Regulation of bunker fuels emissions

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 However, the materials have been prepared for informational purposes only and may have been superseded by more recent developments.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: 07/02/2017

Please advise on:
(a) the current requirements, recent developments and current proposals concerning the regulation of emissions from international transport (bunker fuels) under:
        (i) the UNFCCC;
        (ii) the ICAO; and
        (iii) the IMO; and
(b) elements of the regulation of international transport of particular relevance to developing countries 

Advice:

I.      Emissions Regulation under the UNFCCC

The issue of emissions from fuel used for international aviation and maritime transport (also known as bunker fuels emissions) already featured in the UNFCCC negotiations at the first meeting of the Conference of the Parties in 1995, when the COP requested the Subsidiary Body for Scientific and Technological Advice (SBSTA) and the Subsidiary Body for Implementation (SBI) to address the issue of allocation and control of emissions from international bunker fuels and to report on this work to COP 2. However, the Convention itself does not contain any provision on the regulation of bunker fuel emissions.

The Kyoto Protocol does contain provisions for reducing GHG emissions from aviation and shipping, with different approaches for international and domestic emissions. Domestic aviation and shipping emissions are included in national targets for developed (or ‘Annex 1’) countries with an overall reduction target in total emissions from all sources of 5.2 per cent for 2008-2012 (compared with 1990 levels). Emissions from international aviation and shipping are treated separately in Article 2.2 which states that the Parties included in Annex I shall pursue limitation or reduction of emissions of greenhouse gas emissions not controlled by the Montreal Protocol from aviation and marine bunker fuels, working through the International Civil Aviation Organization (ICAO) and the International Maritime Organization (IMO), respectively.

Responsibility for implementing emission reduction measures and for determining the emission reduction targets for their respective sectors was handed over to ICAO and IMO therefore, although SBSTA has continued to consider methodological issues for the allocation of bunker fuels [but without reaching agreement], with ICAO and IMO also regularly reporting to it on their work.

In the lead up to Paris some Parties pushed strongly for some language on international transport and aviation to be included in the Agreement, to renew pressure on the ICAO and IMO to act on their mandate but this was too controversial and in the final Agreement bunker fuels are not covered.

II. Emissions Regulation in the international aviation industry

1               Current Requirements

ICAO regulates the emissions of nitrogen monoxide, smoke, unburned hydrocarbons and carbon monoxide via an engine certification standard. ICAO introduced the measure to regulate air quality rather than in response to climate change. Manufacturers must design and produce engines to comply with a specification on emissions to obtain a certificate of compliance.

Currently, there are no ICAO or UNFCCC measures specifically regulating international aviation emissions of carbon dioxide. The Paris Agreement focuses on parties’ commitments to reduce domestic emissions, so international aviation is not within its scope. ICAO is solely responsible for regulating international aviation emissions, and recently passed a measure do so, discussed below.

ICAO has several other environmental programmes and goals under its four pillar climate change policy, involving:

(a)             technological approaches to reducing emissions (e.g. a CO2 standard);
(b)            operational measures to reduce fuel consumption; and
(c)             development of alternative fuels.

These measures do not place direct obligations on states.

2               Recent Developments

The ICAO General Assembly recently passed a resolution for a global market-based measure to regulate international aviation emissions, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). The scheme will come into force in 2021. It requires flight operators on international routes to offset their emissions growth by buying carbon credits. More detail on the scheme is set out below.

3               Current Proposals

ICAO is adopting a CO2 emissions standard for aircraft. If approved, the standard will apply to new aircraft designs from 2020 and new aircraft produced under existing designs from 2023. So far, ICAO has agreed a global CO2 metric system as a standard measure of aircraft fuel performance and CO2 emissions. The CO2 Standard will be based on this.

4               Issues relevant to developing countries

The CORSIA scheme has accounted for the circumstances of developing countries in its implementation. Details of the measures adopted are set out below.

The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)

1               What states are participating?

The scheme will run in three phases:

(a)             Pilot Phase: 2021 – 2023;
(b)            Phase 1: 2024 – 2026; and
(c)             Phase 2: 2027 – 2035.

Phase 1 and 2 are voluntary and phase 3 is mandatory. Currently, 66 states have signed up to participate in the voluntary phases of the scheme.

The difference between the pilot phase and phase 1 is the way states and operators calculate offset obligations. This is explained in more detail below.

