1. Reduction of harmful emissions from ships by Erik.Ranheim@INTERTANKO.com Manager Research and Projects Lausanne 12 September 2008 Erik.Ranheim@INTERTANKO.com

2. The Challenges The world demands greener shipping Emission from shipping is dirty and harmful for the health and the environment GHGs emission from shipping increasing - not directly regulated under the Kyoto protocol IMO assumed to regulate GHG emission Seen to be dragging feet Must react

3. Distance traveled by 1 tonne of cargo with 1 kg of CO 2 emission Source: AP Møller – Maersk Group km Shipping is energy efficient

4. Trends – Co2 emission, energy use, global trade Source: Fearnleys/INTERTANKO Index There has been strong growth in shipping

5. Engine break specific fuel consumption Source: Lloyd’s Register g per kWh Fuel efficiency in shipping has has improved

6. MARPOL Annex VI

7. Reducing harmful emission to air from shipping The e missions regulated by MARPOL Annex VI: SOx NOx VOC un-combusted hydrocarbon Heavy metals Soot

8. The Annex VI package All ships above 400GT Reduction SOx, NOx, + PM Compliance through fuel specification, or Equivalent Measures accepted Assumes supply of low sulphur fuel* Bunker Delivery Note BDN important ** NOx Tier I, large engines, ships built in 1990s NOx Tier II and Tier III, new engines *Ships not punished if required fuel not available **Guidelines to asses compliance if BDN data is challenged by PSC or lab test results

9. The world is moving away from HFO Oil consumption by product - % share Source: INTERTANKO/BP Review % share mbd

10. Why not scrubbers? Still under testing (2 ship limited scale) Large Expensive Difficult (impossible?) to install CO 2 emission (buffering effect) leaves hazardous waste waste disposal – no-one wants it Tonnes of seawater need to be processed/added We are involved in transportation – not waste treatment

11. New measures to be adopted at MEPC 58: SOx emissions Emission Control Area (ECA) 1.0% limit 20102012201520252020 2018 Global 3.5% limit ECA 0.1% limit: IMO review Global 0.5% limit Extension? No measures against ships that do not receive adequate supply

12. New measures to be adopted at MEPC 58: NOx emissions Current regulation Tier I: existing ships built after 2000, base line 201020112016 Tier I: ships built 1990s engine>5000 kWh, cylinders = >90 ltrs - Tier II: 15.5% - 21.8% reduction ships built on, after 1 Jan 2011 Many preconditions: engine rating, fuel consumption, durability, cost/benefit, availability of efficient upgrading system, upgrading at the ship’s first renewal survey Tier II: 80% reduction ships built on, after 1 Jan 2016 Power output > 750 kW In Emission Control Areas (ECAs) ONLY

13. Switching to distillates will 1. 1. Reduce global emissions 2. 2. Leave no onboard waste 3. 3. Improve conditions for crew and dockworkers 4. 4. Cause far less pollution when spilled 5. 5. Cause no safety problem in connection with fuel switching fuels entering ECAs 6. 6. Causes less engine breakdowns and potential pollution accidents 7. 7. Provides opportunity for the development of more efficient engines (w. less emission) 8. 8. Fit all ships and current engines 9. 9. Be easy for authorities to control Cleaner, Simpler and more Efficient ships

14. GHG emission

15. Shipping’s tools to reduce GHGs? Indices Design Operational –Base line necessary Market instruments Emission trading Scheme (ETS), to stimulate entrepreneurship? Levy, equal to tax? Offset charges? Ship Efficiency Management Plan No general agreement on how to regulate GHG emission from shipping

16. Fuel efficiency design index A tool for shipbuilders to assess fuel efficiency/CO 2 emissions Shipyards will create energy efficient designs to be competitive Wide support in IMO, except Some developing countries Supported by INTERTANKO, proposes simplification of formula Need baseline To be based on, installed power, specific fuel consumption, correction factors to account for specific design elements, speed, dwt, the contribution from auxiliary machinery Sea trial Esther Spirit

17. The CO 2 operational index An instrument for evaluating quantitatively the effect of operational fuel efficiency measures, such as speed reduction or optimum navigation Charterers greatest influence Not immediately mandatory No direct link to design index

18. A Market Based Instruments (MBI) should Be legally, politically and institutionally acceptable. Be easy to administer, monitor and enforce Preferably be global and regulated by IMO Reduce CO2 emission levels in real terms by additional amounts to normal reductions Not unduly distort competition Ensure simple allocations of emission allowances Be non-discriminating of ship types and flags Be difficult to evade Be acceptable to Kyoto Annex I as well as developing countries.

19. Aviation ETS scheme *smallest planes excluded ** Reduction target based of average emissions 2004-06 All* flights to/from EU included as of 2012 Reduction 2012 3%, later 5% cut p.a.** Use of revenues generated by auctioning allowances decided by EU by members Complemented by technical/ operational CO2 reducing measures Further unilateral and other agreements on global measures to reduce greenhouse gas emissions from aviation. Europe basis for shore based ETS - decided aviation ETS - shipping? European shore based ETS a multi-billion industry – CO2 a commodity

20. Levy on bunkers Little support Regarded as taxation Considering very high and volatile bunker prices – hardly effective The 400% increase in bunker prices over the last 4 years has provided the shipping industry with a significant economic driver to improve its energy efficiency and thus reduce CO2 emission Prices HFO 380 cst, Fujairah

21. Best Practice Guideline for owners Practical and indisputable

22. Conclusion

23. Conclusion 1. 1. Reduced, cleaner emission from shipping under way 2. 2. Technical advances to improve fuel efficiency and reduce CO2 emission will be made 3. 3. Market based instruments are controversial and complicated 4. 4.Shipping must be proactive and realistic 5. 5.Owners can only combat challenges from a position of influence, in which its pivotal role in facilitating trade is acknowledged. Shipping on the way to become less environmentally harmful