thesis de juste volledige versie - ghent...

12/5/2010

By Michiel Vervloet |

EMISSION TRADING IN THE SHIPPING

INDUSTRY: WHERE GOES / IS THE MONEY ?

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In honour of

François ‘Swat’ Vervloet

A gentleman amongst peers,

A master for his crew.

And he is my grandfather.

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ACKNOWLEDGEMENTS

This dissertation was made possible thanks to the guidance of my promoter Mr. Guido Van Meel from

the Port of Antwerp. Mr. Van Meel supported me by giving me the right incentives in the form of

documents where he let me distillate my own opinion from. Therefore I thank him for his support.

I also want to thank my parents who inspire me by the persons they are. They allowed me to study this

extra master and coached me by their actions. And I thank them for the wisdoms they thought me.

My sister and her husband made it possible for me to have some weekly distraction by the fact that

they moved to a new place where we had to rebuild it first. For those building activities and the funny

situations that rebuilding a house brings along I thank them.

Finally I want to thank my best friend Katrijn. Our swimming hour where we laugh which each others

situations is simply the best moment of a working week.

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INHOUD

Acknowledgements .................................................................................................................................. 3

Figure list ................................................................................................................................................. 6

List of Tables ........................................................................................................................................... 6

Capturing the Essence ............................................................................................................................ 10

De Essentie ............................................................................................................................................ 14

Chapter 1: Starting up the Engine .......................................................................................................... 18

1.1 Ignition......................................................................................................................................... 18

1.2 Economies of Evenvironment Shipping (EES)(Michiel Vervloet) ............................................. 19

1.3 Operating a ship in Shallow waters ............................................................................................. 22

Chapter 2: Environment Friendly Fuel Combustion (EFFC) (Michiel Vervloet, 2010)........................ 24

2.1 Ignition......................................................................................................................................... 24

2.2 The Cost of Green Fuel Combustion ........................................................................................... 25

2.2.1 Operational costs................................................................................................................... 25

2.2.2 Market based instruments (MBIs) ........................................................................................ 28

2.2.3 Looking ahead ...................................................................................................................... 37

2.3 Capturing the Essence.................................................................................................................. 38

Chapter 3: The Green Money ................................................................................................................ 39

3.1 Ignition......................................................................................................................................... 39

3.2 Green Money in Shallow Waters ................................................................................................. 40

3.2.1 Marine fuels and alternative energy sources ........................................................................ 41

3.3.2 Energy Efficiency improvements ......................................................................................... 42

3.3.3 Looking ahead ...................................................................................................................... 42

3.3 Green Money in Trouble Waters ................................................................................................. 43

3.3.1 Ports ...................................................................................................................................... 43

3.3.2 Insurance companies ............................................................................................................. 43

3.4 Green Money on Shore ................................................................................................................ 44

3.4.1 Going green .......................................................................................................................... 44

3.4.2 Media and environmental groups ......................................................................................... 44

3.4.3 Barriers and bottlenecks........................................................................................................ 45


Chapter 4: Ecocheck .............................................................................................................................. 48

4.1 Ignition......................................................................................................................................... 48

4.2 Ecocheck on the Sea .................................................................................................................... 49

4.3 Ecochek in Shallow Waters ......................................................................................................... 49

4.3.1 Principles: equitable, fast, effective, mutually acceptable .................................................... 50

4.3.2 How are disputes settled? ..................................................................................................... 51

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4.3.3 Appeals ................................................................................................................................. 52

4.3.4 The case has been decided: what next?................................................................................. 52

4.3.5 Looking ahead ...................................................................................................................... 53

4.4 Ecocheck in Trouble Waters ........................................................................................................ 54


Chapter 5: Manoeuvring in Shallow Waters .......................................................................................... 56

5.1 Ignition......................................................................................................................................... 56

5.2 The Selection of a Good Pilot ...................................................................................................... 57

5.3 Optimal Servicing in Trouble Waters .......................................................................................... 58

5.4 Green Agreement in Shallow Waters .......................................................................................... 58


Chapter 6: Economical & Environment Friendly Shipping ................................................................... 60

6.1 Ignition......................................................................................................................................... 60

6.2 Green Cards on the Table ............................................................................................................ 61

6.3 Green Effect on Industry ............................................................................................................. 61

6.4 Sailing Green ............................................................................................................................... 63

References.............................................................................................................................................. 65

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FIGURE LIST

Figure 1: Transport cost of coal and oil, 1948 – 2007…………………………………………….18

Figure 2: Grammes of CO2 to carry one tonne of cargo for one km………………………………….38

LIST OF TABLES

Table 1: Exhaust emissions (million tonnes) from TOTAL shipping, 1990 – 2007………………..…23

Table 2: Fuel consumption (million tonnes) from 1990 to 2007…........................................................25

Table 3: Exhaust emissions (million tonnes) from INTERNATIONAL SHIPPING, 1990 – 2007…....27

Table 4: CO2 multiplicator and my consensus estimates (based on 2007 data)……………………….27

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ABBRIVIATIONS LIST

AIS: Automatic Identification System

ASA: Australian Ship owners’ Association

BDN: Bunker Delivery Note

BIMCO: Baltic and International Maritime COunsil

CH4: Methane

CO2: Carbon Dioxide

COP 15: Copenhagen Agreement

DSA: Danish Ship owners’ Association

DSB: Dispute Settlement Body

EC: European Council

ECA: Emission Control Area

EEDI: Energy Efficiency Design Index

EEOI: Energy Efficiency Operational Index

EES: Economics of Environment Shipping

ESI: Environmental Ship Index

EU ETS: European Union Emissions Trading Scheme

F&R: Funding & Recognition

GATT: General Agreement on Tariffs and Trade

HFO: Heavy Fuel Oil

HKSA: Hong Kong Ship owners’ Association

ICF: International Shipping Federation

ICS: International Chamber of Shipping

IMO SS GHG: IMO Second Study on Green House Gases

IMO: International Maritime Organisation

JSA: Japanese Ship owners’ Association

LDCs: Least Developed Countries

LNG: Liquefied Natural Gas

MARPOL: Maritime Pollution

MDSB: Maritime Dispute Settlement Body

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MEPC: Maritime Environment Protection Committee

MEPC: Maritime Environmental Protection Committee

N2O: Dinitrate Oxide

NMVOC: Non-methane volatile organic compounds

NOx: Nitrogen Oxides

NSA: Norwegian Ship owners’ Association

OECD: Organisation for Economic Cooperation & Development

OPA: Oil Pollution Act

Paris MOU: Paris Memorandum Of Understanding

PIDA: Pipeline Industrial Development Area

PM: Particulate matter / material

PSC: Port State Control

R&D: Research & Development

R&I: Research & Investment

RBSA: Royal Belgian Ship owners’ Association

RIDA: Railway Industrial Development Area

SEA: Shipping Emission Agreement

SEEMP: Ship Energy Efficiency Management Plan

SEUCON: Standard Emission Unit CONtract

SFOC: Special Fuel Oil Consumption

SOLAS: Safety Of Live At Sea

SOx: Sulphur Oxides

SSA: Swedish Ship owners’ Association

TNT DO SOMETHING Act: Taking Note that we have To DO SOMETHING Act

U.S.: United States

UNCTAD: United Nations Committee on Trade And Development

UNFCCC: United Nations Framework on Climate Change Committee

US EPA: United States Environment Protection Agency

WIDA: Waterway Industrial Development Area

WSC: World Shipping Council

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WTO: World Trade Organisation

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CAPTURING THE ESSENCE

When striving to proclaim a view about emissions one first needs to ask: “what are emissions?”

IMOs’ Second Study on Greenhouse Gases (IMO SS GHG) of 2009 gives a rather simple yet all

including definition: “Emissions are airborne environmental unfriendly particles which enhance the

greenhouse effect (IMO, 2009).” Because I don’t understand such a sentence at once I shall write it for

the active reader once more: Emissions are airborne environmental unfriendly particles which enhance

the greenhouse effect. Now let me explain the key words. Airborne means that something flies through

the air (e.g. an airplane or an air balloon). Environmental unfriendly explains itself that in most of the

cases those things have a negative effect on the environment. I compare it with my alarm clock of my

mobile phone. When that nuisance is ringing in the morning I can guarantee you all that in most of the

cases it has a negative effect on my morning wellbeing. Particles are better know as particular matter.

Those masses are often to small to be seen by the eye but they are vital for the nurturing of the natural

equilibrium. One can see it as plankton in the oceans. When you are enhancing something you are

speeding things up. I do that the evening before my exam where I have to speed things up to make

sure I pass. This is due to a small efficiency gap in my time management. When you start rehearsing I

can put my hand on my hart that the rest of the world all of a sudden becomes a really interesting

place. A greenhouse is a garden shed. Yes it really is a garden shed. Effects must be seen as

consequences. When a guy is too late at a date with his girlfriend he has to explain why. Combining

the last two, one sees the greenhouse effect as a consequence that gets things warmer. Not that bad at

all if you would ask me. In my greenhouse I also prefer that my tomatoes grow faster and become nice

round and red and juicy. So in order that all of us are on board here comes my definition of emissions:

“Emissions are really small masses who are flying in the air and are often a nuisance to the

environment. On top of that they make sure that the earth gets warmer at a faster rate. (Michiel

Vervloet)” (IMO, 2008).

It is stated by different actors in this topic that the best way in order to reduce GHG emissions is

through the application of a Market Based Instrument. The problem which stands firm is what kind of

MBI shall be implemented (Corbett et al.,1999; Corbett and Köhler, 2003; Endresen et al, 2003, 2007;

Eyring et al., 2005; Buhaug et al., 2006).

The best MBI is, according to me, the BASELINE-CAP-CREDIT TRADING-FUND DISTRIBUTION

SYSTEM or the BASELINE-CAP-CREDIT TRADING-FUND(Michiel Vervloet). It sets a clear baseline

which ends up in a cap of CO2 emitted per annum. When ship owners have and insufficient amount of

credit on their SEUCON they have to buy extra credits on the market. Ship owners which an excess of

credit have to sell them on the credit market. This credit market I would at first not link with other

systems. One can link the maritime CO2 credit trading floor with other markets in an second

agreement round. Each four years there has to become a new CO2 agreement which sets a new cap.

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The initial price should be 20 € per tonne CO2 emitted and the distribution rate of the initial funds

should be at a 50/50 distribution rate. 50 % towards R&D and 50 % toward support programs for

LDCs.

Regulating CO2 emissions will cost a lot of money. Based on 2007 figures we are talking about 18,9

billion € just for the CO2 credits. Besides that ship operators have to put new controlling systems into

place, secondly monitoring has to be done by IMO and shall cost them also a great deal of money.

However, one cannot expect that the major burden is only been dealt with by the ship owners. In order

to bring also those people on board who manage the massive flow of goods one has to come up with

some compensation measures. My grandparents alongside my fathers side of the family owned a pub

and my granddad learned me this wisdom: Nothing is as bad as a pub without decent beer. Seen from

my perspective and we arrive at: A good pint always has a collar (Michiel Vervloet).

Ship owners will pay the initial emission bill. This shall bring a spike in transport prices and without a

decent support program one can state that the end consumer pays the final bill. This will drive up

prices and ignite a boost in the inflation rate. The shipping sector will loose part of his competitive

edge towards other transport modes. Short Sea Shipping in focus shall struggle initially. This because

they shall have more problems than long haul shipping to compete with rail and road transport. This

can spur up a drive with shipping owners to transfer their means onto other ways of transport and thus

leave the shipping sector.

In order of not loosing those big shots who have the means to execute this outflow one shall have to

come up with a support program to ignite R&D in the shipping sector. The sector in itself will partially

fund this ignition by their obligation in the emission trading story and by consortia who fund their

R&I.

Governments should play their role in this support program by being an innovation initiator. They can

do this by making sure that interest rate are at a low of 5 % for R&D and by funding part of the

research themselves.

Ports and insurance companies should recognise ecofriendly operators by giving them better services

and by an initial freeze of their premiums.

Media should transfer a correct image towards the crowd whereas the good and the bad facts are

communicated in a similar way.

Consumers should have to realise that shall have to pay slightly higher prices certainly at the intake

frame of 2010-2014.

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My grandfather on my mothers side was a Master Patissier and he thought me this wisdom: Your

croissants are just as good as the last one you have sold. As I am a huge advocate of cake this

becomes: A cupcake can only be called a cupcake with the icing on top of it (Michiel Vervloet).

When addressing the monitoring side one sees that ship operators are the first ones to comply with

filling in the fuel monitoring data in the correct database. When not properly done, one should be able

to sew the ship operator and the ship owners. The latter in order that there is some check-up on the

operators.

Ships can have a trial period with SEUCON. SEUCON has to be controlled by Port State Control.

During the first two years a vessel can get one warning and the second time it is arrested. Because

cowboys are able to change the name of their vessel whenever they want, one have to make sure that

the warning still rests on the vessel even when its name and / or owner are different.

At IMO level there is an urgent need for a Maritime Dispute Settlement Body (MDSB), whereas

economical disputes between member States can be resolved.

Under local Chamber of Commerce there has to be a subsidiary which only tackles maritime cases.

And the law applicable should be a global set of maritime rules. These rules should be into force by

2030.

My sister learned me how to stay within the limits of what one could or couldn’t do by teaching me

this wisdom: Don’t walk of the footpath, that’s dangerous. Seen with my glasses and this becomes

When being disobedient one gets punished (Michiel Vervloet).

Politicians will have to settle their differences. Each and every single country will have to make his

contribution. Therefore it is necessary that all players put their cards on the table and clearly state how

they see this agreement for the shipping industry. Shipping is for centuries the transport mode which

makes a globalised world possible. Right now all captains of industry realise that it is up to them to set

sail towards a world were one can still earn his /her ham on his /her sandwich though now they will be

obliged to put a leaf salad on it.

This dissertation gives a foundation on how the Green Shipping Agreement (GSA) should look like. It

is a challenging way and we shall be encountered with green winds that are no smooth breezes. We

will have to adjust towards a new way of being that vital link between the producers and the end

consumers, whereas we, the shipping industry still is thé choice of transport mode that carries more

than 80 % of the industrial goods.

I started of this dissertation by bragging that one of my key references is the book The Art of War by

Sun Tsu. In this booklet he states one vital quote: “The best battle is the one that is won without being

fought” . And this is the way by which all stakeholders of the maritime sector have to see this

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foundation paper. It is a Belgian compromise in its purest form. Each player receives a hand which can

be defended in a poker game, though when one is obliged to show hands we all have to settle with a

split pot.

I’m confident that one is able to reach such a binding agreement and that the maritime captains of

industry will become those pioneers which sail as one of the first through new, green waters. Because

what SHIPPING really means to me is the following:

Striving for

Honour and

Innovation through

Peak

Performance

In

Nurturing realistic

Goals

(Michiel Vervloet)

And I am an advocate of this transport sector.