The states required to participate in the mandatory phase are those:

(a)             whose individual share of aviation activity, measured in revenue tonne kilometres, is more than 0.5% of total international revenue tonne kilometres in 2018; or
(b)            whose position in a list of states ranked from highest to lowest in terms of revenue tonne kilometres is within the top 90% of total revenue tonne kilometres.
(revenue tonne kilometres = cargo and passenger capacity for sale x distance travelled)

Certain states are exempt from the mandatory phase:

(a)             Least Developed Countries;
(b)            Small Island Developing States; and
(c)             Landlocked Developing Countries.

The UN publishes a list of the states included in each category. However, ICAO encourages these states to volunteer for the scheme. Papua New Guinea benefits from an exemption as a Small Island Developing State, but has already indicated that it will participate in the scheme from the pilot phase.

2               Which flights are covered?

CORSIA applies to international flights only, and uses a route-based approach to determine the flights and operators covered by the scheme. CORSIA covers a route where both the state of origin and state of destination of the flight are participating. If only one of these states is participating, the scheme will not apply to that route.

Where CORSIA does not apply to a route, the emissions generated on that route are not included in any emissions calculations under the scheme.

3               Which operators are covered?

Once CORSIA covers a route, all operators on that route must comply with the scheme’s offsetting obligations. To reduce the administrative burden of the scheme, there are limited exemptions for:

(a)             Operators emitting less than 10,000 tonnes of CO2 per year on international routes;
(b)            aircraft with a maximum take-off mass of less than 5,700kg; and
(c)             humanitarian, medical and firefighting operations.

New operators (who start operations after the scheme has already entered into force) are exempt until the sooner of:

(d)            three years from the date they started operating; or
(e)             The year their emissions exceed 0.1% of total international aviation emissions calculated in 2020.

4               How are the offsetting obligations calculated?

The scheme aims to freeze international aviation emissions at 2020 levels, and so uses 2020 emissions data as the baseline. The offsetting obligations vary for each phase of the scheme:

PhaseSectoral ShareIndividual Share
percentageBasis for calculating operator obligation
 

Pilot

100%Sectoral growth factor x 2020 emissions
ORSectoral growth factor x current year emissions
0
1100%Sectoral growth factor x 2020 emissions0
2

 

2027 – 2029100%Sectoral growth factor x 2020 emissions0
2030 – 2032Max. 80% – to be determinedSectoral growth factor x 2020 emissionsAt least 20%
2033 – 2035Max. 30% – to be determinedSectoral growth factor x 2020 emissionsAt least 70%

 

Pilot phase: offset obligation based on 100% sectoral share. Participating states may choose whether operators calculate their obligations with reference to their 2020 emissions or emissions in the current year.

Phase 1: offset obligation based on 100% sectoral share. Operators calculate their emissions obligations with reference to emissions in the current year.

Phase 2: gradually increases the proportion of operators’ offset obligations calculated with reference to their individual emissions growth in that year.

The sectoral share is calculated using a sectoral growth factor, representing the emissions growth above 2020 levels for the international aviation sector as a whole.

The individual share is calculated using an individual growth factor, which represents the growth in emissions of that operator above their average emissions in 2019 and 2020.

Operators must buy emissions units representing the volume of emissions they are required to offset.

5               What emissions units does the scheme use?

Each emissions unit represents one tonne of CO2 emissions and units are traded on a global carbon market. The units carbon reduction projects and programmes sell the units, according to the volume of carbon reductions they achieve.

ICAO has not yet set criteria for the approval of units and projects under CORSIA, and is working on these details. Credits from the UNFCCC mechanisms are likely to be eligible for use in CORSIA, subject to restrictions on double counting.

6               Elements of the scheme to be determined

As well as the emissions units criteria, ICAO needs to finalise the details of the monitoring, reporting and verification (MRV) systems and scheme registries. It must also set up a central registry by 2021.

7               Reviews

ICAO will review the scheme every 3 years from 2022. In 2032, a special review will consider whether to terminate or continue the scheme after 2035.

8               States’ obligations

States must set up a regulatory framework to facilitate compliance with the scheme by 2020 and put monitoring, reporting and verification mechanisms into place by 2019. CORSIA will require states to submit aggregated emissions data to ICAO. States will be required to set up national registries.

