ETS for Shipping Tokyo sept2009 - 海上技術安全研 …...• 2,000 GT = 30,000 ships covering about 80% of the total CO2 emissions • 10,000 GT = 16,000 ships covering about

How an Emission Trading System would reduce GHG emissions from international shipping

Sveinung OftedalSenior rådgiver

2 Norwegian Ministry of the Environment, September 2009

ETS for international shipping16 Sep 1979

Observed extent of sea ice

16 Sep 2007

06 Sep 2008

The Arctic may become essentially free of summer ice any time between 2020-2050


ETS for international shipping

Expected change in rainfall (SRES A1B)

Wetter DryerDryer

•Trigger conflicts, influence food production and supply

•Climate refugees Glacier in the Khangschung Valley E of Mt Everest, Tibet Photo 25 July 2005 by Harry Jans (from John Birks)

Melting glaciers

Reduced melt water in summer will influence the water supply for more than 1 billion people

Particularly serious in SE Asia (Indus, Ganges, Mekong,

Brahmaputra, Yangtze, The Yellow River) and parts of South America

Climate refugees


ETS for international shippingHeat wave in south and central Europe, August 2003

London

Paris

Madrid

Rome

Oslo

Lasted for two weeks

∼30.000 fatalities

Failure in power supply

Excessive melting of mountain glaciers

Loss: 100 billion RMB

Naturally occurring every ∼400 year

What about the future?

Dutch Deltacommittee: 55-110 cm by 2100 2-4 m by 2200

Cost: 100-180 billion EURO (to be funded by export of gas)

http://www.deltacommissie.com

Sea levelWill last for > 1000 yr



The long-termChallenge



At present: We can shape the blank sheets of paper….

…into a global binding mechanism with firm support

Leading to cost efficient emission reductions



Why introducing an Emission Trading system for shipping – The basics

• The need.In order to achieve a necessary two degree scenario, global greenhouse gas emissions should follow a pathway that includes a peak year no later than 2015 and results in emission reductions of 50-85% by 2050, in accordance with findings in the 4th Assessment Report of the IPCC

• The mandate for the policy in Resolution A.963(23) focus on emission reduction“URGES….to identify and develop the mechanism or mechanisms needed to achieve the limitation or reduction of GHG emissions from international shipping…..”

→A Cap represents precise emission control→Trading represents a cost efficient mechanism



The MBI race towards success - Why bet on ETS?

• Already globally recognized as a cost efficient mechanism to reduce GHG emissions

• State leaders know it, and several are great supporters of ETS

• Already introduced – more to come

• Experience already gained

• Robust in all its phases – Not only as a concept, but as a legal mechanism States would want to become Party, and can include the long term pathway for emission reductions.



Any carrots? - What’s in it for me?

• The providers of technology solutions

A mechanism should be able to dig into the extensive menu of technical and operational reduction measures

• Will create a fund….

DNV:Technical and operational measures are likely to enable shipping to reduce CO2 emissionsper tonne-mile by 50% for ships being delivered in 2030, and by up to 70% for ships beingdelivered in 2050, compared to a 2008 baseline.



Key messages regarding an ETS for shipping

• Global• Precise Emission Control – A Cap• Cost effective mechanism• The emissions is the basis for the legal

requirement• Robust over time (2020-2030-2040-2050….)• Simple and clear for the industry – ”If you can

buy bunkers you can trade in an ETS.”• Will create a fund• New legal instrument • and it is essential that a market based

instrument can be ratified by Member States



Emissions Trading - illustration

Initial Emissions

Limit on Emissions (Cap is set at 5 tonnes)

10 Tonnes 10 Tonnes 10 Tonnes

7 Tonnes

3 Tonnes5 Tonnes

Reductions achieved: 5 Tonnes



Potential sale of 2 quotas (i.e., 2 tonnes)



Draft International Convention for Reduction of Greenhouse Gas Emission from Ships – Option for a legal structure

Preamble

Articles” establish the main legal

mechanisms “

Regulations – ” contains technical requirements”