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DE ESSENTIE

Wanneer we ernaar streven iets zinnigs te zeggen met betrekking tot emissies, dan moeten we ons

eerst afvragen: “Wat zijn emissies?” De tweede studie van IMO met betrekking tot broeikasgassen

geeft een vrij simpele, doch allesomvattende definitie: “Emissies zijn milieuonvriendelijke substanties

in de lucht die het broeikaseffect versnellen (IMO, 2009)”. Daar ik zo’n zin niet direct versta, biedt

hem voor de actieve lezer nogmaals aan: Emissies zijn milieuonvriendelijke substanties in de lucht die

het broeikaseffect versnellen. Nu laat mij deze zin in detail uitleggen. Milieuonvriendelijk verklaart

zichzelf en wilt zeggen dat iets niet positief is voor het milieu. Ik vergelijk dit met mijn alarm van mijn

gsm. Wanneer dat sarcastisch toestel mij ‘s morgens wakker rinkelt dan kan ik jullie allen garanderen

dat dit geen positief effect op mijn ochtend humeur met zich meebrengt. Substanties zijn kleine

deeltjes in de lucht die niet zichtbaar zijn voor het menselijk oog. Ik vergelijk het met plankton in een

oceaan: essentieel maar ik zie het praktisch niet. In de lucht betekent dat iets vliegt (bvb. een vliegtuig

of een luchtballon). Een broeikas is een tuinhuis. Ja het is ook in het Algemeen Nederlands een

tuinhuis. Een effect is een gevolg. Wanneer je als man te laat bent op het afspraakje met je vriendin

dan mag je het ook gaan uitleggen. Wanneer we de laatste twee samenvoegen dan kan men stellen dat

een broeikaseffect hetzelfde doet als een serre. Namelijk het zorgt ervoor dat door onder een stolp te

staan je groenten als gevolg rijper worden. Zo op het eerste zicht is dat broeikaseffect nog zo slecht

niet. Ik zie ook graag dat mijn tomaten mooi rijpen in mijn serre. Toch om een iet wat duidelijk beeld

te krijgen, geef ik mijn definitie emissies: Emissies zijn zeer kleine materies in de lucht die schadelijk

zijn voor het milieu. Daarenboven zorgen ze ervoor dat de aarde sneller warmer wordt (Michiel

Vervloet).

Verschillende actoren in dit verhaal stellen dat de beste manier om broeikasgassen te reduceren, het

toepassen van een markt gebaseerd instrument is. Het probleem is enkel nog welk soort instrument

gaan we gebruiken (Corbett et al.,1999; Corbett and Köhler, 2003; Endresen et al, 2003, 2007; Eyring

et al., 2005; Buhaug et al., 2006).

Naar mijn mening is het beste markt gebaseerd instrument een BASILINE-CAP-CREDIT TRADING-

FUND DISTRIBUTION SYSTEM of BASELINE-CAP-CREDIT TRADING-FUND (Michiel Vervloet).

Het heeft een duidelijk basisjaar, die uitmondt in een beperking van het aantal ton CO2 per jaar.

Wanneer een scheepseigenaar te weinig krediet op zijn SEUCON heeft staan, dan moet hij extra

kredieten kopen op de markt. Scheepeigenaars met een overschot aan CO2 kredieten moeten deze

eveneens op dezelfde markt verkopen. Deze vloer zou ik in het begin niet linken met andere systemen.

Deze verbinding met andere CO2 kredietmarkten zou pas gerealiseerd moeten worden tijdens de

tweede akkoordronde. Elke vier jaar moet een nieuw akkoord bedongen zijn dat telkens een verdere

limiet oplegt. De initiële prijs zou 20 € per ton uitgestoten CO2 moeten zijn en de initiële distributie

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ratio moet 50/50 zijn. 50 % van de gegenereerde middelen naar Onderzoek en Ontwikkeling en 50 %

naar ondersteuningsprogramma’s van de derde wereldlanden.

Het reguleren van de CO2 uitstoot zal veel geld kosten. Gebaseerd op de data van 2007 spreken we

over 18,9 miljard, enkel voor de CO2 kredieten. Niet enkel scheepsoperatoren zullen veel moeten

betalen, dankzij de nieuwe controle mechanismes. IMO zal ook een grote kost hebben daar zij

verantwoordelijk zullen zijn voor de monitoren van het hele gebeuren. Men kan echter niet verwacht

dat de last enkel door de scheepseigenaars wordt gedragen. Om al deze mensen die toch instaan voor

het transporteren van enorme goederenstromen mee aan boord te houden, zal men toch met enkele

compensatie maatregelen moeten afkomen. Mijn grootouders langs vaders kant hadden een dorpscafé

en mijn grootvader leerde mij deze wijsheid: Niets is zo slecht als een café zonder bier. Vertaald naar

mijn wereld en we bekomen: Een goede pint heeft altijd een kraag (Michiel Vervloet).

Scheepseigenaar zullen de eerste rekening gepresenteerd krijgen. Dit zal een boost van de prijzen met

zich meebrengen en zonder een degelijk compensatieprogramma kan men stellen dat deze extra last

integraal aan de consument zal worden doorgerekend. Hierdoor zal het algemeen prijsniveau of de

inflatie stijgen. De scheepssector zal een deel van haar competitief voordeel verliezen ten opzichte van

andere transport modi. Kustvaart en Short Sea Shipping zullen hiervan de eerste slachtoffers zijn. Dit

komt omdat zij minder competitief voordeel hebben ten opzichte van de andere transport modi dan de

lange afstand scheepvaart. Dit competitief verlies kan de vonk zijn bij scheepseigenaars om hun

middelen te transfereren naar andere transport modi en dus kunnen zij besluiten om de scheepvaart te

verlaten.

Om die grote jongens, die de middelen bezitten om over te schakelen op alternatieven, niet te verliezen

zal men een ondersteuningsprogramma moet uitdokteren. Dit programma moet een boost geven aan

onderzoek en ontwikkeling in de scheepssector. De sector zelf zal instaan voor een deel van de

fondsen die de hoognodige boost zullen geven. Dit zal gebeuren dankzij het emissieverhaal en de

consortia.

Overheden zouden hun rol moeten spelen als innovatie instigatoren. Ze kunnen dit doen door ervoor te

zorgen dat de intrestvoet laag wordt gehouden (op bvb. 5 %) voor onderzoek en ontwikkeling leningen

en door een deel van het onderzoek zelf te financieren.

Havens en verzekeraars zouden milieuvriendelijke operatoren moeten erkennen door hen betere

diensten te leveren en door initieel hun premies gedurende twee jaar te bevriezen.

De media moet een correct beeld weergeven door zowel goede en minder goede kanten van deze

sector evenveel zendtijd te gunnen.

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En ten slotte consumenten moeten zich schikken bij licht hogere prijzen, zeker gedurende het eerste

akkoordframe van 2010 – 2014.

Mijn grootvader langs moeders zijde was een Meester Patissier en her leerde mij dit principe: Je

croissants zijn enkel zo goed als de laatste die je verkocht hebt. Daar ik een groot cake adept ben,

bekomen we: Een cupcake mag enkel zo genoemd worden wanneer er glazuur op zit (Michiel

Vervloet).

Wanneer we ons licht werpen op het monitoren van het gebeuren, dan stellen we vast dat de

scheepseigenaar de eerste is die moet meehelpen met het verkrijgen van de juiste data. Dit doet hij

door brandstof te monitoren en deze correct in te vullen in de juiste database. Indien die niet ter dege is

uitgevoerd, dan moet het mogelijk zijn op de scheepsoperator en de scheepseigenaar(s) te vervolgen.

De laatste kan in het beklaagde bankje zitten omdat hij zijn operator niet goed genoeg heeft

opgevolgd.

Schepen kunnen een proefperiode krijgen voor SEUCON toe te passen. SEUCON moet gecontroleerd

worden door havenstaatscontrole. Gedurende twee jaar kan een schip één waarschuwing krijgen, bij

een tweede vergrijp wordt het schip gearresteerd. Omdat cowboys de nodige mazen in het net weten

uit te buiten, moet men ervoor zorgen dat de waarschuwing op het schip rust ongeacht nieuwe eigenaar

of naamsverandering.

Op IMO niveau is er een acute nood foor een Maritime Dispute Settlement Body (MDSB), waar

economische geschillen tussen lidstaten kunnen worden geregeld.

Onder locale Kamers van Koophandel moeten er maritieme rechtbanken worden geïnitieerd. Het recht

van toepassing zou een nieuwe set van internationaal geldende maritiem regels moeten zijn. Deze set

zou moeten in werking treden tegen 2030.

Mijn zus heeft mij geleerd hoe ik mezelf gedroeg binnen de regels van het toelaatbare. Ze deed dit

door volgende uitspraak: Je mag niet naast het voetpad lopen, dat is gevaarlijk. Gezien door mijn

ogen en we bekomen: Hij die de regels niet volgt, wordt gestraft (Michiel Vervloet).

Politici zullen hun geschillen moeten oplossen. Elk land zal zijn of haar bijdrage moeten leveren.

Daarom is het noodzakelijk dat alle spelers hun kaarten op tafel leggen en duidelijk zeggen hoe zij dit

akkoord zien voor de scheepvaart. Schepen zijn al eeuwen de transportmodus die een geglobaliseerde

wereld mogelijk maakt. En momenteel weten al captains of industrie dat het aan hun is om als eerste

deze nieuwe groene wateren te bevaren. Toch is dit een wereld waar men nog steeds de ham op zijn

sandwich kan verdienen, echter men moet er nu ook een stuk sla tussen leggen.

17

Deze thesis geeft een basis van hoe een raamakkoord voor de scheepvaart er zou moeten uitzien. Het

zal niet van een leien dakje lopen en we zullen groene winden tegenkomen die niet bestempeld kunnen

worden als een lentebriesje. De scheepvaartsector zal zich moeten aanpassen aan een nieuwe manier

van werken om zo die vitale link te blijven tussen producenten en consumenten, waar zij steeds de

eerste keuze blijven die meer dan 80 % van alle industriële goederen vervoert.

Deze thesis wordt door mij ingeleid door op te scheppen met het feit dat ik The Art of War van Sun

Tsu als referentiewerk gebruik. In dit kleine boekje staat één essentiële quote: Het best gevecht is

datgene dat gewonnen werd zonder te vechten. En dit is de visie waarmee men deze thesis moet

bekijken. Het is een Belgisch compromis in essentie. Want elke speler krijgt van mij een hand die men

kan verdedigen tijdens een spelletje poker, echter wanneer we onze kaarten moeten laten zien, zullen

we ons allen tevreden moeten stellen met een split pot.

Ik heb er vertrouwen in, dat men in staat is om een bindend akkoord af te sluiten en dat de captains of

industrie de pioniers zullen worden die nieuwe waters zullen ontdekken. Want wat SHIPPING echt

voor mij betekent is het volgende:

Striving for

Honour and

Innovation through

Peak

Performance

In

Nurturing realistic

Goals

(Michiel Vervloet)

En ik ben een liefhebber van deze transportsector.

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CHAPTER 1: STARTING UP THE ENGINE

1.1 IGNITION

When faced with the task writing a dissertation which has it’s origin in one of the courses in my

Master after Master in Maritime Sciences, the first thing that came up to my mind was: “I really don’t

have any clue about what’s happening in this sector.” Fortunately during my course of Economical

Technique of the Maritime transport, lectured by my Promoter Mr. Van Meel, I did know that I

wanted him to guide me through this task as he works for the Port of Antwerp.

So I’ve send him an email and he gave me some possible subjects to write about. I chose of that list to

write something about emission trading in the shipping industry. Why? Firstly because I knew and Mr.

Van Meel told me that there were tons of papers already written about the subject. Secondly because it

is a hot topic which was stated to me by the people of the International Chamber of Shipping (ICS)

when I visited them last November in London with my university colleagues. And that was what I

wanted to do: to write something that can be useful to others working in this sector where I’m so

passionate about.

Throughout this dissertation I shall give my way of seeing this debate, accompanied by books and

papers from authorities in this sector. These Authorities include the International Maritime

Organisation (IMO) and more concrete the Maritime Environmental Protection Committee (MEPC),

United Nations Framework on Climate Change Committee (UNFCCC), United Nations Committee on

Trade and Development (UNCTAD), ICS, World Shipping Council (WSC), Danish Ship owners’

Association (DSA), Japanese Ship owners’ Association (JSA), Hong Kong Ship owners’ Association

(HKSA), Australian Ship owners’ Association (ASA), Royal Belgian Ship owners’ Association

(RBSA), Norwegian Ship owners’ Association (NSA), Swedish Ship owners’ Association (SSA),

International Shipping Federation (ICF) and Baltic and International Maritime COunsil (BIMCO).

These authorities’ point of views are completed by those from other stakeholders such as governments

(e.g. United States (US)), press (e.g. Fairplay, Lloyd) and other interested parties (e.g. Transport &

Environment).

However before I could talk sense about theirs and my intake, I needed to have a framework which

could bring some order in my storyline. I found it with the books Maritime Economics, 3rd edition by

Martin Stopford ( Stopford M., 2007), The Art of War by Sun Tsu (Tsu S., 6 B.C.)1, and Transport

Economics, Third Edition (Blauwens G., De Baere P. & Van de Voorde E., 2008). Those three books

explain in detail how one should manage oneself in the maritime sector (Stopford M., 2007) and how

one can do that by running an army (Tsu S., 14 A.C.), and how one should efficiently operate transport

1 The time in which The Art of War has been written is not precisely verified but there is a general agreement on 6 B.C. .

19

flows (Blauwens G., De Baere P. & Van De Voorde E., 2008). These books give clear, simple insights

on how one should act in those matters and for me they where the ideal tools in my search for

structure. One can state that there are other key works to structure my campaign and those persons

would have valid opinions. Though as this dissertation can’t be seen as a doctorate I am only building

my foundations on these three.

1.2 ECONOMIES OF EVENVIRONMENT SHIPPING (EES)(MICHIEL VERVLOET)

“Before learning how to cycle one should learn how to run (Michiel Vervloet)”2 , is one of my

personal favourite mottos because it urges the necessity to know where you come from. When looking

at the past in commercial shipping it is remarkable how little transport cost have risen during time.

Figure 1: Transport cost of coal and oil, 1948 – 2007

Source: Stopford M. (2007)3

As noticed in figure 1 costs were at a ridiculous low throughout the last fifty years. Only during the

transport boom of 2004 – 2007 costs of transport rose due to non-availability of a sufficient amount of

transport means. In 2004 the cost of freight represented only 3,6 % of the total value of world trade

(UNCTAD, 2006).

