1. 1 Analysis on the Potential of Reducing Greenhouse Gas Emissions from International Marine Transport Mitsubishi Research Institute Inc. Environment & Energy Division Global Warming Research Group Abstract

2. 2 Objective Analyze the impact of limiting CO2 emissions from international marine fuel consumption in 2050 at 2007 levels

3. 3 Items of Study １． Review of IMO scenarios –(1) Describe the outline of IMO Study –(2) Analyze the impact of freight tonnage increase –(3) Project the future trend of emission factor of transport (CO2 emission / tonne mile freight transport) ２． Calculation of the degree of change of speed necessary to stabilize CO2 emission –(1) Stabilization by all international marine transport –(2) Stabilization by ships whose flag state is an Annex I country ３． Analysis of economic measures (ETS) –(1) Impact on the world fleet –(2) Impact on the Japanese fleet

4. 4 1. Review of IMO scenarios Structure of IMO Study Estimation of current situation Navigation data based on AIS Ship data based on Lloyd’s Fairplay Estimation of activity data Estimation of energy consumption and CO2 emission Projection of future CO2 emission 6 IPCC scenarios * 3 transport projections * 3 technological improvement projections * 3 speed change projections = 162 scenarios Estimation of future growth trends Selection of IPCC Scenarios Identification of GDP growth in each scenario Identification of transport growth in each scenario Consideration of technological improvement and speed change

5. 5 1. Review of IMO scenarios Outline of IPCC scenarios Extracts 6 scenarios A1 ： High growth scenario –A1F1 ： Emphasis on fossil fuel –A1B ： Balanced energy –A1T ： Emphasis on non-fossil fuel A2 ： Differentiated world scenario B1 ： Sustainable development scenario B2 ： Regional integration scenario Source: IPCC SRES

6. 6 1. Review of IMO scenarios (1) Outline of IMO scenarios Category –Ocean-going （ Large ships used for large quantities and intercontinental trade ） –Coastwise （ Ships used in regional (short sea) shipping for international transport; mostly small ships and ferries, etc. ） –Container （ Container ships of all sizes ） Freight transport –Based on projected GDP growth under IPCC scenarios –3 growth scenarios are estimated for the years 2020 and 2050 Technological improvement –E.g. Improvement of propeller efficiency, low-resistance hulls. –3 scenarios are estimated for the years 2020 and 2050. Speed change –Anticipates that ships may implement speed reduction due to increase in fuel price –3 scenarios are estimated for the years 2020 and 2050.

7. 7 1. Review of IMO scenarios (1) Outline of IMO Study Efficiency improvement from technological change Degree of speed change 20202050 HighBaseLowHighBaseLow Ocean-going-4 %-2 %0 %-35 %-20 %-5 % Coastwise-4 %-2 %0 %-45 %-25 %-5 % Container-4 %-2 %0 %-30 %-17.5 %-5 % 20202050 HighBaseLowHighBaseLow Ocean-going-10 %-5 %0 %-20 %-10 %0 % Coastwise-10 %-5 %0 %-20 %-10 %0 % Container-20 %-10 %0 %-40 %-20 %0 %

8. 8 1. Review of IMO scenarios (1) Outline of IMO Study (CO2 emissions) Current CO2 emissions –2007 ： 847*Mt-CO2 Estimated CO2 emissions –2020 ： 0.85 to 1.7 times 2007 level –2050 ： 0.88 to 8.7 times 2007 level 20202050 LLHHBBLLHHBB A1 B 1,4477701,0757,3448853,029 A1 F1 1,4407701,0737,2288802,989 A1T 1,4477711,0767,3418793,021 A2 1,2757409875,4268042,392 B1 1,2527349705,0817812,273 B2 1,1607199264,4077462,036 Estimated CO2 emissions （ Mt-CO2 ） * This Global emission was presented by International Consortium at the 1st Intersessional WG on GHG in Oslo (June ‘08), and amended to 843Mt-CO2 in their final report submitted to MEPC58(Oct. ‘08).

9. 9 1. Review of IMO scenarios (2) Impact of freight tonnage increase Freight tonnage projection under IMO Study  A1B scenario  Tech. improvement = 0%  Speed change = 0% Impact of speed change (high reduction, base reduction, low reduction) are analyzed. 200720202050 Ocean-going 5379541,784 Coastwise 8195178 Container 1263481,615 Total 7441,3973,577 (Million GT) Conditions

10. 10 1. Review of IMO scenarios (2) Impact of freight tonnage increase Results –Assumes that shipbuilding capacity will be doubled by 2020 and quadrupled by 2050 –Increase in shipbuilding demand as a result of speed change is about 13% to 14% compared to the case when speed is not reduced. 20202050 Degree of speed change Category ∖ Case BaseHighLowBaseHighLow Ocean-going -5%-10%0%-10%-20%0% Coastwise -5%-10%0%-10%-20%0% Container -10%-20%0%-20%-40%0% Required increase in fleet size Category ∖ Case BaseHighLowBaseHighLow Ocean-going 5%11%0%11%25%0% Coastwise 5%11%0%11%25%0% Container 11%25%0%25%67%0% Total6.7%14.6%0.0%17.4%43.8%0.0% Percentage of additional ships to be built (as a proportion of total fleet) Category ∖ Case BaseHighLowBaseHighLow Ocean-going 0.40%0.81%0.00%0.25%0.52%0.00% Coastwise 0.40%0.81%0.00%0.25%0.52%0.00% Container 0.81%1.73%0.00%0.52%1.20%0.00% Total0.50%1.05%0.00%0.37%0.85%0.00% Proportion of additional shipbuilding demand (in relation to shipbuilding capacity under no speed change) Category ∖ Case BaseHighLowBaseHighLow Ocean-going 5.05%10.40%0.00%4.06%8.61%0.00% Coastwise 5.05%10.40%0.00%4.06%8.61%0.00% Container 10.40%22.13%0.00%8.61%19.78%0.00% Total6.41%13.44%0.00%6.18%14.05%0.00%