Chapter 1 Chapter 2 Chapter 3 Chapter 4

Appendices – ”contain forms for certificates, record books etc”

Guidelines – ”mainly procedures to assist the requirements”

Explicit amendment

procedure

Tacit amendment

procedure

Chapter 5Emission Cap

Requirementsfor ships

Administrative Body

Emission Trading

The FundGeneral provisions

Chapter 6



Chapter 1 General Provisions -Application

• Applies to ships entitled to fly the flag of a Party

• The Party has the right to introduce the requirements in its waters

• Do not apply to warships etc. (UNCLOS art. 236)• Do not apply to ships below [Size] GT

Note: A phase in regime for ships of various sizes [and types]may be established

• No more favourable treatment of non-Party ships



• 400 GT = 60,000 ships covering about 91% of the total CO2 emissions

• 500 GT = 45,000 ships covering about 87% of the total CO2 emissions

• 2,000 GT = 30,000 ships covering about 80% of the total CO2 emissions

• 10,000 GT = 16,000 ships covering about 67% of the total CO2 emissions

0

50

100

150

200

250

300

350

400

450

1950 1960 1970 1980 1990 2000 2010

Fuel

Con

sum

ptio

n (M

illion

tons

)

This study

IMO Expert Group (Freight-Trend), 2007

Endresen et al., JGR, 2007

Endresen et al (Freight-Trend)., JGR, 2007

EIA Total marine fuel sales

Point Estimates from the Studies

This study (Freight trend)

Manufacturing Industries and Construction

18,2 %

Other Energy Industries

4,6 %

Unallocated Autoproducers

3,7 %

Main Activity Electricity and

Heat Production35,0 %Transport

21,7 %

Other Sectors 11,6 %

International Shipping

2,7 %International

Aviation1,9 %

Domestic shipping &

fishing0,6 %



Chapter 2 Emission Cap

• The Cap is for the sector: i.e. all ships the system applies to.

• Not a specific cap for the Party• Not a specific cap for the individual ship



1

Principles for the establishment of a cap

• Precise and effective in limiting emissions and thus contributing to limiting global warming

• Robust throughout time in order to enable shipping to respond to climate change in years to come

• Transparent in order to– allow all stakeholders and the public in

general to understand the cap– communicate the response to climate

change by shipping

• Perceived as fair by – balancing the reduction potential and

abatement costs for the industry– ensuring that shipping is not unfairly

burdened compared to other industries



Methodology for setting the cap

• In order to take an informed decision on an emission cap a methodology is needed

• A step-by-step approach has been developed to provide proposals for a cap

• Based on principles used by IPCC (cost effectiveness)

• This approach is based on the following principle:

1

The marginal cost of limiting shipping emission should be equal to the marginal

cost for other industries



C

ap

Cos

t per

tonn

e C

O2

Marginal cost – the cost of reducing the next tonne of CO2

2

The first reductions will be cheap, even economically profitable because of fuel savings

As the low hanging fruits are exhausted more expensive technologies will be needed

Marginal cost curve: marginal cost as a function of reduction amount – increases with higher reduction levels

When reductions become too expensive, allowances will be bought



2

CO2/year

CO2/year

Target

The global reduction requirement and cost is used to set a cap for shipping

2000 2020

Baseline

Global (all sectors)

Marginal reduction cost: 50$/tonne CO2

Abatement need50%

2000 2020

CAP

Baseline

Shipping Marginal reduction cost: 50$/tonne CO2

Abatement potential20%

Fairness principle



A step-by-step methodology

- from a global temperature target to a cap for shipping

Temperature/stabilisation target

Global CO2 target Global CO2 baseline

CO2 abatement required

Global CO2 abatement cost

Maximum cost per tonne CO2

Shipping CO2 abatement level

Shipping CO2 abatement cost

Shipping CO2 emission target (Cap in 2020)

Shipping CO2 baseline

All sectors

Shipping

1

54

3

2

6



2

Step 1: Finding the global baseline and reduction target

– A global CO2 target should be agreed at UNFCCC. This can be based on a temperature or CO2 concentration stabilization target.

