Revised IMO GHG Reduction Strategy Could Be Coming Sooner, Rather Than Later

Regulatory pressure on shipping to further move towards emissions reduction, is only going to get higher as months go by, with 2023 expected to be a key year towards this. In its latest weekly report, shipbroker Gibson said that “with much of 2022 being focused on the fallout of the invasion of Ukraine and the major reorientation of global oil trade, it is easy to overlook the important environmental and regulatory developments that are putting the industry on a potentially accelerated decarbonization pathway. This growing momentum should take a central role in 2023, with the IMO’s Carbon Intensity Indicator (CII) and Energy Efficiency Existing Ship Index (EEXI) regulations having already kickstarted proceedings on the 1st January after much criticism and debate. Whilst CII is initially focused on data collection with the initial ratings not coming out until next year, it signals that the process of achieving net zero has begun. There is increasing support for stricter emissions reduction targets at the IMO from a growing number of member states, but this is yet to be finalized. This regulatory pressure is only likely to continue gathering pace with important implications for the shipping industry in terms of both future commercial and investment decisions”.

According to Gibson, “attention will now be turning to MEPC 80 due in July, given that important regulatory decisions have been deferred to this meeting. Primarily, the issue of agreeing a revised IMO GHG reduction strategy will be addressed, with mounting pressure from a broad and growing number of member states. Also, up for agreement is the role of carbon capture and storage (CCS) technology in the context of emission reduction strategies. Likewise, the potential for easier compliance with CII and EEXI via new correction factors and reference lines could be agreed”.

“This will coincide with start of shipping’s inclusion in the EU Emission Trading System (ETS) from 2024 for vessels over 5000 GT. The ETS represents the first attempt by regulators to put a price on maritime emissions and will be watched closely by the IMO and other state bodies who may consider implementing or expanding their own systems in the future. Shipping’s integration into the EU carbon market alongside other industries already subject to carbon pricing frameworks will put a market price on shipping’s GHG emissions. In turn, this will help to guide further emission reduction strategies and create incentives for their accelerated uptake”, Gibson said.

The shipbroker added that “from 2025, the pace of regulations is scheduled to accelerate further. The planned implementation of the Mediterranean ECA will take place. Additionally, all newbuild vessels will be required to make carbon intensity reductions of 30% under the Energy Efficiency Design Index (EEDI) Phase 3 framework after its initial introduction in 2022 to only specific vessel types. Meanwhile, the proposed Fuel EU GHG intensity reductions could begin to take place, whilst the industries’ full inclusion into the EU ETS will be completed by 2026. During this period there is likely to be some heightened business complexity as market participants get to grips with their new obligations under these policies. This may result in owners making strategic decisions regarding future vessel designs and fuel systems, which may increase ordering activity. Although this will require regulatory clarity, which is still needed”.

“Over the longer term, these initial policy actions will lay the initial foundations for achieving the to be agreed IMO emissions reduction targets by 2050. These measures will be important to keep shipping’s decarbonization trajectory in line with the broader global goal of keeping temperature rises limited to 1.5C in accordance with the Paris Climate Agreement. Whether these steps are ambitious enough or not is a key area of debate, certainly they will not be easy and will require both considerable financing and commitment to make these environmental pledges a reality. However, despite these challenges, undoubtedly new opportunities will emerge, and all eyes will be on the initial CII ratings due next year”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide