Developments Towards Net-Zero Shipping & U.S. Leadership Opportunities
The MOC
By
LT Austin Newcomer
March 14, 2024
Following a year of promise, 2024 will be pivotal in the maritime shipping sector’s efforts to reduce greenhouse gas (GHG) emissions. The International Maritime Organization (IMO) officially revised its Strategy on the Reduction of GHG Emissions in July 2023. The strategy sets ambitions for global net-zero shipping by 2050 and now calls for mid-term GHG reduction measures to be finalized by 2025, which will, importantly, include “an economic element, on the basis of a maritime GHG emissions pricing mechanism.”
The IMO is currently considering nine different market-based mechanisms. In December 2023, the U.S. federal government released its Maritime Decarbonization Action Plan Preview, which says its plan, due in 2024, will also include “economic and policy levers” but does not preview any such economic levers. Leading the maritime emissions pricing cause, the European Union’s action to include maritime emissions in their Emissions Trading System (ETS) took effect in January 2024.
Furthermore, one of the short-term measures that the IMO implemented in 2021, the Carbon Intensity Indicator (CII) rating, matures this year. For the first time, ships will begin reporting their attained CII and be rated on a scale of A, B, C, D, or E – indicating a major superior, minor superior, moderate, minor inferior, or inferior performance level. The formula for calculating required CII includes an annual reduction factor to ensure continuous improvement over time. However, there are currently no incentives for superior performance nor real penalties for inferior performance; ships rated D for three consecutive years or E once must only develop a plan of corrective actions and use it to revise their Ship Energy Efficiency Management Plan (SEEMP) and undertake the planned corrective actions.
While there is reason for optimism surrounding the IMO’s new strategy, there is plenty of reason for skepticism surrounding a global maritime GHG emissions pricing mechanism. Carbon pricing typically falls into two categories: carbon taxes or cap-and-trade (like the EU ETS). Most of the proposals before the IMO roughly fall into these two categories. At the 28th Conference of the Parties to the UN Framework Convention on Climate Change (COP28) in Dubai in December of 2023, global carbon pricing still proved untenable despite broad support for the concept. The domestic politics of carbon pricing are much the same, if not worse.
Carbon pricing is widely seen as something of a panacea, and the U.S. should continue to pursue a carbon pricing agreement, but with domestic politics as they are, it would be wise to simultaneously pursue a suite of complimentary contingencies in keeping with the Administration’s “government-wide” strategy described in Executive Order 14008. In maritime shipping, the new reporting of CII ratings brings opportunities for U.S. leadership to provide other economic levers that may be necessary to ensure the 2050 net-zero shipping goal is achieved. Commercial ships are not predominantly built in the U.S. nor flagged U.S., but the U.S. remains the largest importer of goods with the largest Exclusive Economic Zone (EEZ). Thus, conditions of entry into port can have a significant influence on the global fleet.
Though previously conceived as a short-term, operational measure included in a vessel’s SEEMP, speed optimization may be an area where the U.S. can pull an economic lever without needing a conventional tax. “Optimum speed means the speed at which the fuel used per tonne mile is at a minimum level for that voyage.” Sometimes, market forces incentivize optimum speed; sometimes, they do not. CII ratings of D and E are a likely sign that a ship has been incentivized, or otherwise required (e.g., charter contracts, berth availability), to speed past fuel efficiency, despite its lost fuel cost savings and without regard to the external costs of its emissions. U.S. speed regulation of ships with CII ratings of D and E could lessen this inefficiency by immediately reducing the emissions of said ships while simultaneously incentivizing further technological uptake and development in alternative fuels and ship energy efficiency. It should be noted that there are other benefits of reducing ship speeds that may provide additional support. These benefits are namely reductions in whale strikes and underwater noise.
The Environmental Protection Agency has primarily led the U.S. regulation of ship emissions. However, a speed regulation may fall most neatly in the U.S. Coast Guard’s (USCG) wheelhouse. Under existing authority, the USCG could begin requiring ships to report their CII rating as part of their Notice of Arrival (NOA). From there, operational controls could be exercised on inferior performers, which the USCG routinely does for various other purposes. Requiring a vessel to operate at optimum speed may prove too complicated across the wide variety of ships, but a table of maximum speeds based on vessel class and size could be a good enough solution. Each of these ships is equipped with an Automatic Identification System (AIS) transponder, and the U.S. government’s Geographic Information Systems (GIS) can automate some of the burden of ensuring compliance with speed orders. However, issuing an operational control is where new domestic legislation or an IMO resolution is likely necessary.
