applied to all airlines that take off or land in the EU – regardless of the country of origin.

For maritime shipping there are currently two main types of policy for greenhouse gas (GHG) reduction considered by the IMO: market-based instruments (MBIs) and efficiency requirements. MBIs include emissions trading schemes, fuel levies, energy efficiency credit trading schemes, and “cap-levy-and-trade” or “hybrid” schemes. Such market-based instruments to regulate emissions will impact international trade because they impose an additional financial burden on transport, which could result in reduced imports and exports.

Regulation of greenhouse gas emissions from the international transport sector is needed to reduce global emissions. However, regulation often translates to higher costs of transporting people, resources, and goods around the globe. Developing countries situated in remote locations and with a large trade exposure, such as some Small Island Developing States (SIDS), would be particularly affected by higher transport costs.

On the other hand, regulating emissions from maritime and air transport could potentially generate resources to finance climate change adaptation and mitigation measures in developing countries.

Cancun Expectations

Climate change finance is one of the main outcomes expected from the negotiations on international transport in Cancun. The final report by the High-Level Advisory Group on Climate Change Financing (AGF) that was published on 5 November pays considerable attention to the option of raising revenues from the shipping and aviations sectors. The AGF estimates that US$25 billion can be raised from these sectors by 2020 (out of a total of US$100 billion that developed countries promised to channel to developing countries each year by 2020).[1]

Some developing countries, however, may have issues with the fact that ships and airplanes from all countries are expected to pay for their carbon emissions, without an exception for poor countries. The AGF has taken this into account by stating in its report that the UNFCCC principle of common but differentiated responsibility[2] must be reconciled with the need for any market-based emission reduction measures adopted to apply equally to all ships globally. As the figure below shows, there is no direct correlation between the countries that have the biggest stake in trade and the countries where ships are owned and flagged (registered). Excluding some countries from taking climate measures could lead to carbon leakage as ship and airplane owners can easily register their vessels in countries that do not regulate aviation and shipping.

One possible option to combine environmental effectiveness with the principle of equity is to collect revenue from all ships and use the proceeds for offsetting the negative impacts on vulnerable countries (e.g., cost increases of food imports that may result from more expensive transport). One notable example of such an equitable and practical scheme is the International Maritime Emission Reduction Scheme (IMERS). In Cancun, countries could take these and other recommendations from the AGF report into account when they draw a roadmap for identifying sources of climate finance.

In addition to climate finance, a series of other outcomes on international transport are expected to result from Cancun. First of all, the role of the IMO and ICAO in relation to the broader framework of global climate change should be clarified. The UNFCCC could set emission reduction targets, for example, which it mandates the IMO and ICAO to implement. Studies on the shipping industry have shown that significant reductions in emissions could be achieved by simply reducing cruising speeds and using more efficient ships. Meanwhile, the most plausable efficiency gains in the aviation sector appear to stem from from changing air traffic management.

Due to the urgency of the climate change threat, action should be taken in the most promising forum. Alternatively, implementation of unilateral approaches is most promising, but could create a patchwork of differing policies. To avoid that situation, countries need to give a strong political signal, preferably through a stand-alone decision, to ICAO and IMO so that these organisations can progress with implementing measures to curb emissions from aviation and shipping.

Joachim Monkelbaan is Programme Officer for ICTSD’s Global Platform on Climate Change. Further reading on the issue can be found in Monkelbaan’s recent paper International Transport, Climate Change and Trade: What are the Options for Regulating Emissions from Aviation and Shipping and what will be their Impact on Trade?

1 The AGF report can be accessed at http://bit.ly/d4SSue.

2  Recognising that developed countries are principally responsible for the current high levels of GHG emissions in the atmosphere as a result of more than 150 years of industrial activity, the Kyoto Protocol places a heavier burden on developed nations under the principle of “common but differentiated responsibilities.”

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