– Determine a baseline (business-as-usual) for future emissions (all sectors) and the target level needed to achieve the temperature target.

– IPCC has developed baselines based on different scenarios and estimated the level needed for achieving different stabilization targets.

Source: IPCC 4th assessment report










All sectors

Shipping

1

54

3

2

6



2

Step 2: Finding the maximum abatement cost for global CO2 reduction

– Determine marginal abatement cost of bridging the gap between baseline and target (all sectors) – what is the cost of reducing the last (marginal) tonne of CO2 in order to reach the stabilization target?

– IPCC has estimated the cost of reducing CO2globally in 2030.

Source: IPCC 4th assessment report










All sectors

Shipping

1

54

3

2

6



2










All sectors

Shipping

1

54

3

2

6

Step 3-4: Finding the marginal abatement cost for shipping and the potential reduction

– Determine marginal abatement costs curves for shipping emissions – what level of reduction is achievable at which cost level?

– The marginal abatement cost for shipping should be equal to the global marginal cost and the reduction potential for shipping can then be determined.

– Marginal abatement cost curves for shipping have been developed by IMO GHG study update and DNV.

Marginal CO2 abatement cost curve for world fleet

-200

-150

-100

-50

0

50

100

150

200

0 50 100 150 200 250

Mill tonnes CO2 reduced per year

Cos

t per

tonn

e C

O2

aver

ted

($/to

nne)



2










All sectors

Shipping

1

54

3

2

6

Step 5: Finding the baseline for CO2 emission from shipping

• Determine a baseline (business-as-usual) for future shipping emissions.

• The IMO GHG Study has developed scenarios for future shipping emission based on the same assumptions as IPCC.

Source: IMO GHG study update



2

Step 6: Determining the cap

• Subtract shipping reduction level from baseline for future shipping emissions to determine cap.










All sectors

Shipping

1

54

3

2

6

CO2/year

2000 2020

CAP

Baseline



Practical example



2

EXAMPLE using available data for deciding the cap in 2020

• Assuming a global stabilization target of 2°C/450 ppm

• Global CO2 target – IPCC: 26.9 GT CO2-eq

• Global CO2 baseline – IPCC scenario B2: 53.8 GT CO2-eq

• Global CO2 abatement required: 26.9 GT CO2-eq

• Maximum cost per tonne CO2– IPCC: 50 $/T CO2

• Shipping CO2 abatement potential – IMO GHG Study: 185 MT CO2

• Shipping CO2 baseline – IMO GHG Study scenario B2: 925 MT CO2

• Shipping CO2 cap: 740 MT CO2


2°C/450 ppm

Global CO2 target26.9 GT CO2-eq

Global CO2 baselineB2: 53.8 GT CO2-eq


26.9 GT CO2-eq


IPCC


50 $/tonne CO2


20 %/185 MT CO2


IMO GHG

Shipping CO2 emission target (Cap in 2020)740 MT CO2


B2: 925 MT CO2

All sectors

Shipping

The

IPC

C fi

gure

s app

lies t

o 20

30 w

hile

the

ship

ping

num

bers

app

lies t

o 20

20.

This

shou

ld b

e co

nsis

tent

in fu

ture

cal

cula

tions

.



3

Summary – Setting the Cap

• A step-by-step methodology for determining an effective and fair cap for shipping

• Further development of marginal abatement cost curves will improve the precision of a cap



Foto: Jan M. Lillebø, Bergens Tidende

There you see, we did not need the

cap. A boat will fix this problem!



