Regulating carbon emissions in global shipping: an evolving landscape

By Isabel Phillips, Associate, and Joseph Malpas, Associate, HFW, IUMI Professional Partner,

The spotlight is on global shipping to decarbonise. The sector is responsible for around 3% of global greenhouse gas ('GHG') emissions[1], equivalent to the 6th largest GHG emitting country worldwide. Without policy intervention, emissions from the sector are projected to increase further in line with the increasing growth of international commerce.  

In order to address the decarbonisation challenge, a number of policy proposals have been made for shipping.  

For example, the International Maritime Organization’s (IMO) Marine Environment Protection Committee (MEPC) has approved draft regulations that, if formally adopted at MEPC 76 in mid-June, would apply from 1 January 2023. The Energy Efficiency Existing Ship Index (EEXI) would impose targets for energy-efficient ship design on all existing ships above 400GT, and the Carbon Intensity Indicator (CII) operational efficiency rating system would apply to all vessels above 5,000GT. For more information on these measures and their potential impact, read more HERE.

The European Union (EU) has also proposed to include the shipping sector in its Emissions Trading System (ETS), with the outcome of a formal consultation to be announced around 14 July 2021. Assuming shipping is included in the ETS, the regime could apply from as early as 1 January 2022, and whilst numerous questions remain, it appears the ETS would sit alongside the IMO's EEXI and CII regimes. For further details, please see HFW's briefing HERE.

The picture is further complicated by the potential inclusion of shipping in other national emissions trading schemes (such as China and the UK) depending on the outcome of the EU's consultation, and also various other 'market-based measures' that have been proposed, such as carbon levies.  

Debate also continues regarding the emissions reduction targets that the shipping sector should adhere to, with the USA recently proposing that the IMO should increase its target to achieve absolute zero GHG emissions by 2050.

An evolving and multi-layered regulatory landscape is therefore emerging for the decarbonisation of the shipping sector. Many questions as to the application, impact and interaction between these proposals are yet to be answered, creating considerable uncertainty for the industry. HFW consider the challenges in more detail [HERE].