Is The EU 'Undermining' UN Efforts To Curb Maritime Pollution?

I Bold some pertinent stats below.

Is The EU 'Undermining' UN Efforts To Curb Maritime Pollution?
Jan 28 2017, 06:00

Summary

The European Parliament's Environment Committee recently decided to take regional action over ship emissions unless the United Nation's International Maritime Organization (IMO) acts first.
Shipping, which is exempt from the Paris Agreement, now accounts for around 2.2 percent of world emissions of carbon dioxide (CO2) and that share is forecast to rise dramatically.
The shipping industry, which accounts for approximately 90 percent of goods transported globally, ‎has largely rejected unilateral moves by the EU, arguing it would distort world trade.
Note: This article was originally published January 13th on Value Investor's Edge, a Seeking Alpha subscription service.

Overview

This past December, the European Parliament's Environment Committee decided to include shipping emissions in the EU's Emissions Trading System in 2023 if the UN's International Maritime Organization fails to adopt a comparable system for global shipping by 2021.

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Source: Bluebird

The EU Emissions Trading System (ETS) is a cornerstone of the EU's policy to combat climate change and its key tool for reducing greenhouse gas emissions cost-effectively. It is the world's first major carbon market and remains the biggest one.

It operates in all 28 EU countries plus Iceland, Liechtenstein and Norway and limits emissions from more than 11,000 energy intensive installations (power stations & industrial plants) and airlines operating between these countries. Overall, it covers around 45% of the EU's greenhouse gas emissions.

The ETS works on the 'cap and trade' principle.

A cap is set on the total amount of certain greenhouse gases that can be emitted by installations covered by the system. The cap is reduced over time so that total emissions fall.

Within the cap, companies receive or buy emission allowances which they can trade with one another as needed. They can also buy limited amounts of international credits from emission-saving projects around the world. The limit on the total number of allowances available ensures that they have a value.

After each year a company must surrender enough allowances to cover all its emissions, otherwise heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or else sell them to another company that is short of allowances.

Trading brings flexibility that ensures emissions are cut where it costs least to do so. A robust carbon price also promotes investment in clean, low-carbon technologies.

IMO Too Slow?

In the past year we have seen a couple major developments come out of the IMO regarding environmental protections. The first was the Ballast Water Management Convention followed by a mandate to reduce sulfur emissions. Both projects had been in the works for many, many years.

I have written about both and warned that due to the extended time it took to develop and then implement these measures the IMO could be perceived to be falling behind the curve in terms of environmental protection which is widely viewed as having greater importance now more than ever.

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Well, it appears that I wasn't the only one feeling this way and the latest action out of the EU confirms this sentiment. I have previously warned that acting too slow would lead to unilateral action on the part of individual governments which could create a fragmented playing field and potential distorting the current market.

While smaller markets, like California for example, have implemented strict guidelines surpassing the IMO's own regulations this latest move by the EU represents a major shift in the global shipping market and could impact a significant number of vessels and companies.

Those companies include but not limited to Ardmore Shipping (NYSE:ASC), Costamare Inc. (NYSE:CMRE), Capital Product Partners L.P. (NASDAQ:CPLP), Danaos Corporation (NYSE:DAC), Diana Containerships (NASDAQ:DCIX), DHT Holdings (NYSE:DHT), Dynagas LNG (NYSE:DLNG), DryShips (NASDAQ:DRYS), Diana Shipping (NYSE:DSX), Euronav (NYSE:EURN), Frontline (NYSE:FRO), Golar LNG (NASDAQ:GLNG), GasLog (NYSE:GLOG), GasLog Partners (NYSE:GLOP), Golar LNG Partners (NASDAQ:GMLP), Genco Shipping (NYSE:GNK), Gener8 Maritime (NYSE:GNRT), Golden Ocean Group (NASDAQ:GOGL), Navios Maritime Midstream Partners (NYSE:NAP), Nordic American Tankers (NYSE:NAT), Navios Maritime Holdings (NYSE:NM), Navios Maritime Partners (NYSE:NMM), Navios Maritime Acquisition (NYSE:NNA), Pyxis Tankers (NASDAQ:PXS), Scorpio Bulkers (NYSE:SALT), Safe Bulkers (NYSE:SB), Star Bulk (NASDAQ:SBLK), Ship Finance International (NYSE:SFL), Seaspan Corporation (NYSE:SSW), Scorpio Tankers (NYSE:STNG), Teekay LNG Partners (NYSE:TGP), Teekay Corporation (NYSE:TK), Teekay Tankers (NYSE:TNK) and Tsakos Energy Navigation (NYSE:TNP).

Battlefield Earth

The 2015 Paris Agreement makes no reference to emissions from international shipping, due to the global nature of the sector and the difficulty in allocating emissions from a ship to a single state.

IMO's own research found that shipping GHG emissions are up 70% since 1990 and are projected to grow by up to a further 250% by 2050. A recent European Parliament study shows shipping could be responsible for 17% of global CO2 emissions in 2050 if left unregulated.

