- International shipping plays a central role in global trade, carrying 70% of that trade by value and more than 80% by volume.
- This collaboration has been particularly close during this assessment.
- The main outcome of this project will be a Study on maritime transport costs data in the Pacific region which is to be submitted to the IMO Secretariat by 1 October 2022.
Global trade is heavily dependent on international shipping, which moves more than 80% of its volume and 70% of its value. According to the IMO Fourth GHG Study, it is nevertheless a substantial source of greenhouse gas (GHG) emissions, contributing to about 2.89 percent of global emissions (2020) as reported by All About Shipping.
International maritime standards
The International Maritime Organization (IMO) is a specialised institution of the United Nations that creates international maritime standards in areas including safety, security, and the avoidance of pollution from ships, particularly air pollution.
The International Maritime Organization (IMO) confirmed its commitment to lowering GHG emissions from international shipping and to phasing them out as soon as practicable when it adopted an Initial Strategy on the reduction of GHG emissions from ships in April 2018. In 2023, the Strategy is expected to be enhanced and changed. The Initial Strategy includes a number of potential GHG reduction strategies, divided into short, mid, and long-term strategies.
Evaluating the effects of future IMO GHG reduction actions on States
The Initial Strategy recognizes that the possible impacts on States of candidate GHG reduction measure should be assessed and considered before their adoption and lays out parameters to assess these impacts.
These include geographic remoteness, connectivity to main markets, cargo value and type, transport dependency, transport costs, food security, disaster response, cost-effectiveness and socio-economic progress and development.
It underscores that particular attention in these impact assessments should be paid to the needs of developing countries, especially Small Island Developing States (SIDS) and Least Developed Countries (LDCs).
UNCTAD was invited by IMO to undertake, based on a prior assessment of impacts of the proposed measure on the world fleet, a quantitative and qualitative comprehensive assessment of the possible impacts of the IMO measure on States.
IMO and UNCTAD, as members of the UN family, have a long-standing collaborative relationship.
This collaboration has been particularly close during this assessment.
Increase the accessibility of maritime transport costs data in the Pacific region
In response to the observations of MEPC and TC, the IMO Secretariat initiated a project aiming to improve the availability of relevant maritime transport costs data for the Pacific SIDS/Pacific Region with a view to facilitating future assessments of the possible impacts on States of potential GHG reduction measures in shipping, including, as appropriate, carbon pricing instruments.
To assist in this, the project aims to establish interim baselines and to initiate the modelling of the impact on Pacific SIDS of a hypothetical increase in transport costs or change in connectivity patterns.
The activity will be implemented by MTCC-Pacific, a centre of expertise established by IMO as part of the Global MTCC Network (GMN) and hosted by the Pacific Community (SPC) and the Secretariat of the Pacific Regional Environment Programme (SPREP).
To ensure that the outcomes of the project are transparent and not policy prescriptive, a broad range of organizations, institutions and resources with relevant experience and expertise, including UNCTAD, will to be involved.
The main outcome of this project will be a Study on maritime transport costs data in the Pacific region which is to be submitted to the IMO Secretariat by 1 October 2022.
The project is funded by the IMO GHG-TC Trust Fund.
What do the new standards for ships entail in terms of the short-term GHG reduction benchmark?
Starting from 1 January 2023:
- All ships of 400 GT and above will be required to calculate their Energy Efficiency Existing Ship Index (EEXI) and to implement technical means to improve their energy efficiency. Ships are required to meet a specific required EEXI which is based on a required reduction factor (expressed as a percentage relative to the EEDI baseline) equivalent to EEDI phase 2 or 3, thus creating a level playing field between old and new ships.
- All ships of 5,000 gross tonnage and above will be required to calculate and report their operational carbon intensity using indicators (CII) which link the GHG emissions to the transport work (carrying capacity) of ships. In 2024, ships will be rated (A, B, C, D, E – where A is the best) against a reference line and required reduction factors, which will be incorporated in their mandatory documentation to be issued by Administrations. Ships rated E or D for three consecutive years, will have to submit a corrective action plan, to show how the required index (C or above) would be achieved. Administrations, port authorities and other stakeholders, as appropriate, are also encouraged to provide incentives to ships rated as A or B.
Results of the UNCTAD analysis:
To deliver on the task at hand, UNCTAD adopted a two-pronged approach involving two interlinked steps.
The first step involved an assessment of the changes in maritime logistics costs – including shipping (transport) and time-related costs – resulting from the IMO GHG short-term measure.
In the second step, UNCTAD used a global trade model to simulate the impact of estimated changes in maritime logistics costs, trade and GDP.
It involved calculating changes in cost intensity of different ship types and distance travelled (see figure 1), translating these changes into shipping and transport costs (beyond maritime), calculating transit times at sea and trade modelling.
UNCTAD’s assessment covered: all ships covered by the regulations (2019), all ships’ journeys (2019), assessing impact on logistics costs (for 230 territories), trade flows (imports, exports and GVC-related trade) (for 184 economies) and GDP (for 184 economies).
It compared a regulatory scenario consisting of only EEDI requirements being adopted (baseline scenario) with 3 alternative regulatory scenarios:
- “EEXI-only” scenario included EEXI requirements only
- “High-GHG” scenario included both EEXI and CII requirements, with a CII average reduction requirement of 21.5 per cent between 2019 and 2030
- “Low-GHG” scenario included both EEXI and CII requirements, with a CII average reduction requirement of 10.2 per cent between 2019 and 2030
The CII requirements agreed at MEPC 76 were in between the “Low-GHG” and “High-GHG” scenarios.
Although different countries are affected differently (for instance, depending on their trade profile) the report found that short-term GHG reduction measure could entail, for 2030:
- An upward average increase in maritime logistics costs ranging from 1.6% (EEXI-only scenario), 3.1% (Low-GHG) and 7.6% (High-GHG)
- Trade reduction at the global level ranging between 0.10% (EEXI-only), -0.49% (High-GHG) and -0.21% (Low-GHG)
- GDP reduction at the global level ranging between -0.01% (EEXI-only), -0.04% (High-GHG) and 0.02% (Low-GHG)
When compared to the regular market unpredictability of freight rates, these numbers can be viewed as modest increases in logistical costs. When compared to the pandemic or climate change elements’ long-term impact disruption, the global effects on GDP and trade flows can likewise be viewed as minor. The impact is comparatively greater for some nations, especially Pacific SIDS and LDCs, indicating the need for help to offset and ameliorate adverse effects on real income and trade flows.
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Source: All About Shipping