On a more positive note, the USCG is also positioned to be able to reward superior CII performance. The USCG has long administered the QUALSHIP 21 program to recognize and reward ships with the “highest commitment to safety,” and they more recently added the E-Zero designation to the program for those ships that have “consistently adhered to environmental compliance.” Now is the time to expand the program to reward ships for reducing emissions beyond IMO goals. This is low-hanging fruit. The CII ratings are the criteria. The USCG only needs to determine what additional rewards they can offer to superior performers.
Lastly, at COP28, some of the most impassioned voices calling for climate action in general and specifically within the maritime industry were Pacific Island nations – the same nations we seek to retain as allies in the rising competition with China. The U.S. is increasingly considering climate change in the national security dialogue and its Indo-Pacific strategy, but concerning our allies, we offer primarily adaptation assistance. These islands are demanding climate change mitigation. U.S. action to mitigate ship emissions would provide tangible evidence of our commitment to our Pacific allies via the ships slow-steaming through their region.
In 2024, the U.S. has the opportunity to lead the maritime sector towards net-zero emissions by 2050. IMO’s revised Strategy and the CII ratings open new avenues for action. However, challenges in establishing a GHG emissions pricing mechanism, highlighted at COP28, call for innovative and diverse strategies. The U.S., as the largest importer and EEZ, can influence global shipping without solely relying on carbon pricing. Focusing on speed optimization of ships with poor CII ratings, the U.S. can reduce emissions immediately and encourage advancements in alternative fuels and efficiency. The USCG could play a pivotal role in enforcing speed regulations and rewarding superior CII performers. This dual approach of regulation and recognition can drive emissions reductions in shipping. Moreover, U.S. action in maritime emissions reduction is crucial for Pacific Island nations, aligning climate action with national security and diplomatic strategies in the Indo-Pacific.
LT Austin Newcomer is a Response Officer and prior Chief Petty Officer (Marine Science Technician) in the U.S. Coast Guard. He is currently assigned to Postgraduate Education at the School of Global Policy & Strategy at UC San Diego, where he will earn a Master of Public Policy.
The views expressed in this piece are the sole opinions of the author and do not necessarily reflect those of the Center for Maritime Strategy or other institutions listed.
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Center for Maritime Strategy
By LT Austin Newcomer
Following a year of promise, 2024 will be pivotal in the maritime shipping sector’s efforts to reduce greenhouse gas (GHG) emissions. The International Maritime Organization (IMO) officially revised its Strategy on the Reduction of GHG Emissions in July 2023. The strategy sets ambitions for global net-zero shipping by 2050 and now calls for mid-term GHG reduction measures to be finalized by 2025, which will, importantly, include “an economic element, on the basis of a maritime GHG emissions pricing mechanism.”
The IMO is currently considering nine different market-based mechanisms. In December 2023, the U.S. federal government released its Maritime Decarbonization Action Plan Preview, which says its plan, due in 2024, will also include “economic and policy levers” but does not preview any such economic levers. Leading the maritime emissions pricing cause, the European Union’s action to include maritime emissions in their Emissions Trading System (ETS) took effect in January 2024.
Furthermore, one of the short-term measures that the IMO implemented in 2021, the Carbon Intensity Indicator (CII) rating, matures this year. For the first time, ships will begin reporting their attained CII and be rated on a scale of A, B, C, D, or E – indicating a major superior, minor superior, moderate, minor inferior, or inferior performance level. The formula for calculating required CII includes an annual reduction factor to ensure continuous improvement over time. However, there are currently no incentives for superior performance nor real penalties for inferior performance; ships rated D for three consecutive years or E once must only develop a plan of corrective actions and use it to revise their Ship Energy Efficiency Management Plan (SEEMP) and undertake the planned corrective actions.
While there is reason for optimism surrounding the IMO’s new strategy, there is plenty of reason for skepticism surrounding a global maritime GHG emissions pricing mechanism. Carbon pricing typically falls into two categories: carbon taxes or cap-and-trade (like the EU ETS). Most of the proposals before the IMO roughly fall into these two categories. At the 28th Conference of the Parties to the UN Framework Convention on Climate Change (COP28) in Dubai in December of 2023, global carbon pricing still proved untenable despite broad support for the concept. The domestic politics of carbon pricing are much the same, if not worse.