In The Wealth of Nations of 1776 by Adam Smith, he proclaimed that: “the key to success in a

capitalist society is the division of labour. As productivity increases and businesses produce more

goods than they can sell locally, they access to wider markets (Smith A., 1998).” Hence my quote:

“Trade has been given growth thanks to the scarcity of one’s own resources (Michiel Vervloet).” This

vibrant sector has been encountered with all those great successes thanks to the fact that consumers

2 My quote based on the basic principles I have been taught by my parents. 3 Cost oil transport expressed in $/bbl AG to West and cost transport of coals expressed $ per ton

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around the world want to buy goods, which their local economies cannot service. Even when facing

challenges by often political decisions – Oil Pollution Act (OPA)4, Maritime Pollution treaty 73/78

(MARPOL)5, Safety Of Life At Seas (SOLAS)6 – and after an adaptability period, the compliance of

the whole sector with these new regulations was to say at least remarkable.

When looking at the new upcoming challenges we can differentiate them in two different categories.

The first category comes into play by making sure that there is sufficient amount of credit lines to keep

the constant investment cycle on going. Those flows of money are necessary to make it able for

shipping owners to make improvements, at a constant rate, on their fleet. Otherwise they will fall

behind and they will face trouble of being competitive (Stopford M., 2007). The second one identifies

itself by the urge for being green. It has all started with bio food, and has evolved at this stage into

ecocars. I would easily take on a bet that by 2050 we are sailing with ecoships and flying with eco–

airplanes. Of course it is possible that they won’t be named with the prefix eco, however this ecotrend

is already becoming our day-to-day talk after reading our Fairplay and Solutions (Fairplay &Solutions,

2009).

The vitality of the earth shall depend on the success of the ecotrend. In recent years and months

environmental catastrophes were more than ever on our dinner plate. We had two large tsunami’s, of

which one just recently in the Pacific on the outskirts of Chile, in the Northern hemisphere the winter

of 2009 – 2010 has been recognised as one of the coldest and longest in years and recently in Europe

we saw for the first since time what a storm at hurricane level named Xynthia can do (De Standaard,

2005 – 2010; IMO, 2008). These events can all be related on the fact that we, as the homo sapiens

specie, are giving it our utmost best to make sure that we are screwing the natural equilibrium. So

before explaining that previous sentence lets kick off with some ecobasics (Michiel Vervloet)7.

When striving to proclaim a view about emissions one first needs to ask: “what are emissions?”

IMOs’ Second Study on Greenhouse Gases (IMO SS GHG) of 2009 gives a rather simple yet all

including definition: “Emissions are airborne environmental unfriendly particles which enhance the

greenhouse effect (IMO, 2009).” Because I don’t understand such a sentence at once I shall write it for

the active reader once more: Emissions are airborne environmental unfriendly particles which enhance

the greenhouse effect. Now let me explain the key words. Airborne means that something flies through

4 OPA : The Oil Pollution Act (OPA) was signed into law in August 1990, largely in response to rising public concern following the EXXON VALDEZ incident. The OPA improved the nation's ability to prevent and respond

to oil spills by establishing provisions that expand the federal government's ability, and provide the money and

resources necessary, to respond to oil spills. The OPA also created the national Oil Spill Liability Trust Fund,

which is available to provide up to one billion dollars per spill incident (United States Environmental Protection

Agency (OPA, 1990). 5 MARPOL 73/78 (the International Convention for the Prevention of Pollution from Ships) is the

international treaty regulating disposal of wastes generated by normal operation of vessels (MARPOL, 1973) 6 SOLAS Convention: Treaty that covers the Safety and Social issues of crews on board of a ship (IMO, 1960) 7 Term made up by me in order to have a key word defining the base comparison of EES.

21

the air (e.g. an airplane or an air balloon). Environmental unfriendly explains itself that in most of the

cases those things have a negative effect on the environment. I compare it with my alarm clock of my

mobile phone. When that nuisance is ringing in the morning I can guarantee you all that in most of the

cases it has a negative effect on my morning wellbeing. Particles are better know as particular matter.

Those masses are often to small to be seen by the eye but they are vital for the nurturing of the natural

equilibrium. One can see it as plankton in the oceans. When you are enhancing something you are

speeding things up. I do that the evening before my exam where I have to speed things up to make

sure I pass. This is due to a small efficiency gap in my time management. When you start rehearsing I

can put my hand on my hart that the rest of the world all of a sudden becomes a really interesting

place. A greenhouse is a garden shed. Yes it really is a garden shed. Effects must be seen as

consequences. When a guy is too late at a date with his girlfriend he has to explain why. Combining

the last two, one sees the greenhouse effect as a consequence that gets things warmer. Not that bad at

all if you would ask me. In my greenhouse I also prefer that my tomatoes grow faster and become nice

round and red and juicy. So in order that all of us are on board here comes my definition of emissions:

“Emissions are really small masses who are flying in the air and are often a nuisance to the

environment. On top of that they make sure that the earth gets warmer at a faster rate. (Michiel

Vervloet)” (IMO, 2008).

As nice as I prefer my last quote, it is not capturing the whole combustion. In order of truly

understanding our ecobasics, one must be aware of the not that positive side of a greenhouse effect.

The effect in itself is caused by the sun. The suns’ output is generally know as waves of radiation.

Those beams of light are mostly absorbed by the earth and some are reflected by the two best friends:

earth and its atmosphere. But the badasses or emissions absorb those radiations as well and re-emit

those beams again. Exactly what the functions of glass is in our natural groceries shed. Each good

farmer knows that from time to time one has to open one of his glass windows in order to let some

fresh oxygen enter his shed. Because otherwise his vegetables will rot. Unfortunately we are not able

to open an atmospherical window. This is because we are too busy screwing up the garden shed by

tackling the bad herbs or operational efficiency, we fail to see that our windows can’t open. I refer to

bad herbs or operational efficiency not because they are bad. It was just a very negative person who

came up with this name. All garden shed adepts know, if you won’t tackle the issue of bad herbs, you

won’t get those nice tomatoes I previously talked about. The efficiency tool shall become on of the

vital elements in the rest of my story in order to get a global solution. Hence a quote not to forget is:

“When lurking for nice red tasty tomatoes which turn each farmer into an economy adept, make sure

you have a decently operating garden shed. (Michiel Vervloet)”. (IMO,2008).

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1.3 OPERATING A SHIP IN SHALLOW WATERS

Operating a ship in shallow waters is nothing more than bloody difficult. More than once when

entering ports, captains are obliged to take the assistance of pilots 8 who give directions for

manoeuvring ships or by using tug boats to make sure that they call at a port without major damage

on their hull structure. When dealing with stakeholders in this vibrant sector one should apply the

same strategy. In order to fully understand the daunting challenge we are facing in this part, the quote

is: “When stranded on a sand bank, admit you’ve made a sailing mistake and ask for help (Michiel

Vervloet)” .

Dealing with government and politicians is far from easy. Sometimes they tend to knot but doing just

the opposite from what you’ve asked them. The moment where it gets really painful is when you see

the consultants of politicians, or diplomats, clapping their hand at the closing meeting of the

Copenhagen summit. The Copenhagen agreement (COP 15) or the Taking Note that we have To DO

SOMETHING Act (TNT DO SOMETHING ACT) (Michiel Vervloet) as I baptised this political

compromise, showed again the incapability by our leaders of reaching a binding agreement which is

beneficiary to the whole world. A lot rumours placed the failure of this summit on the doorstep of

certain governments, though when we are being fair and reasonable, all of them are at blame

(UNFCCC, 2010; The Economist, 2010; Transport & Environment, 2010).

The EU for not being that one clear voice which is needed for a guided role towards a comprise

building for which they are the most rightfully placed entity. Thank god that they now placed Haiku

Herman at the head of the European Council (EC). The saying that states: “Once you know how drive

through a Belgian political minefield you can become a captain on every ship” (Michiel Vervloet)

really applies on Mr. Van Rompuy. During his long political carrier where he jumped up to plate

whenever his political party needed him is truly remarkable. On top of that in each of his functions he

made valid contributions on those departments he was assigned to. With his calm approach, yet very

analytical and well documented points of view Mr. Van Rompuy truly understands how to operate a

ship in shallow waters. By his soft steadiness approach9 Mr. Van Rompuy really is a gentleman

amongst men. One can only hope that he can deploy his full capacity. Of course I have the Belgian

nationality and I might be slightly biased in my opinion. However when one is a savant of Mr. Van

Rompuy political life and one just puts his promises next to his results accomplished, one can only call

Mr. Van Rompuy a damn good bridge builder. And all of us know that “A captain is the boss on his

bridge.” It is for the capacities mentioned above that Mr. Van Rompuy again and through his brilliant

approach that he became the talking voice of the EU in this daunting challenge which is: having a

binding environmental agreement. That’s why I salute him as my President.

8 Pilots are responsible for overseeing the day to day operations of ships (Killer careers, 2010) 9 Rustige Vastheid. Campaign slogan made up by the marketing persons at de research department from CD&V or the political party Mr. Van Rompuy represented when acting as a Belgian politician.

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Mr. Obama rallied during the conference a club of four key players (U.S., China, India and Brazil) in

order to produce the TNT DO SOMETHING Act. I thought that they were going to play a game of

Hearts, but when you are playing poker you don’t switch over to play another game, at the moment

that you are all-in and see the other players cards. On that moment I think that Mr. Obama’s’

consultants started to realise : “Damn we can’t win this Poker event let’s retreat and start playing

cards with our other friends in need.” It might be stupid to say but many professional poker players

yet have to win an event though still earn the ham on their sandwich. It’s off course not easy when

your stakeholders outside the building claim an agreement and they will lynch you when you don’t

comply. At least Mr. Obama and his consultants tried and the fact of sticking out his neck says already

something. His efforts however fade when the fact that you at least tried has to be communicated to

that raging mass which want nothing less that bread and games. And when the flour is rotten they

simply need a gladiator to say: Those who are going to die, are saluting you10. And as a son of a dad

who also has earned his stripes in this difficult political environment I salute Mr. Obama and his

friends for at least putting their money on the poker table (The Economist, 2009; De Standaard, 2010).

I see things like “In times of distress one gets to know his Pappenheimers11” (Michiel Vervloet).

It is sad to see that not having an binding agreement in Copenhagen will put the burden, which already

lies on the future generation, at my generations’ breakfast table. Wasn’t there a British Prime Minister

who spoke the wise words of “We have no right to live at the expense of future generations”. That is a

really impressive quote to put in one’s paper but in the IMO presentation titled “Climate Change a

Challenge for IMO Too!” it has the most right of being used. The quote illustrates that a lot of people

in the maritime sector know already that they have to do something about climate change. They

simply don’t know how to sell it properly to all the stakeholders (IMO, 2008).

With this dissertation I set myself the enormous task of producing a foundation paper on how one

should sell an environmental agreement towards all stakeholders in the maritime sector. Hence my

title: “Emission Trading in the Shipping Industry: Where Goes / Is the Money?”

10 Quote that gladiator shouted to the Roman Emperor before fighting in the Colloseum. 11 The Pappenheimers where a division of the German army which the deserted from the German Emperor during the French-Dutch war of 1872 and forced Germany into defeat.

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CHAPTER 2: ENVIRONMENT FRIENDLY FUEL COMBUSTION

(EFFC) (MICHIEL VERVLOET, 2010)

2.1 IGNITION

Now that I have established the ecobasics one has to ask the vital questions: Why should the shipping

industry have to care about emissions? Why do some politicians want to regulate our trade and will

they come up with yet another challenge which shall temper world trade?

According to UNCTAD about 80 % of world trade by volume is carried by sea where demand for

seaborne transport is closely linked to the development of the economy (UNCTAD, 2006, 2007, 2008,

2009). It is obvious that this is a low bound estimate because when looking at papers by some of the

authorities, e. g. ICS, WSC, we are speaking within the framework of 90 % of world trade (ICS, 2009;

WSC, 2009).

Table 1: Exhaust emissions (million tonnes) from TOTAL shipping, 1990 - 2007

Year NOx SOx PM CO NMVOC CO2 CH4 N2O

1990 14 7,9 1 1,3 0,4 562 0,05 0,01

1991 15 8,2 1 1,4 0,4 587 0,06 0,02

1992 15 8,4 1 1,4 0,5 598 0,06 0,02

1993 16 8,7 1,1 1,5 0,5 624 0,06 0,02

1994 16 9 1,1 1,5 0,5 644 0,06 0,02

1995 16 9,3 1,1 1,6 0,5 663 0,06 0,02

1996 17 9,5 1,2 1,6 0,5 679 0,07 0,02

1997 18 10 1,2 1,7 0,5 717 0,07 0,02

1998 18 10 1,2 1,7 0,5 709 0,07 0,02

1999 18 10 1,2 1,7 0,6 722 0,07 0,02

2000 19 11 1,3 1,8 0,6 778 0,07 0,02

2001 19 11 1,4 1,8 0,6 784 0,08 0,02

2002 19 11 1,4 1,9 0,6 794 0,08 0,02

2003 21 12 1,5 2 0,6 849 0,08 0,02

2004 22 13 1,6 2,1 0,7 907 0,09 0,02

2005 23 13 1,6 2,3 0,7 955 0,09 0,02

2006 24 14 1,7 2,4 0,8 1008 0,1 0,03

2007 25 15 1,8 2,5 0,8 1054 0,1 0,03

Source: Second IMO GHG Study, 2009

The answer on those essential questions is shown in table 1. When looking at this table one sees the

total amount of emissions produced by total shipping. Yes, these figures include inland shipping

emissions. There is however one reservation I have to proclaim. These datasets are put in order by

IMO study groups who base their assumptions on fuel consumption estimates. And they are claiming

that there is a 20 % uncertainty gap in the data. As I am not a fan of econometrics I shall have to base

my story on data from well recognised institutions. This dissertation shall be based upon two major

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data sources. First the studies performed under the Maritime Environmental Protection Committee

(MEPC) which operates under the sails of IMO and secondly the study executed by TU Delft for the

accounts of the European Commission (EC).

One can also see the enormous difference between emitted tons of CO2 and the rest of the emitted

amount (table 1). When compared with CH4 we are speaking about more then 10000 times, not to

mention the comparison with N2O where more then 50000 times more CO2 has been produced by our

fleet. Number two and three in terms of tons emitted, NOx and SOx, are already regulated by

Regulation 13 and Regulation 14 of MARPOL Annex VI (MARPOL, 2005). So when working in our

vibrant sector one could only expect that they shall regulate CO2 emissions as well. We as advocates

of the shipping industry can only be glad that the regulators waited for such a long period before they

started to annoy us with regulative talk about CO2 regulation (UNFCCC Kyoto Protocol, 1997;

IMO,2000; IMO,2009).

When we are doing nothing about this new challenge before our Poker players come up with an

agreement I will place a bet that their solution shall be worse for us then ours. If we have to please

them with CO2 law isn’t it better that we, the industry itself, come up with a binding agreement?! My

dad and I like to cook and he taught me this wisdom: You can’t cook in a dirty kitchen. Putting this

wisdom into my vocabulary and we arrive at: A plongueur12 is the most important person in a kitchen

(Michiel Vervloet).