9               Aspects of the scheme relevant to developing countries

CORSIA recognises and provides for the special circumstances and capabilities of developing states in terms of their vulnerability to climate change, level of economic development and contribution to aviation emissions.

As set out above, certain developing states are exempt from CORSIA. New and small operators are also exempt, which may help to limit the impact of the scheme on growing aviation industries in developing states. The phased implementation approach aims to ease the burden of the scheme on developing countries.

ICAO will provide support to states for capacity building and preparing to implement the scheme, the MRV systems and the requirement for registries. This will include providing training and financial support when required. ICAO will offer support in particular to states volunteering for the pilot phase.

CORSIA encourages ICAO to promote emissions units generated by projects benefitting developing countries, and encourages states to develop domestic projects. By participating in the scheme, states will increase demand for emission units and therefore the benefit gained from these projects.

III. Emissions Regulation in the field of maritime transport

1               General

The international organization with a global mandate to produce regulations to reduce emissions from ships is the International Maritime Organization (IMO).

The main IMO treaty dealing with prevention of any kind of pollution from vessels is the International Convention for the Prevention of Pollution from Ships (MARPOL 73-78). The Convention initially included five annexes addressing different kinds of ship´s pollution, namely: oil (I); noxious liquid substances carried in bulk (I); harmful substances carried by sea in packaged form III); sewage (IV) and garbage (V).

In 1997, a new annex VI with regulations for the Prevention of Air Pollution from Ships was added to MARPOL.  The provisions included in Annex VI aim at minimizing airborne emissions from ships (SOx, NOx, ODS, VOC shipboard incineration). Annex VI entered into force on 19 May 2005 and a revised Annex VI with significantly tightened emissions limits was adopted in October 2008 which entered into force on ​1 July 2010.

In 2011, IMO adopted mandatory technical and operational energy efficiency measures – the first ever mandatory global GHG reduction regime for an entire industry sector – which are expected to significantly reduce the amount of CO2 emissions from international shipping. The adopted measures add to MARPOL Annex VI a new Chapter 4 entitled “Regulations on energy efficiency for ships”, making mandatory the Energy Efficiency Design Index (EEDI) for new ships and the Ship Energy Efficiency Plan (SEEMP) for all ships.  The regulations (EEDI/SEEMP) entered into force on 1 January 2013 and apply to all ships of 400 gross tonnage and above.

IMO has also adopted important guidelines aimed at supporting implementation of the mandatory measures to increase energy efficiency and reduce GHG emissions from international shipping, paving the way for the regulations on EEDI and SEEMP to be smoothly implemented by administrations and industry.

The main IMO body in charge of the adoption of anti air pollution measures is the Marine Environment Protection Committee (“MEPC”).

At its 70th session in October 2016 MEPC approved a Roadmap for developing a comprehensive IMO strategy on reduction of GHG emissions from ships, which foresees an initial GHG reduction strategy to be adopted in 2018. It contains a list of activities, with relevant timelines and provides for alignment of those new activities with the ongoing work by MEPC on the three-step approach to ship energy efficiency improvements. This alignment provides a way forward to the adoption of a revised strategy in 2023 to include short-, mid-, and long-term further measures, as required, including implementation schedules.

2               Reduction of GHG Emissions from Ships

In 2012, international shipping was estimated to have contributed about 2.2% to the global emissions of carbon dioxide (CO2). Although international shipping is the most energy efficient mode of mass transport and only a modest contributor to overall CO2 emissions, a global approach to further improve its energy efficiency and effective emission control is needed as sea transport will continue growing apace with world trade.

As already acknowledged by the Kyoto Protocol, CO2 emissions from international shipping cannot be attributed to any particular national economy due to its global nature and complex operation. Therefore, IMO has been energetically pursuing the limitation and reduction of greenhouse gas (GHG) emissions from international shipping, in recognition of the magnitude of the climate change challenge and the intense focus on this topic.​​​​

3               Main provisions to reduce emissions contained in the revised MARPOL Annex VI

Under the revised MARPOL Annex VI, the global sulphur cap will be reduced from current 3.50% to 0.50%, effective from 1 January 2020, subject to a feasibility review to be completed no later than 2018.

MEPC 70 (October 2016) considered an assessment of fuel oil availability to inform the decision to be taken by the Parties to MARPOL Annex VI, and decided that the fuel oil standard (0.50% sulphur limit) will become effective on 1 January 2020.

