Industry bodies pitch ‘pooled compliance’ as part of simplified global GHG fuel standard

The International Chamber of Shipping (ICS) and the International Bunker Industry Association (IBIA) have submitted a joint proposal to the shipping industry’s global regulator, the UN International Maritime Organization (IMO), for a Global GHG Fuel Standard (GFS).

The proposal, set to be discussed at the next round of IMO negotiations in March 2024, sets out draft amendments to Annex VI of the MARPOL Convention in terms of the maximum permitted GHG intensity of marine fuels in 2030, to be followed by an aggressive tightening of the standard in 2040.

The simplified standard would not make use of the IMO Fuel Oil Data Collection System (DCS) and it would enable extending the application of the GFS to ships of 400 GT and above.

Namely, the previous proposals for GFS suggested a tonnage threshold of 5,000 gross tons (GT) and above, and verification through the use of DCS. However, concerns have been raised that this could create an uneven market for marine fuel, potentially fostering unfair competition and incentives to build ships just below the threshold to avoid compliance with the framework, especially after 2030 when stricter GHG intensity standards are in place.

The verification of compliance would instead be implemented through the bunker delivery notes, which can be checked by the administration and port state control, thus minimizing the administrative burden.

The simplified approach suggests that the IMO would not have to develop a large set of new guidelines, at least until 2030, ensuring the measure can be uniformly and smoothly implemented.

ICS and IBIA said that the proposal also provides for an ‘energy pooling compliance mechanism’ to address the possibility of fuel producers being unable to supply new fuels in sufficient quantities.

The mechanism would permit a ship, or ships, which ‘over-comply’ with the required GFI – operated by the same or different companies and registered with one or more flag states – to share the ‘excess’ required GFI with another ship or ships in the ‘pool’ that may be unable to comply fully with the requirement.

When pooling the GFI with ships in other companies’ fleets, this would be done through private commercial arrangements, which are common for the P&I insurance of ships.

As explained, in this way ships will be able to continue to trade should sufficient quantities of fuels of the required GHG intensity not be made available by energy producers, but without increasing the sector’s total GHG emissions.

“Our joint proposal provides flexibility to enable compliance by ships should fuels of the required GHG intensity not always be available. This simplified approach avoids the need for an overly complex system, as proposed by the European Union, whereby “compliance units” or “remedial units” would need to be registered with or purchased from a central IMO registry,” Simon Bennett, Deputy Secretary General of the International Chamber of Shipping, explained.

“The proposed method of pooled compliance would be a private arrangement between shipping companies and would avoid unnecessary administrative burden for governments, including developing countries’ administrations whose support will be vital to move forward at IMO.”

“The bunker industry fully supports an internationally agreed GHG fuel standard for 2030 which will help to create a global market for marine fuels with a reduced GHG intensity, including sustainable biofuels largely supplied as blends which many existing ships are expected to use to enable them to comply,” Edmund Hughes, IBIA’s representative at IMO, added.

“We fully agree with shipowners, as represented by ICS, that the design of the global fuel standard needs to be kept as simple as possible if, as identified by the 2023 IMO GHG Strategy, governments wish to have a workable system in place within the next 18 months, that can be uniformly and consistently implemented and that keeps the administrative burden for bunker operators and suppliers to a minimum.”

The aim is to progressively reduce the GHG intensity of marine fuels and create a market for the production of zero and near-zero GHG fuels in line with the IMO’s decarbonization ambitions.

The industry believes that maximum flexibility for achieving compliance with green fuel standards would be required in order for the industry to meet the indicative checkpoints set out in the IMO’s 2023 GHG Strategy.

As a technical measure, the GFS is a performance standard, independent of fuel type, which may help increase the production and uptake of all types of low, near-zero and zero GHG fuels, including methanol, ammonia, hydrogen and synthetic fuels, which some ships may start to use before 2030, as well as sustainable biofuels.

The global fuel standard is being pursued as part of a basket of market-based mid-term measures to help meet the IMO decarbonization targets, including a carbon levy to be collected from ships for an IMO fund on GHG emissions.

Specifically, the industry believes that significant production and availability of near-zero and zero GHG fuels is only likely to occur after 2030 and will only be possible if the GFS is complemented by an economic measure, such as the fund and reward mechanism.