Bunker tax and IMO

Legal assistance paper

All reasonable efforts have been made to ensure the accuracy of this information at the time the advice was produced. However, the materials have been prepared for informational purposes only and may have been superseded by more recent developments. They do not constitute formal legal advice or create a lawyer- client relationship. To the extent permitted any liability is excluded. Those consulting the database may wish to contact LRI for clarifications and an updated analysis.

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Date produced: 07/12/2010

1. Can decisions or agreements made by the COP on innovative sources of finance compel other existing bodies that have authority over certain sectors (in particular, the IMO/ICAO which have authority over bunker tax) to make that decision or agreement effective? Does this vary with legal form (recommendation, COP decision, protocol to the UNFCCC, or new agreement)?

2. What are the legal implications if the COP, IMO, and ICAO were to implement different/inconsistent regimes in respect of bunker taxation?

3. How would the legal form of an innovative source of finance, such as a bunker levy, provision (i.e. whether the provision is implemented under a protocol to the UNFCCC or a COP decision) affect the flow of revenue from the relevant sectors back to the COP for the purpose of financing climate action in developed countries?

Summary:

Decisions and agreements made by the COP on sources of finance will be taken into account by other existing agencies such as the IMO and ICAO but will not be binding on them.

Consultation between the UNFCCC Secretariat, and autonomous specialized agencies such as the IMO and ICAO, would make the existence of inconsistent regimes highly unlikely, especially since the COP, IMO and ICAO are integrated by the same States.

Advice:

Please note that although the advice set out below focuses on the IMO, equal consideration would apply to the ICAO.

1. Decisions and agreements made by the COP (no matter in which legal form they are issued) are not compulsory for IMO, a UN agency which has an exclusive, autonomous and specific mandate in the regulation of shipping issues defined by a treaty ratified or acceded to by 169 countries. However, COP’s decisions or agreements will be taken into account by the intersessional meeting of the Working Group on GHG Emissions from Ships (hereinafter “the GHG Working Group”), to be held in March 2011. The group will be advising on the compelling need and purpose of suitable market based measures (MBMs) as a possible mechanism to reduce GHG emissions from international shipping and evaluate the impact of MBMs already proposed for the consideration of IMO on, among others, international trade, the maritime sector of developing countries, LDCs and SIDS, as well as the corresponding environmental benefits. A report from the intersessional group will be submitted to the IMO Marine Environment Protection Committee (MEPC) in July 2011.

2. Consultation between the UNFCCC Secretariat, and both autonomous specialized agencies (IMO and ICAO) would make the existence of inconsistent regimes highly unlikely. Additionally it should be noted that the UNFCCC COP, IMO and ICAO are made up of nearly all the same States. Accordingly it is mainly up to them to ensure that COP, IMO and ICAO decisions can be properly coordinated.

Additionally, if any regime was made legally binding, States which are party to the regime would, as a matter of practice and necessity, seek to avoid creating any additional inconsistent regime which would risk them breaching their existing international law obligations.

3. The IMO GHG Working Group will be addressing the different alternatives regarding the adoption of innovative sources of finances already anticipated at the 61st session of the MEPC held in October 2010. This is an entirely novel issue for IMO, and accordingly there is no way of envisaging how discussions will develop and what legal form they would take.

Nevertheless, the International Oil Pollution Compensation Fund (IOPC) offers a precedent, albeit of rather limited use, which was established through an international treaty. It gives its State Parties the option of collecting and distributing contributions directly or through a government institution. The IOPC does not collect a levy, instead it makes contributions towards the payment of compensation to victims of environmental damage who must quantify claims in a way similar to insurance claims and so the IOPC acts as an insurance company.

The notion of an international autonomous fund collecting money to distribute it in accordance to political criteria such as technical cooperation with developing countries has no precedent in maritime law. However, there seems to be some building consensus towards the imposition of a levy per ship on the basis of records and certificates on board regarding the use of bunker fuel oil to be inspected by port authorities. However, it is unclear what legal form this would take.

One alternative involving the management of levies on bunker fuels by an International Fund would involve considerations regarding the establishment and mandate of such an organization as well as membership, collection of levies and distribution. Such an institution or regime would need to be established by treaty in order to be legally binding.

If such a fund were to be established, the parties would need to take into account a wide variety of issues such as the role of market mechanisms, the tax law of each country and, most significantly, how such a fund would be structured. In particular, parties will need to decide whether or not there should be an international collecting agency to collect and distribute the funds.

On the relationship between a new source of finance and the COP, we have provided examples of how new sources would fit within the existing institutional architecture in our Briefing Paper – Copenhagen Green Climate Fund and the World Bank of 1 June 2010 . In each case the instrument which establishes the new source would be expected to provide rules for the governance and allocation of the funding. By analogy, the UNFCCC, the Convention on Biological Diversity, and the POPs Convention all provide for finance for which the GEF is designated as the financial mechanism, and the analysis is that GEF is accountable to/under the authority of the relevant Conference of the Parties.