2.2 THE COST OF GREEN FUEL COMBUSTION

2.2.1 OPERATIONAL COSTS

When addressing cash out positions on the operational side of sailing a ship one can refer personnel,

communication, experts and exploitation costs of a ship. I shall only discuss the latter more in depth.

Not because the other operational costs aren’t important, on the contrary, but within this story on

emissions specifying them more into detail fills up space.

The main exploitation cost of operating a ship is the price a ship operator has to pay for his bunkers.

For those whom are not familiar with shipping jargon, we are talking about fuel costs. The Second

IMO GHG Study states that fuel consumption in actual operation is expected to be higher than when

measured in test-bed conditions. The reasons are: at first, the engine is not always operating at its

best operating point. Secondly, the energy content of the fuel may be lower than that of the test-bed

fuel. Third reason, the best Special Fuel Oil Consumption (SFOC) values are given with 5 %

tolerance. And final point, the differences in engine wear, ageing and maintenance are different from

12 The synonym of a Plongueur is a dishwasher. He or she is responsible for cleaning the dishes, pots and pans. On top of that he has to clean up the whole kitchen.

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one ship operator compared to another (IMO, 2009). When reading this ,I, as an advocate of this

industry can only start smiling. Why? Well as stated in my ignition part (chapter 2), the data collected

by IMO study groups are recognised by all stakeholders as the right ones. In proper English these data

shall be used as reference material to base regulation upon.

When looking at scientific references regarding fuel consumptions one is encountered with a degree of

uncertainty (Corbett and Koehler, 2003; Eyring et al., 2005; Endresen et al., 2003, 2007; Gunner,

2007; Olivier et al., 2001; Skjolsvik et al., 2000; Corbett and Fischbeck, 1997).

Table 2: Fuel consumption (million tonnes) from 1990 to 2007

Year Total

Shipping13

International

Shipping14

Low

bound Consensus

High

bound Low Bound Consensus

High

Bound

1990 150 179 215 120 149 185

1991 157 187 224 125 155 193

1992 160 191 229 128 159 197

1993 166 199 239 133 165 205

1994 172 205 246 137 170 212

1995 177 211 254 141 176 218

1996 181 216 260 145 180 223

1997 191 228 274 153 190 236

1998 189 226 271 151 188 233

1999 193 230 276 154 191 238

2000 208 248 298 166 206 256

2001 209 250 300 167 208 258

2002 212 253 304 169 210 261

2003 226 270 325 181 225 279

2004 242 289 347 193 240 298

2005 255 304 365 204 253 314

2006 269 321 385 215 267 331

2007 279 333 400 223 277 344


To have a least some order in the scientific chaos one can see that the consensus IMO estimates from

2007 were 333 million tonnes fuel for total shipping and 277 million tonnes for international shipping.

One can also see that during prosperous times (2003 – 2009) the fuel consumption of shipping rose at

a faster rate then in the previous years (2000 – 2002). This is an obvious evidence that the shipping

sector depends mainly on economic growth fluctuations. When economic times are favourable,

shipping shall perform at a gloomy rate. When economic times are depressive, shipping will struggle

to keep its fleet sailing (Table 2).

13 This estimate is Based on all non-military ships > 100 GT and includes domestic shipping and fishing 14 Excluding domestic shipping, fishing, and military vessels

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Table 3: Exhaust emissions (million tonnes) from INTERNATIONAL SHIPPING, 1990 -

2007

Year NOX SOX PM CO NMVOC CO2 CH4 N2O

1990 12 6,5 0,8 1,1 0,4 468 0,05 0,01

1991 12 6,8 0,8 1,2 0,4 488 0,05 0,01

1992 12 7 0,9 1,2 0,4 498 0,05 0,01

1993 13 7,3 0,9 1,2 0,4 519 0,05 0,01

1994 13 7,5 0,9 1,3 0,4 535 0,05 0,01

1995 14 7,7 1 1,3 0,4 551 0,05 0,01

1996 14 7,9 1 1,3 0,4 565 0,05 0,01

1997 15 8 1 1,4 0,5 596 0,06 0,02

1998 15 8 1 1,4 0,5 590 0,06 0,02

1999 15 8 1 1,4 0,5 601 0,06 0,02

2000 16 9 1,1 1,5 0,5 647 0,06 0,02

2001 16 9 1,1 1,5 0,5 652 0,06 0,02

2002 16 9 1,1 1,6 0,5 660 0,06 0,02

2003 17 10 1,2 1,7 0,5 706 0,07 0,02

2004 18 11 1,3 1,8 0,6 755 0,07 0,02

2005 19 11 1,4 1,9 0,6 795 0,08 0,02

2006 20 12 1,4 2 0,6 838 0,08 0,02

2007 20 12 1,5 2 0,7 870 0,08 0,02


Expressing fuel consumptions as GHG emissions brings us to table 1 & 3, where emissions for total

shipping and international shipping are given at display. When comparing these figures with table 2

one can only conclude that the amount of emissions emitted fluctuates with the same rate as fuel

consumption. This is no surprise at all. When more fuel has been consumed one emits more GHG

gases because emissions are the consequence of combusting fossil fuels.

Table 4: CO2 multiplicator and my consensus estimates (based on 2007 data)

International Shipping My Consensus

Total

Shipping

CO2 emissions 870 945 1054

Fuel Consumption 277 300 333

CO2

Multiplicator15 3,140794224 3,15 3,165165165

Source: Second IMO GHG Study, 2009 and Michiel Vervloet, 2010

When combining the total amount of fuel consumed with the total amount of GHG emitted in 2007

one becomes table 4. One clearly sees that international shipping acts as the low bound estimate and

total shipping as the high bound estimate. To keep things simple I worked out consensus figures. The

important one is the CO2 Multiplicator. I have set this multiplicator at 3,15 just in order to keep things

simple. This 3,15 figure states that when the shipping industry is combusting one million ton of fuel in

15 The CO2 multiplicator explains how many extra million tonnes CO2 will be emitted when combusting one million ton of fuel

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2007 it on average emits 3,15 million ton of CO2. This figure will form the foundation on which I am

building my environmental agreement paper.

Deducting the multiplicator logically and one can state that the uncertainty rate of the 3,15 figure has a

lower uncertainty margin then the 20 % margin of the IMO data. To be more precise the uncertainty

margin of the IMO data is 17,46 %. My 3,15 consensus multiplicator has a 9,52 % uncertainty level.

Before one start to shout that there is no scientific base for this figure, I have to mark out that those

people have valid points. This 9,52 % uncertainty figure I simply deducted by comparing the low

bound estimate with the high bound estimate of table 4 and then I compared that division with my 3,15

consensus figure. And because the IMO also takes a safety margin as they calculate with a 20 %

uncertainty level because you have a margin outside your frame which you have to take in account.

That why I shall work with a 10 % uncertainty margin, and on top of that it is easy figure to calculate

assumptions upon.

Either way if I have to choose between a 17,46 % margin for error or an 9,52 % margin for error I can

guarantee you all that my choice of preference is the latter. That why I state: Better a win-win-win

situation then a win-win one (Michiel Vervloet).

When going further on this direction one has to ask and how much will the cost be for the ship

owners? Well based on my 945 million tonnes CO2 emitted at a pay rate of 20 € per ton CO2 emitted

one arrives at the dazzling figure of 18,9 billion €. This 20 € per ton CO2 emitted I deducted from the

price one ton of CO2 costs in the EU ETS scheme. That price lies around 14 € per ton though as we in

the shipping industry still have to phase out the small hiccups and because our poker players want to

communicate a direct ecological impact towards their people we shall have to put the price of one ton

CO2 emitted a bit higher, just in order to keep everybody on board (IMO, 2009).

2.2.2 MARKET BASED INSTRUMENTS (MBIS)

It is stated by different actors in this topic that the best way in order to reduce GHG emissions is

through the application of a MBI. The problem which stands firm is what kind of MBI shall be

implemented (Corbett et al.,1999; Corbett and Köhler, 2003; Endresen et al, 2003, 2007; Eyring et al.,

2005; Buhaug et al., 2006). The options that are withdrawn out off intense research are (CE Delft et

al., 2009):

1. Emission trading, either inclusion of shipping in the EU ETS or emissions trading for

shipping under a separate directive but linked to EU ETS.

2. An emissions tax with hypothecated revenues.

3. Mandatory operational or design efficiency standard.

29

4. A baseline and credit system or differentiated harbour dues based on an operational

efficiency indicator or a design index.

5. Voluntary action and innovation support.

These five options are vital points of view on how the topic can be resolved. Before I shall state which

one has my preference I am going to explain them briefly.

The first set of policies are directly aimed at reducing maritime CO2 emissions (see 1&2). The second

set of policies are aimed at improving the operational fuel efficiency of the fleet and of the ships that

constitute the fleet. As the operational efficiency is not directly observable, the policies are aimed at

developing an indicator that reflects the operational use of CO2 efficiency (see 3,4&5)(CE Delft et al.,

2009). During this explanation the following direction will be executed. First I shall address the

responsible entity according to the MBI option used. Secondly I’m targeting the geographical scope or

better know on which part of the sea the MBI option is applicable. Thirdly the focus is on which ship

sizes are under the MBI and follow through on the fourth option namely the ship type scope. The fifth

bullet point is the impact on the environment, referred as the Climate unit. Sixth high light is there a

decent cap (= regulation possibility) with a follow trough versus the initial allocation of allowances.

Once we arrived at that stage we shall finish trough the use of revenues (if any) (CE Delft et al., 2009).

2.2.2.1 EMISSION TRADING

The responsible entity for surrendering allowances in an emissions trading scheme for maritime

transport should be the ship owner. The accounting entity should be the ship. Enforcement can target

both the ship owner and the ship (CE Delft et al., 2009). This means that the ship owner is the one to

blame, when he does not report emissions and surrenders the allowances for each ship he owns (CE

Delft et al., 2009).

In the geographical scope the distance from the port of loading for ships with a single bill of lading

and distance from the last port call for ships with multiple bills of lading or non-cargo ships, is the

most recommended because(CE Delft et al., 2009):

1. It has a large environmental effectiveness.

2. It offers relatively little scope for avoidance.

3. It does not have a large chance of successful legal action.

Although more research is needed, the threshold for the ship size should be set low, e.g. at 400 GT in

line with the MARPOL threshold. Such a limitation would not create additional market distortions and

there seems to be little benefit in raising it (CE Delft et al., 2009).

When addressing ship scope, this MBI concludes that all ship types can be included. In other words

the scheme can include inland shipping, if this is considered to be desirable (CE Delft et al., 2009).

30

The CE Delft study states that: Emissions of methane for 2007 are estimated at 240 kilo tonne for the

world fleet, or 6 Mt CO2 eq. (Buhaug et al., 2006). Emissions on voyages to the EU, assuming that

there are proportional to fuel use, would total 1 Mt eq. About 60 % of these emissions are associated

with the transport of crude oil and hard to monitor (Buhaug et al., 2006). Therefore it does not seem

to be feasible to include methane emissions in the emissions trading scheme (CE Delft et al., 2009).

Emissions of HFCs for 2007 are estimated at 400 tonne for the world fleet, or less than 6 Mt CO2 eq.

(Buhaug et al., 2009). Again assuming that the share of these emissions on voyages to the EU is

proportional to the share of fuel used on voyages to the EU, the emissions under the scope of the

system equal than 1 Mt CO2 eq. (CE Delft et al, 2009).

Some other gasses emitted by emitted by have indirect climate impacts. However, there is currently no

scientific consensus on the Global Warming Potential of these gases (CE et al., 2008). Consequently,

they cannot be included in an emissions trading scheme (CE Delft et al., 2009).

These three previous paragraphs state clearly that an emissions trading scheme is only feasible for

regulating CO2 emissions.

Looking at the regulatory possibility it is accepted that if the emissions trading scheme needs to be

implemented soon, a political decisions is the only feasible way the set the cap, as the degree of

uncertainty in current emissions is quite high. The political decision could be informed by emission

estimates presented in this reports, by equity considerations and by natural science argument relating

to climate stabilisation scenarios (CE Delft et al, 2009).

Auctioning allowances has major economic advantages:

� It promotes economic efficiency if the auction revenues are used to reduce distortionary taxes.

� It avoid the windfall gains associated with free allocation

� It has positive effects on industry dynamics as it treats new entrants, closing entities; growing

and declining entities alike.

Yet, there are three possible reasons to allocate allowances for free:

1. Protect industries from losing market shares to competitors in non-participating countries.

2. Ensure equal treatment of industries covered by EU ETS.

3. Temporarily allocate freely in order to give a sector to adjust to new circumstances.

The first reason is not applicable to shipping when all vessels calling at participating ports, regardless

of flag and port of departure, must surrender allowances equal to the fuel used. The second and third

reason could, however, support the argument for free allocation of the allowances.

31

In that case, they are five possibilities (CE Delft et al., 2009):

1. Free allocation on the basis of historic emissions.

2. Free allocation on the basis of an ex-ante output benchmark.

3. Partial recycling of allowances

4. Gradually increase in the share of emissions for which allowances have to be surrendered.

5. Recycling auction revenue ex-post based on output.

The first three options may be problematic since vessels engaged in tramp shipping may have

irregular emissions within the scope of a regional scheme. Nevertheless the variant based on

‘recycling of allowances’ could be contemplated as it would be a simple way of compensating ship

owners and would provide them with a strong incentive to report emissions during the initial trial

year. The fourth option is also easy to implement but has the disadvantage of not enforcing a definitive

cap until the year when 100 % liability is reached. The fifth option probably has a higher

administrative cost, yet incentives to reduce emissions are higher (CE Delft et al., 2009).

Ending with the use of revenues, the Delft study states that hypothecation16seems to be restricted

legally. Nevertheless, in some cases there could be arguments for using parts of the revenue for

funding R&D and/or financing climate policy in developing countries. How large this part should be,

is a question outside the scope of the report (CE Delft et al., 2009)

2.2.2.2 AN EMISSIONS TAX

The responsible entity for paying the emissions tax should be the ship owner. The accounting entity

should be the ship. Hence, a ship owner is required to report emissions and pay the tax for each ship

he owns, and enforcement can target both ship owner and the ship (CE Delft et al.,2009).

The distance for the port of loading for ships with a single bill of lading and distance from the last

port call for ships with multiple bills of lading or non-cargo ships, is the most recommended because

(CE Delft et al., 2009):




Although more research may be needed, our tentative conclusion is that the threshold should be set

low, e.g. at 400 GT in line with the MARPOL threshold (CE Delft et al., 2009).

An environmental tax should be levied on the pollutant for optimal effectiveness. Only if this is not

possible, can it be levied on activities that cause the pollution.

16 Is restricting allocation of funds

32

CO2 is the only GHG emitted by maritime transport that is emitted in large quantities and for which a

Global Warming Potential has been established.

Because CO2 is the main GHG emitted by maritime transport, the tax should be on CO2 emissions. In

order to minimise avoidance, the tax should be levied on emissions generated on voyages to and/or

port of origin/destination (CE Delft et al., 2009). The Danish GHG Fund levies taxes on the basis of

fuel sales (IMO, 2009).