Phasing in the Cap in an ETS

Emissions reported during ETS compliance cycle used to reality check cap and interim targets

Emissions reported in pilot phase used to set baseline emissions (2 to 3 years reporting)

Pilot Phase begins one year after entry into force. Ships begin reporting emissions

Time

Interim targets & cap

adjustment

Pilot

Baseline



3rd compliance period

EF +3 ETS yr 3 ETS yr 10ETS yr 8

Pil

ETS yr 5

1st compliance period

2nd compliance period

ETS yr 1

ETS Compliance Cycle

EF +1

1. Entry into Force2. Pilot phase based on reporting3. Multi-year compliance cycle—

interim targets set on five year basis

1

23



Phases in introducing ETS

First commitment period 2nd3rd

next

Reporting

Phase in toward

s 100 %

auctioning

100 % auctioningeif



Chapter 3 Requirements for ships

• Need an emission permit

• Need to register in an ETS registry

• Need to aquire emission allowances

• Need to record and report emissions (BDN & log book)

• Need to surrender allowances

• Subject to survey and certification (Flag State/RO)

• (Subject to inspection (Port State))Constant ballance or periodic surrendering system?



Options for the Ship

• In acquiring the emission allowance the ship has the right to take part in the regular auctions and may

– Always find the solution through the auctions, or may find the costs too high and undertake reduction measures

– Need extra allowances available at the market which may be• Other emission reduction units from shipping• Certified Emission Reductions (CER) through

CDM• Emission Reduction Units (ERU) through (JI)



Easy access to the market

www.ets-for-shipping.com



The ship as potential seller

Excess quotas

Quota prices higher than cost of reducing

emissions?

Sell excess quotas.

Emissions below allowances at hand

Yes

Could emissions be above own stock in the future?

Keep excess quotas.

Yes No

Sell. Seek best possible price

No



Can existing ships deliver same amount of tonne / miles with lower emissions

GHG emissions above estimated need

Buy quotas and/or temporarily reduce output

No

How much will it cost to reduce emissions to reach the amount of allowances at hand?

Yes

> market price for quotas

Reduce emissions to extent feasible

Buy permits to cover emissions above allowance at hand

< market price for quotas

Reduce emissions and generate excess reductions

Quota prices higher than cost of reducing emissions?

Bank excess quotas.

YesSell excess quotas.

NoYes

The ship as potential buyer



Chapter 3 Administrative body

• Administrative tasks only (identified in the instrument).

• Establish and maintain an ETS Registry

• Establish the Market Place and ensure balance (quotas vs consumption)– Put the emission allowances on the Market, and– Register surrendered emission allowances, and– Can cancel quotas.

• Undertakes the auctioning (Regular or ongoing)

• Administration of the FUND



Chapter 5 Emission Trading

• Will set up the technicalities for the auctioning and subsequent trading

• Will need to establish the access to credits other sources

• (Will also need to establish access for non-party ships )



Chapter 6 The Fund

• Regulations for steering the Fund

• Regulations on principles for using the Fund

• Regulations on Fund Management



The Fund generated by the ETS

• How to use the Fund will need to be thorougly discussed, however emission reduction measures and compensation of developing countries are identifieed as reasonable options through

– Mitigation by CDM projects, and

– Adaption in developing countries

• In addition relevant R&D activities in the maritime sector is a candidate



Basic elements of an ETS for international shipping – Summing up

• New legal instrumentIncludes a cap/caps and target year(s) and a pathway (precedure) for the next step(s) long-term solution

• Applies to all ships above [Size] GT in international tradeVarious phase in schemes are possible

• Basic requirement: The ship shall obtain an emission allowance– Build upon the regular survey and certification regime– Continous positive ballance or periodic ballance

(because of PSC)• An international entity undertaking administrative

tasks needs to be established, e.g. a trading agency• Non-party ships needs access because of no-more

favourable treatment clause• Aiming for an open system



Next steps

• Discuss with partners gobally

• Contribute to the steps identified in the IMO Work Plan on market based mechanisms

• Develop a more detailed outline as input to MEPC 60



Thank you

for

your attention!

Documents

ETS for Shipping Tokyo sept2009 - 海上技術安全研 …...• 2,000 GT = 30,000 ships covering about 80% of the total CO2 emissions • 10,000 GT = 16,000 ships covering about