11. 11 1. Review of IMO scenarios (3) Emission factor of transport (CO2 emission / tonne mile freight transport) Implementation of high degree of technological improvement and high degree of speed change (case High-High) –CO2 emission per tonne mile is expected to be reduced by 66% by 2050 from 2007. Implementation of intermediate degree of technological improvement and intermediate degree of speed change (case Base-Base) –CO2 emission per tonne mile is expected to be reduced by 40% by 2050 from 2007. Base-Base Low-Low High-High

12. 12 2. Change of speed necessary to stabilize CO2 emission (1) Stabilization by all international marine transport 2020 Speed need to be reduced to the following level (compared to 2007) under IPCC A1 scenario （ freight transport: base estimate ） –Ocean-going:81% –Coastwise: 81% –Container: 72% Low-Low (LL) Base- Base (BB) High- High (HH) HH-10%HH-20% Ocean-going Rate of reduction 0%-5%-10%-19%-28% Coastwise 0%-5%-10%-19%-28% Container 0%-10%-20%-28%-36%

13. 13 2. Change of speed necessary to stabilize CO2 emission (1) Stabilization by all international marine transport 2050 ： –Stabilization under A1 scenario is not possible –Stabilization only possible when a high degree of speed reduction is achieved under low emission (B1, B2) scenarios. （ freight transport: base estimate ） –Reduction of speed below a certain level results in increase of emissions due to emissions from auxiliary engines, which is proportional to duration of navigation. Low-Low (LL) Base-Base (BB) High-High (HH) HH-20%HH-30%HH-40% Ocean-going Rate of reduction 0%-10%-20%-36%-44%-52% Coastwise 0%-10%-20%-36%-44%-52% Container 0%-20%-40%-52%-58%-64%

14. 14 2. Change of speed necessary to stabilize CO2 emission (2) Stabilization by ships whose flag state is an Annex I country Share of ships whose flag state is an Annex I country –Option 1: Constant tonnage…Annex I ships remain fixed at 2006 level (i.e. 5% of all fleet in 2050) –Option 2: Constant proportion…Proportion of Annex I ships remain fixed at 2006 level (i.e. 26% of all fleet in 2050) Both cases indicate that it is impossible to stabilize emissions at 2007 levels by actions taken by Annex I ships alone An effort by all ships would be called for, regardless of their flag states Option 1: Constant tonnage at 2006 level (5% of all fleet in 2050) Option 2: Constant proportion at 2006 level (26% of all fleet in 2050)

15. 15 ３． Analysis of economic measures Objective: Calculate cost of purchase of emission reduction credits (ERCs) in order to stabilize CO2 emissions Method: –Scenario ： IPCC A １ B –Cost of ERC ： 20 Euro/t-CO2 (low estimate) 60 Euro/t-CO2 (high estimate) (1) Impact on the global shipping industry 2007 20202050 BBHHBBHH CO2 Emissions (Mt-CO2) 8471,1069722,1821,396 Emission in excess of 2007 levels (Mt- CO2) (Mt-CO2) 02591251,335549 Emission reduction credit at 20 Euro/t- CO2: Total purchase price (billion JPY) - 2,4901,20412,8205,267 (billion Euro) 5.22.526.711.0 Emission reduction credit at 60 Euro/t- CO2: Total purchase price (billion JPY) 8304014,2731,756 (billion Euro) 15.67.580.132.9

16. 16 ３． Analysis of economic measures (2) Impact on the Japanese shipping industry Conditions –Freight transport: Proportion of world fleet fixed at 2006 level (12.9%) –Analyzed the effect on corporate performance –Revenue assumed to be proportional to freight transported Results –Purchase of ERCs to offset emissions in excess of 2007 level can severely affect the operation of the shipping industry –For Base-base (BB) case, the cost is roughly the same level as ordinary profit (which averaged 8.1% from 2001 to 2006) –For High-High case, the cost is roughly the half of ordinary profit 200720202050 BBHHBBHH CO2 emissions (Mt-CO2) 109143125282180 Emission in excess of 2007 levels (Mt-CO2) 0341617371 Projected freight transport and revenue （ 2007 ＝ 100 ） 100147 411 Operating income (billion JPY) 3,4915,131 14,360 Emission reduction credit at 20 Euro/t-CO2 Total purchase price (billion JPY) 10752552227 (billion Euro) 0.70.33.41.4 Ratio to operating revenue 2.1%1.0%3.8%1.6% Emission reduction credit at 60 Euro/t-CO2 Total purchase price (billion JPY) 3221561,656681 (billion Euro) 2.01.010.34.2 Ratio to operating revenue 6.3%3.0%11.5%4.7%

17. 17 ３． Analysis of economic measures (2) Impact on the Japanese shipping industry Cost of ERC purchase to stabilize emissions at 2007 level (at high estimate of ERCs) can be at the same level as ordinary profit Average ordinary profit to revenue ratio