The level of the tax delivers following conclusions (CE Delft et al., 2009):

1. Precise calculation of the socially optimal CO2 tax rate for maritime shipping is impossible

because of uncertainty with respect to data on marginal costs of emissions and marginal

benefits of emission reduction.

2. The attempt to calculate the recommended tax rate based on the theory of socially optimal tax

results for the current period in a range of 7 – 45 €, with a central estimate of 25 €.

3. The second method of calculation refers to policy targets. The least stringent policy target

considered here, reducing CO2 emissions from maritime shipping to the level of 2005, would

probably require considerably higher tax rate than the socially optimal tax, at the

approximate level of 75 € per tonne.

In order to be environmentally effective, the revenues of the tax have to be spent at least partially on

emission reductions. Emissions reductions in non-Annex 1 countries seem the best way to improve the

environmental effectiveness (CE Delft et al., 2009)

2.2.2.3 MANDATORY OPERATIONAL OF DESIGN EFFICIENCY STANDARD

The CE Delft study further concludes that the Energy Efficiency Operational Index (EEOI) is not fit as

a basic parameter for a mandatory policy for following reasons (CE Delft et al., 2009):

1. The EEOI17 does not take changes in efficiency due to the business cycle, the specific trade or

the region where a ship operates into account and could therefore be considered to be

inequitable.

2. It is hard if not impossible to compare the EEOI across ship types, even across the most

important ship types in terms of CO2 emissions: bulkers, tankers, container ships and RoRo

ships.

3. The IMO has endorsed the use of the EEOI as a voluntary measure to evaluate the

performance of ships by ship owners and operators, not as a metric for a ship’s performance

in a mandatory policy.

17 EEOI is not fixed for a ship, but calculated over a certain period. During this time period, even when not

sailing, its emissions would still be within the scope of a policy instrument. Thus emissions of all ships that call

at ports in a certain time period would be covered by such a scheme (CE Delft et al., 2009).

33

The Energy Efficiency Design Index (EEDI)18 may be developed into a good indicator for a ship’s

design efficiency. Currently, it is not mature as the formula for the EEDI has only recently been

established and is subject to trials at the moment (CE Delft et al., 2009).

The recommendation regarding ship size is to set the size threshold rather low, e.g. at 400 GT which is

the threshold for MARPOL or 500 GT which is the threshold for SOLAS (CE Delft et al., 2009).

In their current forms, neither the EEDI not EEOI can be calculated for vessels whose main purpose is

not to transport cargo and/or passengers. Therefore no EEDI or EEOI can be calculated for example

for dredging, offshore supply, fishing and tugs. Together, these groups account for an estimated 12 %

global maritime emissions (Buhaug et al., 2009).

In order to include dredgers, offshore supply vessels, fishing vessels and tugs, a specific index formula

which focuses on these specific vessels needs to be developed (CE Delft, 2009).

There is no single baseline for the EEDI of the shipping sector. And at this point we, the CE Delft

group scientists, cannot asses where this process will end (CE Delft et al., 2009).

Imposing a mandatory design or operational index is not without the risk of legal challenge. The

imposition of an EEDI may have significant effects on the vessel, may require expensive modification

and may, in extreme cases, result in a perfectly safe and seaworthy ship being banned from certain

territorial waters due to its age and inability to meet requirements. Legal challenge may come from

ship owners who can no longer trade their vessels or the users of such ships – charterers and shippers

who cannot find sufficient tonnage for their uses. That said, minor modifications, such as fuel

monitoring may not have such an effect (CE Delft et al., 2009).

2.2.2.4 A BASELINE-AND-CREDIT TRADING SCHEME

In the baseline-and-credit scheme, emissions reduction above and beyond legal requirements can be

certified as tradable credits. The benchmark for credits is usually provided by traditional technology-

based standards. Baseline-and-credit trading provides a more flexible means of achieving the source

specific goals than the source-based standards (Tietenberg, 2006; CE Delft et al., 2009).

In the proposal for maritime shipping, the benchmark refers to an operational of technical index set a

certain level. As long as the efficiency with regard to CO2 emissions from a ship is higher or equal to

the index, the ship operator (or the entity responsible for complying with the policy) does not have to

get involved in emissions trading. However, a situation where the efficiency of a ship is worse than

imposed by an index automatically triggers the obligation to submit credits for emissions. Credits can

be bought from ships that perform than indicated in an index (CE Delft et al., 2009).

18 EEDI provides, for each ship, a figure that expresses its design performance. By collecting data on EEDI it

will be possible to establish baselines that express typical efficiencies of these ships (CE Delft et al, 2009).

34

Addressing the geographical scope gives us that the distance from the port of loading for ships with a

single bill of lading and distance from the last port call for ships with multiple bills or non-cargo

ships, is the most recommended because (CE Delft et al., 2009):




The baseline-and-credit trading scheme can in principle be applied to all ships for which an efficiency

indicator can be determined. Because many small ships are currently exempted from regulation, and

because their contribution to total emissions is low, we propose to set a threshold for the smallest

ships, e.g. at 400 GT which is the threshold for MARPOL or 500 GT which is the threshold for

SOLAS. As these thresholds are already common in shipping, so they will not introduce additional

market distortions in the shipping sector (CE Delft et al, 2009).

2.2.2.5 VOLUNTARY ACTION

Voluntary action can take many forms, ranging from a formal agreement to reach a certain goal or

deliver a specified input to encouragement to disseminate information (CE Delft et al., 2009).

The IMOs MEPC is discussing a Ship Energy Efficiency Management Plan (SEEMP) for new and

existing ships, which incorporates best practices for the fuel efficient operation of ships. The plan

incorporates an EEOI for new and existing ships, which enables operators to measure the fuel

efficiency of a ship in operation (CE Delft et al., 2009).

In a study on voluntary environmental policies, the OECD indentified four different types:

1. Unilateral commitments made by polluters; the role of the regulator is limited to monitoring

and dispute resolution.

2. Private agreements between polluters and pollutees; again, the role of the regulator is limited

to monitoring and dispute resolution.

3. Environmental agreements negotiated between industry and public authorities.

4. Voluntary programs developed by public authorities, to which individual firms are invited to

participate.

In 2006 there was no one was encouraged to form a counterparty and therefore the focus was laid upon

voluntary initiates (CE Delft et al., 2009).

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2.2.2.6 BASELINE-CAP-CREDIT TRADING-FUND DISTRISTRIBUTION SYSTEM OR

BASELINE-CAP-CREDIT TRADING-FUND (MICHIEL VERVLOET, 2010)

It is a whole mouthful when one is reading my MBI. This instrument combines the inputs from the

previous MBI systems but has in my opinion the best shot at success.

The responsible entity for surrendering allowances in an emissions trading scheme for maritime

transport should be the ship owner. The accounting entity should be the ship. Enforcement can target

both the ship owner and the ship (CE Delft et al., 2009).This is a clear vision. The first one to pay the

bill is the ship owner. When he or she doesn’t comply with the agreed framework, one has to be able

to arrest ships under his or hers control.

The geographical scope is easy yet so difficult to obtain. Simply stated, there has to become a general

tracking system on board of all merchant ships where as a central authority is able to follow them

around the globe when necessary. This ship ID should be based upon the IMO number off a ship and

states the name of the ship, the flag it’s sailing under and the owner of the vessel. In short, the whole

territorial sea has to become an Emission Control Area (ECA) (CE Delft et al., 2009; IMO, 2009).

Ship size related, one would have to set the threshold at 400 GT. As stated by the Delft people this

threshold is already in place by MARPOL. I would not advise to use the 500 GT threshold from

SOLAS because this limits the reach of applicability. Moreover the regulator can also decide to put the

cap at 300 GT where we as an industry would not be happy. So 400 GT is the consensus threshold in

my vision. It is true that one still can perform a lot of research on this matter and it is vital that those

studies are still executed because they should search for the optimal threshold value. Right now, in

lack of these studies, the optimal value should be 400 GT.

When addressing ship scope, this MBI concludes that all ship types can be included. In other words

the scheme can include inland shipping, if this is considered to be desirable (CE Delft et al., 2009).

Table 1 & 3 give a clear views on the matter that CO2 should be the GHG under the MBI. Other major

pollutants are already regulated (MARPOL Annex VI).

From a regulative point of view one should first set the cap at x tonnes CO2 per annum which can be

emitted. But in order to have a clear set of rules I would set this cap each 4 years. I base my statement

on the fact that each two years there is a large IMO venue in London where regulative maritime

matters are discussed and brought to an agreement. One can easily say that it takes at least one year to

fully implement a new set of regulations. After the second year the new regulation should be entirely

operational. And the third and fourth year one executes this cap without flaws. After these four years a

new cap should be agreed upon at the IMO summit.

36

Once the cap is in place one has to translate this figure into caps for each flag state. I propose to be this

on the 2005 CO2 emission figures. The 2005 figures were discussed at the Copenhagen summit as the

consensus year and I think the 2005 CO2 figures should thus be used in order the reach this agreement

(UNFCCC, 2010). Ones each flag state has received his cap based on their 2005 figures, IMO has to

translate these figures in tradable credits. I call this a Standard Emission Unit CONtract or SEUCON

(Michiel Vervloet). A SEU is one ton of CO2 emitted. SEUCON is a certificate which has to be on

board of each vessel which falls within the 400 GT criterion. This certificate states how many tonnes

of CO2 a ship can emit during one year. So in order to fall within my cap of four years a ship shall

need four SEUCON, one for each year. If a ship operator sees that his CO2 emission credits are not

sufficient he has to buy extra tonnes of CO2 emission credits on a specific market. Ship operators who

have too much CO2 emissions can sell them on the market. So within the first agreement one cannot

recycle his credits. In other agreements one can then see whether the sector can come to an agreement

of recycling them. Ships who are laid up and thus one takes them out of operation, though still have a

SEUCON resting on them, can sell those tonnes of CO2 emissions on the market.

Initially the emissions have to be bought at a price of 20 € per tonne. Otherwise windfall profits will

flourish and this should not be the case.

The distribution of the funds generated has to go to two major departments. First of all towards the

support of R&D and secondly via a support fund for the Least Developed Countries (LDCs). I would

set this division at 50/50. 50 % of the funds should be invested in R&D and the other half has to be

translated in support programs for the LDCs. LDCs should have to apply with a well structured

program. A special commission, which operates under IMO and where every flag state has one vote,

would then decide to grant the funds or to let the applicant come up with an adjusted program.

Whenever a proposal has the vote of more than 50 % of the IMO members, it has to be approved. Of

course there will have to be an annual control by autonomous researchers. This is to me the most fair

and reasonable solution. Based upon facts and studies by autonomous researchers LDCs can get

support funds for their maritime programs.

So in order to capture the essence:

1. The baseline for emission figures should be the year 2005.

2. Set the cap of X tonne CO2 per annum.

3. Decide on these caps once every for years thus for the first agreement one should have to have

a cap for 2011, 2012, 2013 and 2014.

4. Translate this annual cap in SEUCON 11, SEUCON 12, SEUCON 13 and SEUCON 14 for

each ship owner, whereas distribution is based on the 2005 figures of each flag state.

5. The SEUCONs have to be on board of each vessel within the 400 GT threshold.

37

6. Ship owners without a sufficient amount have to buy extra credit on the market. Shipowners

with and excess of credit have to sell them on the market during the first agreement. Later on

one can agree whether the credit should have to become recyclable.

7. The initial price per tonne CO2 should be 20 € per tonne CO2 emitted.

8. The distribution of the funds generated should be at a 50/50 rate. 50 % towards R&D research

and 50 % towards maritime support programs for LDCs.

2.2.3 LOOKING AHEAD

When looking ahead one should set some targets regarding objectives which have to be met be the

industry. My consensus year, 2005, will eventually have to come down towards the prior target year of

Kyoto, namely 1990. At this moment this is not feasible, not technically nor politically. That why I set

the target at:

1. 20 % less CO2 emissions by 2020 compared to 2005




5. Emission neutral shipping by 2100 compared to 1990

These target are challenging though reachable. The 2020 target sets out a pace which is similar to the

2020 goals of the EU. However they want 20 % less CO2 emissions compared to 1990. They there is

a gradual diminution until 2040 goal. In 2030 there has to come a major agreement which puts the

baseline at 1990. And by 2100 shipping should become emission neutral. In scientific papers this

change of baseline is referred to as the baseline drift (CE Delft et al., 2009; IMO, 2009).

These targets will not be reached without improvements on the ships. And here come the SEEMP,

EEOI and EEDI into play. At this moment as previous stated those systems are in a trial phase and

they need further improvement. But by 2015 one should be able to implement them. In plain English

by the next agreement round, as seen in my vision SEEMP, EEOI and EEDI have to be implemented

by the ship owners. And by 2020 all three of them should be mandatory (IMO, 2008, 2008, 2009).

On top of that ship owners will have to be able to implement new technologies. These technology can

include: propeller / propulsion system upgrades, retrofit hull improvement, improved hull coatings

waste heat recovery, better auxiliary systems, wind energy and solar energy (See chapter 3) (CE Delft

et al., 2009).

38

2.3 CAPTURING THE ESSENCE

The best MBI is, according to me, the BASELINE-CAP-CREDIT TRADING-FUND DISTRIBUTION

SYSTEM or the BASELINE-CAP-CREDIT TRADING-FUND(Michiel Vervloet). It sets a clear baseline

which ends up in a cap of CO2 emitted per annum. When ship owners have and insufficient amount of

credits on their SEUCON they have to buy extra credits on the market. Ship owners which have an

excess of credits have to sell them on the CO2 trading floor. This credit market I would at first not link

with other systems. One can link the maritime CO2 credit trading floor with other markets in an

second agreement round. Each four years there has to become a new CO2 agreement which sets a new

cap. The initial price should be 20 € per tonne CO2 emitted and the distribution rate of the initial funds

should be at a 50/50 distribution rate. 50 % towards R&D and 50 % toward support programs for

LDCs.

Regulating CO2 emissions will cost a lot of money. Based on 2007 figures we are talking about 18,9

billion € just for the CO2 credits. Besides that ship operators have to put new controlling systems into

place, secondly monitoring has to be done by IMO and shall cost them also a great deal of money.

However, one cannot expect that the major burden is only been dealt with by the ship owners. In order

to bring also those people on board who manage the massive flow of goods one has to come up with

some compensation measures. My grandparents alongside my fathers side of the family owned a pub

and my granddad learned me this wisdom: Nothing is as bad as a pub without decent beer. Seen from

my perspective and we arrive at: A good pint always has a collar (Michiel Vervloet).

39

CHAPTER 3: THE GREEN MONEY

3.1 IGNITION

We established in chapter 2 that the first one to pay the bill will be the ship owner. However, when the

combined group of stakeholders won’t do much about trying to compensate those captains of industry

one can guarantee that the final payer shall be the consumer. How much he or she will have to pay in

order to let his or her goods be shipped by ocean going vessels, I cannot say with a clear figure. It can

range easily from doubling until tripling the transport price per tonne.

