COP 26 and MEPC77: an update on shipping's progress towards decarbonisation

By Alessio Sbraga, Partner, and Isabel Phillips, Associate, HFW, IUMI Professional Partner,

November was a busy month for the shipping industry's decarbonisation agenda, with discussions and outcomes from COP26 feeding into the MEPC77 agenda.

Specific to the shipping industry, dialogue at both events has broadly centred on increased ambition for global decarbonisation targets and appropriate means of securing the requisite level of investment in alternative fuels and technologies: R&D funds, market-based measures ('MBMs') and incentives.

At COP26, the First Movers Coalition got the investment ball rolling, with tangible commitments from participating names to purchase green hydrogen and ammonia aiming to trigger further investment in alternative fuel plants.

This was followed by the Clydebank Declaration's launch of at least six green shipping corridors by 2025 and more by 2030. These proposed deepsea shipping routes for zero-emissions vessels aim to spur signatories' investment in the requisite infrastructure at the load and disports.

COP26 also saw momentum build behind the call for a revised IMO shipping target of net zero GHG emissions by 2050, to better align with the Paris Agreement's 1.5°C global heating cap goal. Whilst there was a general consensus at MEPC77 that the initial IMO GHG strategy required strengthening, certain EU states and other large fossil fuel producing nations temporarily halted this, deeming the scheduled 2023 review the appropriate time to revisit all elements of the IMO's decarbonisation strategy.

Another strand to the MEPC77 investment dialogue was the focus on the proposal (from International Chamber of Shipping (ICS), BIMCO and other industry bodies) for a US$5bn International Maritime Research Board ('IMRB') and Fund ('IMRF') with funds coming from a US$2 levy per tonne of CO2 equivalent. While this proposal gained significant backing, further discussions must continue at next year's Intersessional Working Group before we come closer to realising this proposal.

However, concerns were raised over the IMRB and IMRF by nations pushing for increased ambition and those adopting a more cautionary approach to the decarbonisation agenda. The latter group questioned the effectiveness, management, and fairness (towards developing nations) of the IMRB/IMRF. The former group criticised the low level of the levy, particularly compared to the US$100 levy per tonne proposal from the Marshall Islands and Solomon Islands.

Notably, other more extensive MBM proposals (i.e., Norway's proposal for a GHG intensity limit and emissions cap and trade scheme) along with the US$100 levy per tonne proposal were not given much airtime at MEPC77 and discussions were deferred to the next MEPC meetings in 2022.

A positive outcome from MEPC77 was the IMO's US$400,000 contribution to fund a 12-month preparatory phase of the new IMO CARES initiative, which aims to accelerate the development and deployment of green technologies.

The IMO's inability to achieve broader MBMs for shipping is likely to spur other actors, such as the EU, to take action. Under the Fit for 55 package, the EU proposes to include carbon emissions from the shipping sector in the EU ETS from 2023 and from 2025 will require GHG intensity reductions from vessel fuels under the FuelEU Maritime proposal [Read more here[1]].  However, this would be in addition to MARPOL's EEXI/CII regulations due to come into force from 1 January 2023 [Read more here[2] and here[3]]. 

Another area of contention at MEPC77 centred on a non-binding resolution for the voluntary use of alternative fuels to reduce black carbon emissions in the Arctic. This generated significant debate, but a resolution was eventually adopted.

Despite the enthusiasm and expansive statements of COP26, MEPC77 has made it clear that shipping industry nations are far from aligned when it comes to steps towards decarbonisation and that accelerating change may prove more challenging and time-consuming than initially hoped for.