Carbon pricing is widely seen as something of a panacea, and the U.S. should continue to pursue a carbon pricing agreement, but with domestic politics as they are, it would be wise to simultaneously pursue a suite of complimentary contingencies in keeping with the Administration’s “government-wide” strategy described in Executive Order 14008. In maritime shipping, the new reporting of CII ratings brings opportunities for U.S. leadership to provide other economic levers that may be necessary to ensure the 2050 net-zero shipping goal is achieved. Commercial ships are not predominantly built in the U.S. nor flagged U.S., but the U.S. remains the largest importer of goods with the largest Exclusive Economic Zone (EEZ). Thus, conditions of entry into port can have a significant influence on the global fleet.
Though previously conceived as a short-term, operational measure included in a vessel’s SEEMP, speed optimization may be an area where the U.S. can pull an economic lever without needing a conventional tax. “Optimum speed means the speed at which the fuel used per tonne mile is at a minimum level for that voyage.” Sometimes, market forces incentivize optimum speed; sometimes, they do not. CII ratings of D and E are a likely sign that a ship has been incentivized, or otherwise required (e.g., charter contracts, berth availability), to speed past fuel efficiency, despite its lost fuel cost savings and without regard to the external costs of its emissions. U.S. speed regulation of ships with CII ratings of D and E could lessen this inefficiency by immediately reducing the emissions of said ships while simultaneously incentivizing further technological uptake and development in alternative fuels and ship energy efficiency. It should be noted that there are other benefits of reducing ship speeds that may provide additional support. These benefits are namely reductions in whale strikes and underwater noise.
The Environmental Protection Agency has primarily led the U.S. regulation of ship emissions. However, a speed regulation may fall most neatly in the U.S. Coast Guard’s (USCG) wheelhouse. Under existing authority, the USCG could begin requiring ships to report their CII rating as part of their Notice of Arrival (NOA). From there, operational controls could be exercised on inferior performers, which the USCG routinely does for various other purposes. Requiring a vessel to operate at optimum speed may prove too complicated across the wide variety of ships, but a table of maximum speeds based on vessel class and size could be a good enough solution. Each of these ships is equipped with an Automatic Identification System (AIS) transponder, and the U.S. government’s Geographic Information Systems (GIS) can automate some of the burden of ensuring compliance with speed orders. However, issuing an operational control is where new domestic legislation or an IMO resolution is likely necessary.
On a more positive note, the USCG is also positioned to be able to reward superior CII performance. The USCG has long administered the QUALSHIP 21 program to recognize and reward ships with the “highest commitment to safety,” and they more recently added the E-Zero designation to the program for those ships that have “consistently adhered to environmental compliance.” Now is the time to expand the program to reward ships for reducing emissions beyond IMO goals. This is low-hanging fruit. The CII ratings are the criteria. The USCG only needs to determine what additional rewards they can offer to superior performers.
Lastly, at COP28, some of the most impassioned voices calling for climate action in general and specifically within the maritime industry were Pacific Island nations – the same nations we seek to retain as allies in the rising competition with China. The U.S. is increasingly considering climate change in the national security dialogue and its Indo-Pacific strategy, but concerning our allies, we offer primarily adaptation assistance. These islands are demanding climate change mitigation. U.S. action to mitigate ship emissions would provide tangible evidence of our commitment to our Pacific allies via the ships slow-steaming through their region.
In 2024, the U.S. has the opportunity to lead the maritime sector towards net-zero emissions by 2050. IMO’s revised Strategy and the CII ratings open new avenues for action. However, challenges in establishing a GHG emissions pricing mechanism, highlighted at COP28, call for innovative and diverse strategies. The U.S., as the largest importer and EEZ, can influence global shipping without solely relying on carbon pricing. Focusing on speed optimization of ships with poor CII ratings, the U.S. can reduce emissions immediately and encourage advancements in alternative fuels and efficiency. The USCG could play a pivotal role in enforcing speed regulations and rewarding superior CII performers. This dual approach of regulation and recognition can drive emissions reductions in shipping. Moreover, U.S. action in maritime emissions reduction is crucial for Pacific Island nations, aligning climate action with national security and diplomatic strategies in the Indo-Pacific.
LT Austin Newcomer is a Response Officer and prior Chief Petty Officer (Marine Science Technician) in the U.S. Coast Guard. He is currently assigned to Postgraduate Education at the School of Global Policy & Strategy at UC San Diego, where he will earn a Master of Public Policy.
The views expressed in this piece are the sole opinions of the author and do not necessarily reflect those of the Center for Maritime Strategy or other institutions listed.