One could state: let us oblige them to limit their prices, though this will be a market distortion which

shall not only temper the accuracy of ship berths. It will make those leaders reassess their possibilities

and perhaps enhance a modal shift toward road, rail or air transport. All of us know that those ways of

transport have a worse environmental effect, then shipping (figure 2).

Figure 2: Grammes of CO2 to carry one tonne of cargo for one km

Source: ICS (2009) and WSC (2009)

In order to make the hard pill easier to swallow governments should ignite the R&D of new

operational improvements on ships. Secondly they should create favourable loan societies where those

R&D projects can be financed at a lower interest rate. Right know it is not uncommon that interest

rates are between 9 and 11 %. In my vision governments should have to bring the interest rate for

R&D development at 5 %. Thirdly enterprises should have to be able to deduct their investments from

their flat rate tax level.

Though not only governments should pay through compensation programs. Port authorities have to

work out a sort of ecoscore whereas ships are rated according to their pollution level. This ecoscore

0 200 400 600

Ship container 10,000 dwt

Cargo vessel 8,000 - 10,000 dwt

Cargo vessel 2,000 - 8,000 dwt

Rail (Diesel Train)

Heavy truck with trailer

Air freight 747 - 400 1,200 km …

Grammes of CO2 to carry one tonne of cargo

40

has to be constructed on the basis of fair and reasonable targets. Ships who are granted the top rating,

have to be able to freeze the port dues levels for first two years of the agreement year. Ships with the

lowest ratings should have to pay gradually more harbour dues thanks to their pollutant levels.

Insurers would have to bring down their premium or at least freeze them for again two years. The risk

ratio of those new updated environmentally friendly vessels will not be higher. On the contrary, it will

be lower. As we as the captains of industry are only fair people we would like to freeze the insurance

premiums for the first two years after the agreement for vessels which are in this top level category.

And last be not least consumers will have to swallow a price increase for their transported goods. How

much this figure has to become I don’t know. What I do know is that when doing nothing for the

shipping sector one shall see the transport price per tonne boom.

My mother is a huge advocate of fashion and she taught me this wisdom: Wrapping is everything!

Even a “bad” gift can become a nice one when properly wrapped. As my mother is a very wise

women my vision on her wisdom is quiet similar. Without proper wrapping paper there will be no

package deal (Michiel Vervloet).

3.2 GREEN MONEY IN SHALLOW WATERS

Governments shall have to come into play in order to make sure that the shipping sector is not too

much tempered by their new obligations. It is known that the maritime industry suffers from

fragmentation, with no market leaders (20-25 % share) with the size of financial strength to fund

research and development (House of Commons, 2009). The industry in itself now will partially fund

their R&D. When my fund distribution ratio has been applied, ship owners will fund R&D for the first

year for about 9 billion €.

In general, fragmented industries have less innovation than more concentrated industries (Aghion et

al., 2005). In the shipping sector, this leads to many stakeholders pursuing different initiatives not

always with a clear direction for technologies to be implemented successfully across the industry (CE

Delft et al., 2009). Therefore it is also the task for the regulator, IMO, to set clear innovation targets.

Within these targets they shall have to bring clear focus areas. Generally three ways have been

established for reducing CO2 emissions (CE Delft et al., 2009):

1. Improving the quality of marine fuels or switching to alternative sources of energy

2. Improvements in energy efficiency by introducing technical changes and operational

improvements.

3. Reducing emissions at the end-of-pipe by CO2 capture and storage.

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3.2.1 MARINE FUELS AND ALTERNATIVE ENERGY SOURCES

In the short to medium term there are no viable options to completely replace petroleum based fuels

with alternatives across the shipping industry or a technical solution to eliminate CO2 emissions from

a conventionally ship (CE Delft et al., 2009). Reducing CO2 emissions from shipping is achieved by

either burning less fuels with lower or no carbon content. Further emphasis might be placed on

alternative fuels with the decision by IMO (2008), to reduce the sulphur content of air emissions,

which may potentially result in an almost complete phase out of residual fuels (Heavy Fuel Oil) by

2020-2025 (CE Delft et al., 2009).

A switch to lighter fuels allows combustion engines to run more efficiently. The use of fuels with little

or no sulphur content will also enable waste heat recovery plants to operate with lower temperatures

in the exhaust and thereby generate more energy for auxiliary systems (CE Delft et al., 2009).

One recalls my statement of making each territorial sea an Emission Control Area (ECA).

Momentarily low sulphur fuel use is coming into regulation in the North and Baltic Sea. This gives the

operational cost of ship operators of course a gigantic boost. One knows that the low sulphur

alternative will spike prices yet again. Governments can and should intervene. First of all, lower your

levy on this low sulphur fuels. Second, accelerate R&D for dual fuel engine types.

Dual fuel engines are engines which combine the use of two different types of fuel. We speak here

about the combination of a diesel with a natural gas such as Liquefied Natural Gas (LNG).

Of the alternative fuels energy resources, natural gas is presently the most feasible option in the

medium to long term and has the potential to offer an alternative to conventional and residual diesel

oil fuels as the distribution infrastructure becomes available (CE Delft et al., 2009).

The main advantage to using alternative natural gas is its high energy content and potential to reduce

CO2 emissions by 20-25 % and the use of LNG, will become more attractive as the price of HFO

increases, however there are significant challenges with retrofitting existing vessels. Hence this option

is likely to be limited to new buildings and may be developed in conjunction with technology to enable

a move away from conventional engines (CE Delft et al., 2009).

Other alternative fuel uses range from biofuels to hydrogen and nuclear power. The last two options

are currently in a Research stage though far from any trial session. The first option, biofuels, can be a

possible alternative for diesel.

Research into the use of biofuels has been quite wide with the main barrier to it becoming widespread

in commercial shipping primarily economic. However other concerns were raised in relation to EU

biofuel targets for transportations by Friends of the Earth (2008), which highlighted other risk

including: deforestation, biodiversity loss, climate change and rising fuel prices (CE Delft, 2009).

42

These considerations aside, at a biodiesel symposium in Vancouver in 2008, Wärtsilä revealed they

had accumulated over 100,000 hours of research into the effects of biofuels and that they reduce CO2

emissions by 25-30 % ( CE Delft et al., 2009).

Besides main engine propulsion, ships also are supported by auxiliary power. Those auxiliary power

systems are nowadays run by diesel input. And it is unlikely that besides by biodiesel there can be

major changes in application of these power systems onto ships. On the research side one is looking at

wind and solar energy applications.

Wind and solar energy are not likely to provide primary propulsion, but may contribution to a

reduction of emissions by contributing to propulsion and power requirements, thereby reducing the

power required from combusting carbon based fuels. Several sail and kite prototypes have been

developed to harness wind energy and tested on merchant vessels to complement conventional

propulsion. The research and development of these technologies is expected to continue, however,

wind and solar energy contributions for larger vessels will remain low for some years to come (CE


It should be obvious by now for our regulators that they first shall have to focus on letting ship owners

transfer from diesel engines into dual fuel engines. Further one should then apply on these new

ecovessels the adaptations relating auxiliary power. This will entail a commitment from the sector and

its stakeholders. I say to all stakeholders in this thriving part of the transport section make sure that

those captains of industry can still sail at decent velocities.

3.3.2 ENERGY EFFICIENCY IMPROVEMENTS

Energy efficiency improvements are frequently used to further reduce the amount of friction in water

of a vessel when operating. Though one can think of many other possible improvement areas: main

and auxiliary engines, propulsion, hull form, machinery, waste heat recovery systems, antifouling

systems, etc. All these applications are designed in order to ensure the minimisation of fuel costs (CE


3.3.3 LOOKING AHEAD

These R&D developments should eventually hit homerun by 2100 by berth of carbon neutral vessels. I

am not saying that ships won’t emit GHGs anymore. I am saying that the negative effect on the

environment should be gone by 2100. This challenge can only be reached by a joint effort and

governments around the globe should play their role as innovation initiators in the green development

of shipping.

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3.3 GREEN MONEY IN TROUBLE WATERS

3.3.1 PORTS

Environmental initiatives in ports affecting shipping in the past have largely revolved around waste

port facilities and improving local air quality. The use of shore side electricity in ports such as

Göteborg, Helsingborg, Stockholm and Zeebrugge does offer an alternative for ships to reduce CO2

while at berth, however this power supply still needs to be generated elsewhere (CE Delft et al., 2009).

There is potential for ports to differentiate between vessels environmental performance via port dues,

and initiatives such as the Environmental Ship Index (ESI) proposed by the ports of Antwerp, Bremen,

Hamburg, Le Havre and Rotterdam would rate ships based on their emissions. However, the cost

benefit in reduced port fees would need to be significant to encourage owners to invest in R&D to

improve their rating (CE Delft et al., 2009).

The ESI is a valuable tool which should be implemented throughout ports around the world. It is

therefore that this index should form the base for ports in order to implement new port dues rates. As

already stated one should not lower his fees, in order to keep everyone on board, however the top

rating ships should be granted better slots and better services when calling at a port. So that those ship

operators can minimise their total time at berth.

3.3.2 INSURANCE COMPANIES

One of the other major money drain for a ship operator is the amount he has to spend on insurance

fees. And if one would wonder they have to pay to a lot of people. P&I Clubs insure indemnity, hull

insurers, machinery insurance, insurance for the goods, insurances for the crews working on board

their vessels. And I am probably forgetting a lot of them at this stage.

I was last November with my colleagues at the Lloyd’s trading floor, where we received an

explanation on how insurers cover risks. It is often the case that for new R&D you have seven of more

insurance companies who all bear parts of the risk. One covers 7 %, the other 12 % etc. So if

something is not going as planned and insurers come at play one has a battalion of experts on your

neck.

Again as stated in my ignition part (Chapter 3) insurers do not need to lower their prices. I am merely

stating that they, when the Shipping Emission Agreement (SEA) comes into force they should freeze

their rates for two years. Otherwise they should guarantee to their clients a faster pay date after an

accident. Besides that one would also applaud the fact that within 24 hours all insurance experts are at

scene and within a fourth night those savants should be able to have a brief, yet, correct assessment of

the situation.

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3.4 GREEN MONEY ON SHORE

3.4.1 GOING GREEN

Shipping companies have been setting CO2 reduction targets for themselves for a number of years

now. Reasons might be varied, be it for fuel consumption reasons, a consequence of reducing other

aim emissions, or a genuine interest in reducing the environmental impact of their ships. The latter is

proved to be one of the major drivers for developing solutions to reduce CO2 emissions in the industry

(CE Delft et al., 2009).

For some of the larger companies, they can potentially pursue some of the initiatives alone, however

the industry is seeing a number of active partners in consortiums working with shipping companies in

R&I to develop new and improved technologies. This is likely to be the type of framework and

cooperation required for future R&I as the fragmented state of the industry and numerous different

components and suppliers for ships does not lend itself to one company going alone (CE Delft et al.,

2009).

An example of such a consortium is the Green Ship of the Future (2009), which recently won the

‘Green Shipping Initiative of the Year’ at the Sustainable Shipping awards in July 2009. Members of

this group aim to demonstrate and develop new technologies to reduce CO2 emissions by 30 % and

NOx and SOx, by focusing on machinery, propulsion, operation and logistics (CE Delft et al., 2009).

Consortia are already going green and investment groups know where the money is. These groups are

valuable contributors towards the development of new ecofriendly technologies. Ship operators as

well can and should go green. If they are able to prove to consumers that they are the most

environment friendly alternative of transport, one can account a higher price towards them. A lot of

consumers are interested to proclaim that they think about the environment. The positive thing is,

those consumers are often willingly to pay more for their ecogoods.

3.4.2 MEDIA AND ENVIRONMENTAL GROUPS

Shipping is generally only in the news when an accident occurs and other issues such as

environmental performance. Positive facts are rarely covered by the media. While the attention has

increased on the industry from media and environmental groups over CO2 reduction, one has to state

the fact that outside the shipping media, the media attention is minimal when compared to the

coverage of other GHG emitters (CE Delft et al., 2009).

We as an industry are interested in correct media coverage. Yes, there are still some cowboys who

thrive in this sector. However, the majority of players in this vibrant sector do want to cooperate with

new challenges. It should therefore only be fair that media also start to address the shipping sector

45

from a more positive perspective. I am not saying that they cannot cover the big catastrophes caused

by shipping. I am just saying talk about us also when we are sailing on supportive waves.

3.4.3 BARRIERS AND BOTTLENECKS

Companies with the in-house expertise, technical know-how and budgets and size of fleet to drive

forward their own R&I development is limited to some of the large owners and operators. For the bulk

of the industry this is not really feasible, either due to the lack of funding available, technical capacity

or just not having a large enough fleet to justify the investment (CE Delft et al., 2009).

The nature of the shipping industry is changing over time moving from traditional run family

businesses to consortiums or public limited companies. Environmental performance is generally not

reflected in the asset (the ship) price, which is used to conduct business with cargo owners and

investors, so until the value and attractiveness of energy efficient and environmentally friendly ships to

the market is established, the business case for large investments to develop a low carbon fleet outside

of reducing fuel costs is hard to justify (CE Delft et al., 2009).

It is true that at this moment it is hard to put an exact figure on how much money one can ask for an

ecoship. This can only be found by going to the market and see how much someone wants to pay for

it. In English there is only the trial and error option. Though the industry will really soon adapt onto

these new realities.

In recent years, when new building orders reached its peak slipway pace was at a premium. Even now

during the economic crisis spare capacity is rare. Therefore yards might be reluctant to build ships of

more complexity and unusual designs, with new technology the yard is unfamiliar with, due to loss of

profit margin and increase time utilising a slipway (CE Delft et al., 2009).

Many yards prefer standard designs that are quick to build and avoid any complex designs that might

result in delays, claims and reduction in the number of ships delivered per year. When considering a

new design the first vessel of a series can potentially take anything from one to two years or more

depending on complexity and yard experience. Time to build later vessels in the series will be

significantly reduced as the yard becomes familiar and competent in building that design. Yards will

ask for higher premiums for building new novel designs and technology (CE Delft et al., 2009).

It does not therefore generally make financial sense for yards to get involved in building new novel

designs that will likely result in a massive increase in delivery time, but to stick building ships as

quickly as possible (CE Delft et al., 2009).

46

Certain yards also produce their own generic designs and even those designed outside the yards will

be designed with ease of building in consideration as increased time in the yard will increase costs

(CE Delft et al., 2009)

In order to get yards involved in building new ships one will need a joint effort of several

stakeholders. First of all yards should have a close cooperation with surrounding knowledge centres

(e.g. a research division of a local university). Second governments and consortia should team up in

order to finance the initial build off new vessels. Here I should again apply the 50 / 50 division ratio

(50 % paid by governments, 50 % by the consortia). Third media should have to cover this berth of

such new vessels, even if they are small. And last this process should be communicated properly by

the sector itself towards the people. Give yards those Funding & Recognition (F&R) tools and they

shall become more eager to strive for innovation.


