Market-Based Measures

In line with the work plan adopted at MEPC 55 (October 2006), potential Market-Based Measures (MBMs) have been considered in-depth since MEPC 56 (July 2006).  MEPC 55 work plan ceased at MEPC 59 (July 2009), where the Committee recognized that technical and operational measures would not be sufficient to satisfactorily reduce the amount of greenhouse gas (GHG) emissions from international shipping in view of the growth projections of world trade.  It was therefore agreed by overwhelming majority that an MBM was needed as part of a comprehensive package of measure for the effective regulation of GHG emissions from international shipping.  In this regard, the Committee agreed upon a new work plan for the further consideration of MBMs culminating in July 2011 at MEPC 62.  The new work plan guides the future discussions on MBMs as follows:
  1. Member States, Associate Members and observer organizations should endeavour to submit further detailed outlines of possible MBMs to MEPC 60 (March 2010);
  2. MEPC 60 would further consider the methodology and criteria for feasibility studies and impact assessments in relation to international shipping, giving priority to the overall impact on the maritime sectors of developing countries;
  3. taking into account the outcome and conclusions of the studies mentioned in paragraph 2 above and any other contribution made, the Committee would be able, preferably by MEPC 61 (September/October 2010), to clearly indicate which MBM it wishes to evaluate further and identify the elements that could be included in such a measure; and
  4. based on the outcome mentioned in paragraph 3, MEPC 62 (July 2011) could be in a position to report progress on the issue to the twenty-seventh regular session of the Assembly, to identify possible future steps.

MBMs place a price on GHG emissions and serve two main purposes:

  1. providing an economic incentive for the maritime industry to reduce its fuel consumption by investing in more fuel efficient ships and technologies and to operate ships in a more energy efficient-manner (in-sector reductions); and
  2. offsetting in other sectors of growing ship emissions (out-of-sector reductions).
In addition, MBMs can generate funds that could be used for different purposes such as adaptation and transfer of technology.
Proposed Market-Based Measures
The MBMs proposals, from governments and observer organisations, that have been considered by the Committee so far range from contribution schemes for carbon dioxide (CO2) emissions from international shipping (to be collected and transferred to a fund), via emission trading systems, to schemes based on the actual ship's efficiency both by design and operation.
To date, Governments and observer organizations proposed the following MBMs:
  1. International Fund for GHG emissions from ships (GHG Fund) (Cyprus, Denmark, the Marshall Islands, Nigeria and IPTA
    (MEPC 60/4/8)):
    Establishes a global reduction target for international shipping, set by either UNFCCC or IMO. Emissions above the target line would be offset largely by purchasing approved emission reduction credits. The offsetting activities would be financed by a contribution paid by ships on every tonne of bunker fuel purchased.
  2. Leveraged Incentive Scheme (LIS) (Japan (MEPC 60/4/37)): GHG Fund contributions are collected on marine bunker. Part thereof is refunded to ships meeting or exceeding agreed efficiency benchmarks and labelled as “good performance ships”.
  3. Port State Levy (Jamaica (MEPC 60/4/40)): Levies a uniform emissions charge on all vessels calling at their respective ports based on the amount of fuel consumed by the respective vessel on its voyage to that port (not bunker suppliers).
  4. Ship Efficiency and Credit Trading (SECT) (United Sates
    (MEPC 60/4/12)):
    Subjects all ships to mandatory energy efficiency standards. As one means of complying with the standard, an efficiency-credit trading programme would be established. These standards would become more stringent over time,
  5. Vessel Efficiency System (VES) (World Shipping Council
    (MEPC 60/4/39)):
    Establishes mandatory efficiency standards for new and existing ships. Each vessel would be judged against a requirement to improve its efficiency by X% below the average efficiency (baseline) for the specific vessel class and size. Standards would be tiered over time with increasing stringency. Existing ships failing to meet the required standard through technical modifications would be subject to a fee applied to each tonne of fuel consumed.
  6. Global Emission Trading System (ETS) for international shipping (Norway (MEPC 61/4/22)): Sets a sector-wide cap on net emissions from international shipping. A number of allowances (Ship Emission Units) corresponding to the cap would be released into the market each year via a global auctioning process. The units could then be traded.
  7. Global Emissions Trading System (ETS) for international shipping (United Kingdom (MEPC 60/4/26)): Differs from the Norwegian ETS proposal in two aspects: the method of allocating emissions allowances (national instead of global auctioning) and the approach for setting the emissions cap (set with a long term declining trajectory).
  8. Emissions Trading System (ETS) for International Shipping (France (MEPC 60/4/41)): Sets out additional details on auction design under a shipping ETS. In all other aspects the proposal is similar to the Norwegian ETS proposal.
  9. Market-Based Instruments: a penalty on trade and development (Bahamas (MEPC 60/4/10)): Insists that the imposition of any costs should be proportionate to the contribution by international shipping to global CO2 emissions.
  10. Rebate Mechanism (RM) for a market-based instrument for international shipping (IUCN (MEPC 60/4/55)): Compensate developing countries for the financial impact of a MBM.  It could be applied to any maritime MBM which generates revenue.
MEPC 60 called for an expert group to undertake a feasibility study and impact assessment on MBMs that had previously been proposed by governments and observer organizations.  The results of the expert group were presented at MEPC 61 where an extensive debate was held on how to progress the development of suitable MBMs.  The Committee agreed to hold an Intersessional Meeting of the Working Group on GHG Emissions from Ships (GHG-WG 3) that was held in March/April 2011 and its report was submitted to MEPC 62.  However, due to time constraints and the busy agenda of MEPC 62, it was agreed to postpone the consideration of MBMs to the next MEPC session (MEPC 63 in February/March 2012).
MEPC 63 continued its consideration of proposed MBMs, and agreed on the need to undertake an impact assessment of the MBM proposals with focus on possible impacts on consumers and industries in developing countries, in general, and in particular, least developed countries, small islands developing States and remotely located developing countries with long trading distances, and considered in detail the methodology and criteria it should be based on.
MEPC 65, in noting several submissions on this matter, agreed to suspend discussions on MBMs and related issues to a future session.