To put it in perspective, Pulitzer Prize-winning journalist Edward Humes, author of "Door to Door" recently revealed some startling facts on a NPR interview last April. He noted that just 160 large container ships create more emissions than all the cars in the world combined.

Gas2.org expanded on those statistics:

There are more than 6000 cargo ships plying back and forth across the oceans of the world today. Do the math. Ocean shipping puts 375 times more pollutants into the atmosphere every year than all the cars in all the countries in the world combined. But you won't see those statistics reflected anywhere. The vast majority of those emissions take place on the high seas and are not included in the official emissions tally for any one nation. It is an invisible problem that is responsible for hundreds of thousands of premature deaths every year and millions of negative health outcomes worldwide.

EU Vs. UN

The inclusion of shipping in the ETS represents the most significant unilateral action taken against an industry that has largely escaped regulation in the past.

This action is the result of mounting frustration as illustrated by a comment from an EU spokesperson:

There is potential to reduce emissions from the shipping sector significantly, yet currently there are no adequate regulatory measures in place to limit or reduce them. Action is needed. More action and fewer letters.

But the IMO is less than enthusiastic about the EU attempting to take the lead on reducing global emissions.

IMO Secretary-General Lim stated:

I am concerned that a final decision to extend the EU-ETS to shipping emissions would not only be premature but would seriously impact on the work of IMO to address GHG emissions from international shipping. Inclusion of emissions from ships in the EU-ETS significantly risks undermining efforts on a global level.

The International Chamber of Shipping's (ICS), Simon Bennett believes:

The EU ETS has been an abject failure. Its unilateral application to global shipping would create market distortion while generating trade disputes with China and other Asian nations, as happened when the E.U. tried unsuccessfully to impose its ETS on international aviation.

But not all shipping bodies are crying foul. The Port of Rotterdam is the largest port in Europe in terms of annual throughput, currently handling around 30,000 seagoing vessels and 110,000 inland vessels every year.

It is important to note that shipping emissions in ports follow a highly skewed distribution pattern, with more than a third of the emissions occurring in only 50 ports. This points to the concentration of air pollution in selected environmental hotspots, among them would be the Port of Rotterdam.

The Port of Rotterdam Authority is supporting the European Parliament to put pressure on the International Maritime Organization (IMO) to produce an ambitious worldwide CO2 reduction plan for sea shipping. Given the recent plans, measures could only be expected by 2023 at the earliest. "Far too late. The plans are not challenging enough," believes President and Chief Executive Officer of the Port Authority, Allard Castelein. He added, "we are prepared to make a supportive contribution to the implementation of measures."

Those advocating swiftly addressing this issue believe that utilizing governmental bodies like the EU will ultimately put pressure on the IMO to act faster if they wish to maintain the uniform nature of shipping rules and regulations around the globe.

As Secretary Lim noted, "unilateral or regional action that conflicts with or undermines actions that have been carefully considered and deliberated by the global community at IMO threatens world-wide confidence in the consistent, uniform system of regulation developed by IMO."

Obviously if that uniformity is to be maintained the IMO will be forced to address this issue and develop an acceptable plan prior to 2021. If it fails to do so regional action may begin to alter trade flows and while the environment may benefit, some predict it may well lead to cargo being transshipped outside of Europe with direct impacts on European employment.

Already the pressure seems to be working as The Business Insider reports:

In response IMO Secretary-General Kitack Lim said tackling the issue was a matter of "urgency" and it would continue its work to find a global solution for controlling greenhouse gas emissions "by working together and not leaving anyone behind".

Conclusion

While the UN sees the latest unilateral action out of the EU as undermining the uniformity of the global rules and regulations of which shippers must abide, others see this route as a method of putting pressure on the IMO to address issues which have lingered on for far too long.

Reactions are mixed with shippers uniformly decrying this action while environmental groups and those regions strongly impacted by harmful CO2 emissions supporting the action.

This regional action represents the largest unilateral measure ever taken and it remains to be seen if it proves successful in pressuring the IMO into taking the lead. If successful the future could see more regional bodies attempting to address issues they deem important by threatening or implementing changes which threaten to derail the uniformity of shipping laws, rules, and regulations.

The IMO has often been criticized for acting to slow on issues of significant global importance. Now it appears other governmental bodies are no longer accepting this and taking the lead. If the IMO fails to address future issues in a timely manner, regional action my become more frequent and begin to erode the importance and credibility of the UN's IMO.

The IMO's track record for speedy implementation of vital environmental protection is not great. It took approximately 13 years after first recognizing the need for Ballast Water Management before actual measures were implemented. It took approximately 12 years for sulfur emissions to be curbed on a global scale after amendments were adopted in 2008. This followed the Annex VI to the International Convention for the Prevention of Pollution from Ships (MARPOL Convention) in 1997 which officially recognized the problem and the need for regulation.

The issue of CO2 emissions from maritime trade is an important one and many are not willing to wait several more years for it to be addressed.

Source:
Is The EU 'Undermining' UN Efforts To Curb Maritime Pollution? https://seekingalpha.com/article/4040332?source=ansh
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