Ship owners will pay the initial emission bill. This shall bring a spike in transport prices and without a

decent support program one can state that the end consumer pays the final bill. This will drive up

prices and ignite a boost in the inflation rate. The shipping sector will loose part of his competitive

edge towards other transport modes. Short Sea Shipping in focus shall struggle initially. This because

they shall have more problems than long haul shipping to compete with rail and road transport. This

can spur up a drive with shipping owners to transfer their means onto other ways of transport and thus

leave the shipping sector.

In order of not loosing those big shots who have the means to execute this outflow one shall have to

come up with a support program to ignite R&D in the shipping sector. The sector in itself will partially

fund this ignition by their obligation in the emission trading story and by consortia who fund their

R&I.

Governments should play their role in this support program by being an innovation initiator. They can

do this by making sure that interest rate are at a low of 5 % for R&D and by funding part of the

research themselves.

Ports and insurance companies should recognise ecofriendly operators by giving them better services

and by an initial freeze of their premiums.

Media should transfer a correct image towards the crowd whereas the good and the bad facts are

communicated in a similar way.

Consumers should have to realise that shall have to pay slightly higher prices certainly at the intake

frame of 2010-2014.

47

My grandfather on my mothers side was a Master Patissier and he thought me this wisdom: Your

croissants are just as good as the last one you have sold. As I am a huge advocate of cake this

becomes: A cupcake can only be called a cupcake with the icing on top of it (Michiel Vervloet).

48

CHAPTER 4: ECOCHECK

4.1 IGNITION

It is obvious that my plans look amazing but they won’t bring any further improvement on this

challenging topic without a decent level of monitoring and control.

Monitoring will be needed on board of each vessel which lies within my proposed limit of 400 GT.

Momentarily there is already a monitoring system in place, namely the Automatic Identification

System (AIS). AIS is a safety device which automatically transmits information – including the ship’s

identity and its type, position, course, speed, navigational status (e.g. at anchor or moving with

engines running) and other safety-related information – to appropriately equipped shore stations,

other ships and aircraft (IMO, 2009). Besides this effort specialists of IMO should also have a system

by which they can check again on the base of the IMO number: the type of engine ships use and the

itineraries of those merchant vessels.

In the first stage one shall have to focus on the calculation for the 2005 cap, which is based upon the

Bunker Delivery Note (BDN). This is a note of how many fuel is bought by ship operators in order of

letting their vessels sail. Of course one shall need an adjusted delivery note whereas the used amount

of bunkers can be displayed. Secondly one then shall need to multiply these figures by my CO2

multiplicator of 3,15 and then reach a estimated figure of how many CO2 was emitted by vessels. This

should be the overall consensus estimate for 2005 on which one should agree its cap. A fair estimate is

10 % less CO2 emitted by 2014 compared to 2005.

On board of vessels one should all apply my SEUCON which has to be under control by Port State

Control (PSC). Each vessel which calls at a certain port has to be able to show his SEUCON for that

year. If port state control sees that they are not in order on can get one warning, the second time the

ship gets arrested until it has his certified SEUCON. This warning procedure should be in place for the

first two years of the first agreement round. From the third year on port state control should be able to

immediately arrest a vessel.

This calls for specialized courthouses with judges who know their way in maritime law. Judges should

be able to execute a first judgement within 24 hours. This system as well should be fully operational

from the third year on. The first two years they should be able to judge within 48 hours. Later on the

legal case can further be addresses in dept.

Governments who have a lot of vessels who are not in order with these obligation should be penalised

as well. For instance by loosing they right to vote of the next summit. I know this is to say the least

controversial but they are responsible for the proper enforcement in their harbours. In English they are

responsible for Port State Control. When a vessel is checked in their ports and in another port just at

49

random then one should have the same judgement. By 2020 the Paris Memorandum Of Understanding

(PARIS MOU) should have to be applied in all ports.

My sister always checked with me: Have you done your homework properly? Translated for me and

we arrive at No shoulder tab without having good points (Michiel Vervloet).

4.2 ECOCHECK ON THE SEA

Ships will need to monitor their fuel consumption on board of vessels. In the first agreement round one

shall work with estimation figures due to the lack of concrete figures for the year 2005. This cannot

be an apologize in letting things slip. By the second agreement round of 2014 into force in 2015 IMO

has to have clear figure about the fuel consumption on board of ships. On the basis of these figures the

caps shall then be accounted in order to reach – 20 % CO2 emitted by 2020.

The fuel consumption data should be integrated in one central database under the control of IMO

whereas the ship operator, the ship owner and the central house, IMO, should be the only entities

which have access to these records. Otherwise one should be able to compete on the base of having

more money and thus more energy efficient vessels.

Ship owners can use these data in order to implement abatement policies. By these CO2 abatement

policies one should be able to remain within the cap an one is one the same current of going towards

green shipping. There should be no possible loophole of not applying within the limits of their

accounted CO2 credits. As previously stated these credits are first paid by the ship owner. If

governments won’t come up with some sort of compensation the consumers shall have to pay higher

prices for his or hers goods because those captains of industry need a source on which they can levy

this market distortion. Though being encountered with another challenge cannot be an excuse of doing

nothing. Ship operators shall have to monitor their consumption levels of fuel on board and have to

communicate these figures into a central database. If they don’t comply ships can be arrested in ports

and even in territorial waters.

4.3 ECOCHECK IN SHALLOW WATERS

IMO has to set up a fully operational database by 2011. This is a daunting challenge and shall be

necessary, in order of being able to get correct data. IMO shall have to pay this burden itself. In reality

this means the IMO member States will get this bill on their budget.

It is vital that there comes into force a sort of international arbitration court. Just like the Dispute

Settlement Body (DSB) from the World Trade Organisation (WTO). Dispute settlement is the central

pillar of the multilateral trading system and the WTO’s unique contribution to the stability of the

global economy. Without a means of settling disputes, the rules-based system would be less effective

50

because the rules could not be enforced. The WTO’s procedure underscores the rule of law, and it

makes the trading system more secure and predictable. The system is based on clearly-defined rules,

with timetables for completing a case. First rulings are made by a panel and endorsed (or rejected) by

the WTO’s full membership. Appeals based on point of law are possible (WTO, 2010).

However , the point is not to pass judgement. The priority is to settle disputes, through consultations if

possible. By July 2005, only about 130 of the 332 cases had reached the full panel process. Most of the

rest have either been notified as settled “out of court” or remain in a prolonged consultation phase –

some since 1995 (WTO, 2010).

4.3.1 PRINCIPLES: EQUITABLE, FAST, EFFECTIVE, MUTUALLY ACCEPTABLE

Disputes in the WTO are essentially about broken promises. WTO members have agreed that if they

believe fellow-members are violating trade rules, they will use the multilateral system of settling

disputes instead of taking action unilaterally. That means abiding agreed procedures, and respecting

judgements (WTO, 2010).

A dispute arises when one country adopts a trade policy measure or takes some action that one or

more fellow-WTO members considers to be breaking the WTO agreements, or to a failure to live up to

obligations. A third group of countries can declare that they an interest in the case and enjoy some

rights (WTO, 2010).

A procedure for settling disputes existed under the old General Agreement on Tariffs and Trade

(GATT), though it had no fixed timetables, rulings were easier to block, and many cases dragged on

for a long time inconclusively. The Uruguay Round agreement introduced a more structured process

with more clearly defined stages in the procedure. It introduced greater discipline for the length of

time a case should take to be settled, with flexible deadlines set in various stages of the procedure. The

agreement emphasises that prompt settlement is essential if the WTO is to function effectively. It sets

out in considerable runs its full course to a first ruling, it should not normally take more than about

one year – 15 months if the case is appealed. The agreed time limits are flexible, and if a case is

considered urgent (e.g. if perishable goods are involved), it is accelerated as much as possible (WTO,

2010).

The Uruguay Round agreement also made it impossible for the country losing a case to block the

adoption of the ruling. Under the previous GATT procedure, rulings could only be adopted by

consensus, meaning that a single objection could block the ruling. Now, rulings are automatically

adopted unless there is a consensus to reject a ruling – any county wanting to block a ruling has to

persuade all other WTO members (including its adversary in the case) to share its review (WTO,

2010).

51

Although much of the procedure does resemble a court of tribunal, the preferred solution is for the

countries concerned to discuss their problems and settle the dispute themselves. The first stage is

therefore consultations between governments concerned, and even when the case has progressed to

other stages, consultations and mediation are still possible (WTO, 2010).

4.3.2 HOW ARE DISPUTES SETTLED?

Settling disputes is the responsibility of the Dispute Settlement Body (the General Council in another

guise), which consists of all WTO members. The DSB has the sole authority to establish “panels” of

experts to consider the case, and to accept or reject panels’ findings or the results of an appeal. It

monitors the implementation of the rulings and recommendations, and has the power to authorize

retaliation when a country does not comply with a ruling (WTO, 2010).

• First stage: consultation (up to 60 days). Before taking any other actions the countries in

dispute have to talk to each other to see if they can settle their differences by themselves. If

that fails, they can also ask the WTO director-general to mediate or try to help in any other

way.

• Second stage: the panel (up to 45 days for a panel to be appointed, plus 6 months for the

panel to conclude). If consultations fail, the complaining country can ask for a panel to be

appointed. The country “in the dock” can block the creation of a panel once, however, when

the DSB meets for a second time, the appointment can no longer be blocked (unless there is a

consensus against appointing the panel.

Officially, the panel is helping the DSB make rulings and recommendations. Unofficially one knows

that the panel consists of experts which represent each side of the table and one other expert who tries

to achieve a consensus. Though, because the panel’s report can only be rejected by consensus in the

DSB, its conclusions are difficult to overturn. The panel’s findings have to be based on the agreements

cited (WTO, 2010).

The panel’s final report should normally be given to the parties to the dispute within six months. In

cases of urgency, including those perishable goods, the deadline is shortened to three months (WTO,

2010).

The agreement describes in some detail how the panels are to work. The main stages are (WTO,

2010):

• Before the first hearing: each side in the dispute presents its case in writing to the panel.

• First hearing: the case for the complaining country and defence: the complaining country (or

countries), the responding country, and those that have announced they have interest in the

dispute, make their case at the panel’s first hearing.

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• Rebuttals: the countries involved submit written rebuttals and present oral arguments.

• Experts: if one side raises scientific or other matters, the panel may consult experts or appoint

and expert review group to prepare an advisory report.

• First draft: the panel submits the descriptive (factual and argument) sections of its report to

the two sides, giving them two weeks to comment. This report does not include findings and

conclusions.

• Interim report: The panel them submits an interim report, including its findings and

conclusions,, to the two sides, giving them one week to ask for a review

• Review: The period of review must not exceed two weeks. During that time, the panel may

hold additional meetings with the two sides.

• Final report: A final report is submitted to the two sides and three weeks later, it is circulated

to all WTO members. If the panel decides that the disputed trade measure does break a WTO

agreement or an obligation, it recommends that the measure be made conform with WTO

rules. The panel may suggest how this could be done.

• The report becomes a ruling: The report becomes the Dispute Settlement Body’s ruling or

recommendation within 60 days unless a consensus rejects it. Both sides can appeal the report

(and in some cases both sides do).

4.3.3 APPEALS

Either side can appeal a panel’s ruling. Sometimes both sides do so. Appeals have to be based on

points of law such as legal interpretation – they cannot re-examine existing evidence or examine new

issues (WTO, 2010).

Each appeal is heard by three members of a permanent seven-member Appellate Body set up by the

Dispute Settlement Body and broadly representing the rage of WTO membership. Members of the

Appellate Body have four-year terms. They have to be individuals with recognised standing in the field

of law and international trade, not affiliated with any government (WTO, 2010).

The appeal can uphold, modify or reserve the panel’s legal findings and conclusions. Normally

appeals should not last more than 60 days, with an absolute maximum of 90 days (WTO, 2010).

The DSB has to accept or reject the appeals report within 30 days – and rejection is only possible by

consensus (WTO, 2010).

4.3.4 THE CASE HAS BEEN DECIDED: WHAT NEXT?

Go strait over the rail, do not take part of your marine treasure with you and pay my greetings to the

sharks … . Well, not exactly. However the sentiments do apply. If a country has done something

53

wrong, it should swiftly correct its fault. And if it continues to break an agreement, it should offer

compensation or suffer suitable penalty that has some bite (WTO, 2010).

Even once the case has been decided, there is more to do before trade sanctions (the conventional

form of a penalty) are imposed. The priority at this stage it for the losing “defendant” to bring its

policy into line with the ruling or recommendations. The dispute settlement agreement stresses that

“prompt compliance with recommendations or rulings of the DSB is essential in order to ensure

effective resolution of disputes to the benefit of all Members” (WTO, 2010).

If the country that is the target of the complaint loses, it must follow the recommendations of the panel

report of the appeal report. It must state its intention to do at a DSB meeting held within 30 days of the

report’s adaptation. If complying with the recommendation immediately proves impractical, the

member will be given a “reasonable period of time to do so”. In my vision this reasonable period has

to be limited to a maximum of six months. If it fails to act within this period, it has to enter into

negotiations with the complaining country (or countries) in order to determine mutually-acceptable

compensation – for instance, tariff reductions in areas of particular interest of the complaining side

(WTO, 2010).

If after 20 days, no satisfactory compensation is agreed, the complaining side may ask the DSB to

impose limited trade sanctions (“suspend concessions or obligations”) against the other side. The

DSB must grant this authorisation within 30 days of the expiry of the “reasonable period of time”

unless there is a consensus against the request (IMO, 2010).

In principle, the sanctions should be imposed in the same sector as the dispute. If this is not practical

or if it would not be effective, the sanctions can be imposed in a different sector of the same

agreement. In turn, if this is not effective or practical and if the circumstances are serious enough, the

action can be taken under another agreement. The objective is to minimise the chances of action

spilling over into unrelated sectors while at the same time allowing the actions to be effective (WTO,

2010).

In any case, the DSB monitors how adopted rulings are implemented. Any outstanding case remains

on its agenda until the issue is resolved (WTO, 2010).

4.3.5 LOOKING AHEAD

These limitations should have to come into force for the maritime sector as well. I propose a Maritime

Dispute Settlement Body (MDSB) (Michiel Vervloet). This MDSB should need to have the same

structure as the WTO’s DSB. Mark that a settlement body can only settle economical cases between

Member States. Environmental catastrophes are still settled in front of a local courthouse.

54

The juridical developments call a need for specialism in maritime law studies. It is therefore vital that

governments in coordination with universities and the maritime sector should promote these kind of

specialization tracks.

4.4 ECOCHECK IN TROUBLE WATERS

Maritime courthouses are a must. Each IMO member state needs to have a maritime courthouse in

order to give simplicity to the actors running this vibrant sector. These courthouses should be in the

outskirts of major ports and they should act as the lighthouses where one can try to get maritime laws

on his /hers side.