The limits applicable in Emission Control Areas (ECAs) for SOx and particulate matter were reduced to 0.10%, from 1 January 2015.

Progressive reductions in NOx emissions from marine diesel engines installed on ships are also included, with a “Tier II” emission limit for engines installed on a ship constructed on or after 1 January 2011; and a more stringent “Tier III” emission limit for engines installed on a ship constructed on or after 1 January 2016 operating in ECAs (North American Emission Control Area and the U.S. Caribbean Sea Emission Control Area). Marine diesel engines installed on a ship constructed on or after 1 January 1990 but prior to 1 January 2000 are required to comply with “Tier I” emission limits, if an approved method for that engine has been certified by an Administration.

The revised NOx Technical Code 2008 includes a new chapter based on the agreed approach for regulation of existing (pre-2000) engines established in MARPOL Annex VI, provisions for a direct measurement and monitoring method, a certification procedure for existing engines and test cycles to be applied to Tier II and Tier III engines.

MEPC 66 (April 2014) adopted amendments to regulation 13 of MARPOL Annex VI regarding the effective date of NOx Tier III standards.

The amendments provide for the Tier III NOx standards to be applied to a marine diesel engine that is installed on a ship constructed on or after 1 January 2016 and which operates in the North American Emission Control Area or the U.S. Caribbean Sea Emission Control Area that are designated for the control of NOx emissions.

In addition, the Tier III requirements would apply to installed marine diesel engines when operated in other emission control areas which might be designated in the future for Tier III NOx control. Tier III would apply to ships constructed on or after the date of adoption by the Marine Environment Protection Committee of such an emission control area, or a later date as may be specified in the amendment designating the NOx Tier III emission control area.

Further, the Tier III requirements do not apply to a marine diesel engine installed on a ship constructed prior to 1 January 2021 of less than 500 gross tonnage, of 24 m or over in length, which has been specifically designed and is used solely, for recreational purposes.

Revisions to the regulations for ozone-depleting substances, volatile organic compounds, shipboard incineration, reception facilities and fuel oil quality were also made, with regulations on fuel oil availability added.

The revised measures are expected to have a significant beneficial impact on the atmospheric environment and on human health, particularly for those people living in port cities and coastal communities.

4               Global application of IMO regulations on GHG emissions

IMO regulations to counteract GHG pollution should be applicable to all ships, irrespective of whether they are flying the flag of a developed or a developing country. This means that the regulations contained in MARPOL Annex VI referred above should be enforced by all Parties to MARPOL irrespective of whether they are, or not, UNFCCC Annex I countries.

Thus the general obligation imposed on Annex I countries to work through IMO (under Article 2(2) Kyoto Protocol) cannot be interpreted as an instruction to restrict to these countries the application of maritime technical regulations. To be effective, these regulations must apply universally to all ships, irrespective of whether the flag they fly belongs to developed or developing countries. If it only applied to developed countries shipowners could, for example, change flag from a developed to a developing country to avoid the application of the regulations.

Accordingly, concepts such as the “common but differentiated responsibilities and respective capabilities” should not be interpreted in such a way that any ship may be exempted from compliance, even if it flies the flag of a developing country. In fact the biggest open ship registers are at present managed by developing countries. Therefore to exempt ships flagged into these registers would imply that a majority of the world commercial fleet would be able to elude compliance with IMO GHG regulations. These regulations should be global in nature and applicable to all commercial ships.

This being said, IMO, when developing regulations of global application, fully takes into account the different capacities of its Member States, as this is an essential step in arriving at measures that can be fully implemented.

5               Technical cooperation and transfer of technology

To help developing countries apply IMO GHG regulations, the MEPC at its 65th session in 2013 adopted Resolution 229 on Promotion of Technical Co-operation and Transfer of Technology relating to the Improvement of Energy Efficiency of Ships. The resolution focuses on technical co-operation and capacity building to ensure smooth and effective implementation and enforcement of the new regulations worldwide.  To that effect, IMO has been undertaking a series of workshops in all regions of the world on implementation of the measures to address GHG emissions from international shipping.

Request for technical cooperation/assistance by IMO in accordance with this resolution should be addressed by the competent minister in charge of the area on prevention of pollution from vessels´ source to the Secretary-General of IMO.

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