These maritime induced courthouses can be hosted for instance under the Chamber of Commerce

whereas legal cases often have an economical perspective. It is therefore that one should see the

Maritime Courts as a subsidiary for the local Chamber of Commerce Court.

This bring us onto the issue of legal transparency. Often it is the case that local judges rule the house.

Even when deciding something which makes almost no sense at all, it creates a precedent. And due to

these precedents one creates too many loopholes in the system. Therefore one should have one

international maritime law which is applicable in each and every local maritime courthouse. The

Rotterdam Rules are an attempt of creating such thing but in my opinion the time is now for our legal

friends to stop with their copy and paste activities and come up with one binding set of rules.

At present this is undoable because one it still trying to get the attempt ratified, though by 2030 one

should have to have a proper binding one.

When a ship is arrested these institutions will have to judge within 24 hours in order of not tempering

trade too much. Though because everyone gets a phase in period, one should grant solicitors during

the first two years a limit of 48 hours unto the first limited judgement.


When addressing the monitoring side one sees that ship operators are the first ones to comply with

filling in the fuel monitoring data in the correct database. When not properly done, one should be able

to sew the ship operator and the ship owners. The latter in order that there is some check-up on the

operators.

Ships can have a trial period with SEUCON. SEUCON has to be controlled by Port State Control.

During the first two years a vessel can get one warning and the second time it is arrested. Because

cowboys are able to change the name of their vessel whenever they want, one have to make sure that

the warning still rests on the vessel even when its name and / or owner are different.

55

At IMO level there is an urgent need for a Maritime Dispute Settlement Body (MDSB), whereas

economical disputes between member States can be resolved.

Under local Chamber of Commerce there has to be a subsidiary which only tackles maritime cases.

And the law applicable should be a global set of maritime rules. These rules should be into force by

2030.

My sister learned me how to stay within the limits of what one could or couldn’t do by teaching me

this wisdom: Don’t walk of the footpath, that’s dangerous. Seen with my glasses and this becomes

When being disobedient one gets punished (Michiel Vervloet).

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CHAPTER 5: MANOUEVRING IN SHALLOW WATERS

5.1 IGNITION

Now that I have established an MBI, which can work, I have shown where the money can and should

be found and how one should monitor and control this endeavour. It is time to explain how one should

see these systems. I am no politician though they as well deserve a lighthouse who guides them into

save waters.

The MBI has been carefully designed by me and takes into account as much valuable points of view as

possible. Therefore I combined the knowledge from the IMO papers submitted by several Member

States and authorities in the sector. From those views I have distillated my BASELINE-CAP-CREDIT

TRADING-FUND. This system is the best possible option of regulating of CO2 emissions in these

economic settings. Further down the line one will have to dig up the EEOI and EEDI. This all needs to

be implemented as soon as possible if one is interested of reaching the carbon neutral shipping vision

by 2100.

In order to keep every player at the table one has to be able to at least have some supportive measures.

The sector on itself is investing already in new technologies, abatement programs are created and the

course toward green shipping has been set. Though it shall depend on other stakeholders to make the

sailing conditions favourable because right now all captains of industry know that we are steaming

into a storm with no rerouting alternatives. Governments, ports, insurance companies, the media and

the end consumers have to realise that within the next four years the transport of goods by sea will not

become cheaper. The first subsector who shall take a hit is Short Sea Shipping. That is why

governments have to make sure that they support this division with short term compensation measures

in order to levy the loss of competitive advantage in comparison with other transport modes. Ports and

insurance companies should put their rates at cruise control for two years on, this though only for the

green ships. The media has to show a fair image of shipping, catastrophes but also good sailing

performances should be communicated to all citizens and not only in the specialist media. Finally end

consumers will have to accept a higher price for their goods in order to get this green vision.

Because one should never be able to sail without a proper check up, a severe though fair control

system should have to come in operation. Ships owners and operators are responsible of monitoring

their fuel usage and communicate this clearly towards the IMO. IMO should have to ignite the MDSB,

and IMO should be the distributor of accurate data and remain that platform on which shipping is

addressed. Besides that, one should introduce in each flag state a maritime courthouse. These

courthouses should be able to judge within 24 hours whether a ship stays under arrest or not.

57

Now it is the job for our poker players to put these outlines in a binding agreement for the shipping

sector. They are the buoys which have to anchor the route towards green shipping. Seen with my light

and this arrives at: A ship design stays a ship design when no ship yard can execute the plans (Michiel

Vervloet).

5.2 THE SELECTION OF A GOOD PILOT

One of the key issues in the talks that are held under IMO MEPC is which MBI one has to use in the

maritime sector? There have been several stands taken and several governments want to set out buoys

along their preferred sailing routes.

The EU, in analogy with the EU ETS system, wants to put a cap and trade system into operation. This

vision is supported by several EU Member States such as France, Great Britain, Belgium, The

Netherlands and Sweden. This path is also followed by International Chamber of Shipping (ICS). This

system can as already stated work and has a real effect on the CO2 emissions from merchant vessels.

Though the division of the funds gathered is not stated clearly.

Denmark, Japan and World Shipping Council (WSC) are in favour of CO2 fund whereas each players

contributes according to an agreed ratio. In proper English they want to enforce a levy or a tax on

bunkers, however a fund cannot give a clear effect on CO2 abatement. They do state clearly what to do

with the money gathered. Japan stated in its document submitted at the MEPC that part of the money

should flow back the ship owners. Denmark stated that their has to come into force a Fund. This fund

should divide some of the money toward LDCs and the rest should have to be invested in R&D.

The United States of America wants to enforce EEDI and EEOI. Though this has already been proven

that such indexes are still in trial and currently not enforceable at all. Nor can one prove at this stage

the positive effect of the systems. One do has to further develop these systems so that they can become

the standard indexes for shipping.

A baseline and credit system sets out a clear path on how one can see emissions trade. Emission

reduction above and beyond legal requirements can be certified a tradable credit. So trade has been

grown due to the scarcity of one’s own resources (Michiel Vervloet).

I combined the points of view which were supported by the industry from these four MBI systems and

formed my BASELINE-CAP-CREDIT TRADING-FUND (See Chapter 2). In my vision this system

is simple to understand and to operate, is transparent and straightforward to administer. It is fair to

all operators regardless of the size of the company and the number of ships in the individual fleet. It

avoids competitive distortion and I have considered the possible step to avoid the danger of shifting

cargo to less efficient cargo modes (ICS, 2010; Chapter 3).

58

That is why my Market Based Instrument is according to me the right pilot to select in order of

bringing the political talks at MEPC into shallow waters.

5.3 OPTIMAL SERVICING IN TROUBLE WATERS

It is obvious that executing an MBI will bring along extra tasks which have to be performed by all

players in this sector. The maritime sector needs flow systems which shall have to come into place.

They are implementable, however what makes this daunting is the speed by which these systems shall

have to be fully operational.

First of all one shall need a trade floor where CO2 credits can be traded between players in the market.

Secondly SEUCON shall have to be designed & developed. Within the on shore crew of ship owners

people shall need to do the follow up of their vessels and data gathering systems are a must. Fourth at

IMO level the databank has to be fully operational as soon as possible. Ports and insurance companies

shall have to reassess the risk ratio of certain vessels and finally the public has to be educated properly

by the sector itself and by the media.

It is no surprise that these operations shall cost a lot of money. I am not able to say exactly how much

money we are talking about, though what I do know that those funds need to be attributed on a very

short notice. The databases from IMO have to be in place and decently monitored so one will need an

extra effort in IT infrastructure. Secondly the cost and / or tuition of staff and other crews working in

the maritime sector are significant and vital towards the success of this new reality.

5.4 GREEN AGREEMENT IN SHALLOW WATERS

One can be as interested as me in this topic, however this dissertation will not solve a thing if our

representatives on the political level won’t be able to reach a binding agreement. If our poker players

are not going to play again without one of them bailing out because one is playing for a compromise,

I can guarantee that we won’t have an arrangement that suits the crowd. And then once again we are

encountered with a TNT DO SOMETHING ACT.

I have put in my foundation paper all different valuable inputs from authorities and governments. I

have come to the realisation that my MBI is as good as it gets. This is the solution by which all of you

can walk out and face the mass without losing face. And in my opinion that is worth already a lot. Of

course there will be some pressure groups who will state that this way of addressing the environment

is not enough, though they as well have to realise that The economy is the driver of ecology (Michiel

Vervloet) and not the other way around.

59


Politicians will have to settle their differences. Each and every single country will have to make his

contribution. Therefore it is necessary that all players put their cards on the table and clearly state how

they see this agreement for the shipping industry. Shipping is for centuries the transport mode which

makes a globalised world possible. Right now all captains of industry realise that it is up to them to set

sail towards a world were one can still earn his /her ham on his /her sandwich though now they will be

obliged to put a leaf salad on it.

60

CHAPTER 6: ECONOMICAL & ENVIRONMENT FRIENDLY SHIPPING

6.1 IGNITION

When looking at the (near) future one will see a shift of preferred fuel use in the shipping industry.

Gas and biofuels are valuable alternatives and currently those fuels are already considered by ship

owners / operators by tackling the cost of being forced to sail on low sulphur bunkers. These low

sulphur sort of fuels are twice as expensive as the current bunker fuels which are fully in operation.

Besides that, the conversion ratio of one ton of gas combust versus CO2 emitted is 2,9 (IMO, 2009).

This means that for each tonne of gas combusted one emits 2,9 tonnes of CO2.

Alternative energy sources such as wind and solar power are vastly researched. Though one has to

make some reservations. First, at this moment we are not able to capture the on board energy

generated from solar panels into batteries. Imagine that operators of bulk carriers can put solar panel

on their cargo hatches en then storage these energy flows in batteries by which they can supply

themselves with the needed amount of electrical energy for their day-to-day activities. All abundant

means can then be delivered onto the electricity network where one can sell the electicity as ecopower.

Second, sails or kites can not face the challenge of being a valuable auxiliary energy source. However,

they can be used on board of tankers or containerships where they can be an assistance during sailing.

That’s because they can generate in that situation a difference in CO2 emissions emitted on board of

these type of vessels.

Friction research is another asset by which one can diminish his / hers emissions. Knowledge centres

are thoroughly looking at the possibilities of what hull shape and hull coatings can deliver on the

emission mitigation side and new fancy designs have come to surface. Though, one has to look at the

shipping yards to know whether they are able to build such ships. Because they look fantastic on a

digital presentation, however will they be as amazing as during such presentation when embarking on

its maiden trip?

Either way, green shipping is not utopia on the seas. It just needs a coordinated effort of plenty of

people. Seen from my perspective and one arrives at: One wins the Volvo Oceans Race as a team and

not on his own (Michiel Vervloet).

61

6.2 GREEN CARDS ON THE TABLE

Poker, a game played by gentlemen who know that even with a mutual respect one still can win.

Perhaps one doesn’t win all the chips though with the respect showed at the table for his of hers

opponents one makes this game one of the most challenging games ever invented by mankind. The

manner by which I like to play poker is with a smoking, a bow tie and a decent conversation during

the game. Gentlemen around my table do not bother by blaming another persons game. No, they just

try to find out why that particular person plays according to that game plan. Once they know the

strategy of the peers, a true gentlemen tries to make sure that none of the co players loses face. That

first means that each player can win a round and secondly that the game is finished with a remise.

It is time for the true gentlemen to show cards and make sure that all of us can win a round. Leaders

who state that they do not emit a decent amount CO2 are no leaders nor gentlemen. They are just very

dangerous people who are willingly to gamble with their peoples health in order to win a game. A

game which can only work with a compromise. Those people are the ones all of us have to be scared

off because those so-called leaders do not want to lead they just want the earth spinning around their

national strategy. And all of us know that the earth spins around its own axe and operates around the

sun. Don’t betray your future generations by not making a binding environmental deal because

otherwise I shall make sure that my children get to know those people who have put high interest loans

on their well being.

6.3 GREEN EFFECT ON INDUSTRY

No country can produce everything that its own people need or want. Trade allows a country to

concentrate production and specialise in those things that it does well. It allows businesses to learn

from the best in the world in terms of management skills and technology and it creates huge, world-

wide markets to stimulate investment and innovation. Trade increases the wealth of nations, and ports

are the gateway to trade (Institute of Chartered Shipbrokers, 2009).

The new regulations on CO2 emission can trigger an effect where resources are reassessed by

multinationals. Due to these assessments one can decide on a relocation of production divisions. This

will have effect on the transport flows. The flows are affected by the fact that multinationals try to

minimise their costs.

One can also see another effect. Perhaps we will see a concentration of industrialised activities in

certain areas. In Africa one can see development around harbour growing further. A possible

development pool can be the future port of Ibaka in Nigeria (Allaert, 2010). In Brazil economical

development can be triggered by the iron ore mines and the ports which send those goods around the

world (e.g. the port of Recife). India can further develop its Hub ports whereas one creates added

62

value and jobs. China can further develop its hinterland along the great rivers. In Europe one probably

will see the initial concentration in Eastern Europe. However, throughout Europe one can see

economical concentrations activities along inland waterways. I developed with three colleagues the

Waterway Industrial Development Areas (WIDAs), where industrial enterprises situate themselves

along inland waterways and use those waterways to transport their goods. Similar visions can be

developed for railways (Railway Industrial Development Areas (RIDAs)) and for pipelines (Pipeline

Industrial Development Areas (PIDAs)) (Ceulen M., Joukes A., Sips J. & Vervloet M., 2010).

One has to have the vision that those new settings offer opportunities. And one of my favourite visions

is: Grab hold of each realistic opportunity (Michiel Vervloet)

.

63

6.4 SAILING GREEN

This dissertation gives a foundation on how the Green Shipping Agreement (GSA) should look like. It

is a challenging way and we shall be encountered with green winds that are no smooth breezes. We

will have to adjust towards a new way of being that vital link between the producers and the end

consumers, whereas we, the shipping industry still is thé choice of transport mode that carries more

than 80 % of the industrial goods.

I started of this dissertation by bragging that one of my key references is the book The Art of War by

Sun Tsu. In this booklet he states one vital quote: “The best battle is the one that is won without being

fought” . And this is the way by which all stakeholders of the maritime sector have to see this

foundation paper. It is a Belgian compromise in its purest form. Each player receives a hand which can

be defended in a poker game, though when one is obliged to show hands we all have to settle with a

split pot.

I’m confident that one is able to reach such a binding agreement and that the maritime captains of

industry will become those pioneers which sail as one of the first through new, green waters. Because

what SHIPPING really means to me is the following:

Striving for

Honour and

Innovation through

Peak

Performance

In

Nurturing realistic

Goals

(Michiel Vervloet)

And I am an advocate of this transport sector.

64

Some say that I am a friendly killer whale,

Other say the I am Mr. LeRoux,

All I know that my grandfather calls me

Michiel ‘The Light(ening)house’ Vervloet.

65

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