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Shipowners reveal unprecedented $5bn R&D fund proposal

Developed over more than four years behind closed-doors by the International Chamber of Shipping the proposal is first combined effort to self-fund global shipping decarbonisation. And no, it is not meant to stop talks about a market-based-measure, but it does need the IMO member-states to back it.

A proposal to formally create a huge research and development fund to support shipping’s decarbonisation has been submitted to international policy makers. The proposal comes from an unlikely source, the shipping associations that directly represent the very shipowners it would source the funds from.

The proposal is for the creation of a research and development fund that would be administered by the International Maritime Organization, with all ships being made to pay a sum of $2 per tonne of fuel loaded.

The idea of a fund has been under development for more than four years within the International Chamber of Shipping, the lobby group which represents national shipowner groups on the international table.  

However since the agreement at the IMO in 2018 that shipping should decarbonise totally by the end of the century, have a 50% reduction of emissions by 2050 on a fleet wide basis, the impetus has been to put forward something that would offer a level playing field for all ships.

The proposal takes one of the ideas that is already in the initial IMO strategy – the creation of a maritime research board to coordinate R&D efforts and takes it further, including how to collect the funds. It suggests that an non-governmental organisation is created – The International Maritime Research and Development Board – which would be administered by the IMO. This board would be responsible for the allocation of the fund to research and development projects that enhance the various decarbonisation pathways that shipping may have to take.

The detail

Nearly all of the major shipowner associations that have a seat at the IMO discussions have put their names to the proposal – BIMCO, CLIA, Intercargo, Interferry, Intertanko, IPTA and the World Shipping Council – even though they may have not been as actively involved in its development.

It is one of the few times all the major groups have come together in such a way, and it is certainly unprecedented in how it openly proposed collecting funds from ships owned and operated by its  member shipowners.

The proposal suggests that an amendment is made to Marpol Annex VI, the regulation that covers ship emissions. With vessels already recording their fuel consumption under the requirements for the IMOS data collection efforts (itself seen as a potential pathway to encouraging decarbonisation through some sort of market -based measure), the ships would be required to then pay an annual fee for the duration of the fund, with the vessel’s flag state issuing a notification of compliance, and port states then being in a position to fine or detain for non-compliance.

The issue of who pays the money into the fund  – which the shipowners say is not  a tax as it does not go to separate government coffers –  has also been  considered. The shipowner’s groups suggest that the entity responsible for ISM Code compliance is the body that should be responsible for ensuring the vessel is compliant  with the need to pay and sending annual or regular installments to the fund depending on its fuel purchasing history.

ICS and the other groups have agreed that the fuel suppliers should not be responsible for the collection of the funds, nor should the flag or port state authorities as this could potentially lead to  a taxation or what is known as hypothecation of a tax (a sort of national ring-fencing that could prevent the money being forwarded directly to an international fund).

The proposal calls on the IMO to be responsible for administering the fund, and an independent body of experts – possibly shipowners, lawyers and flag state representatives then having overall responsibility to ensure the funds are allocated openly and fairly.

Fathom World Simon Bennett ICS Deputy Secretary General
Simon Bennett, ICS: Optimistic the proposal is in the “Goldilocks Zone” – attractive to most IMO member states

What next

Experts who have worked on the funds development over the last few years told Fathom World that the fund proposal still has to be discussed at the next IMO MEPC meeting in Spring 2020 and then finalised next years second MEPC meeting.

However, there have been informal talks with both the secretariat of the IMO and a number of member state representatives as the proposal has been developed. This is in a bid to ensure the proposal has as smooth a transition through the IMO’s MEPC as possible. But, given the nature of the IMO delegates that come to the meetings from its member states, the details of the fund could easily be amended and changed. The suggestion that ships pay $2 on each tonne of fuel loaded may be higher or lower, and the carbon content of the fuel will most likely have to be accounted for. Under the IMO texts currently a tonne of heavy fuel oil creates 3.14 tonnes of CO2 while a tonne of LNG creates 2.75 tonnes). Vessels running on batteries and hydrogen for example may be exempt.

At a press briefing ahead of publishing the proposal Simon Bennett, ICS deputy Secretary-General said be believes the concept will meet the concerns of both the high ambition states and those that are more concerned over the impact that decarbonisation could have on trade.

This shipowner group proposal suggests that during the 10-year life time of the fund it could raise up to $5bn, based on the assumption that shipping continues to consume about 250 tonnes of bunker fuels. That may change.

It also has to be decided how the funds would be distributed amongst worth projects. The proposal makes it clear that the shipowner groups would not be happy if the funds are used to bring solutions to market, that would be left to the commercial actors to accomplish.

While the proposal puts the emphasis on funds being collected from shipowners, the proposal also asks the IMO member states to consider asking or mandating that other industry actors make contributions to the fund.

But what is certain, the proposal will be discussed at the next (75th) meeting of the marine environment protection committee and will probably get amended. There are 173 IMO member states that could have their say on this. They will receive the proposal ahead of the meeting and may submit their own suggestions  too. It will go to the subsequent MEPC (in October 2020) for further consideration and then, if fast tracked, be ready for adoption in spring 2021, circulated among member states and industry and possibly in place by 2023, the year that the IMO has said it will be reviewing its initial GHG strategy.

The full ICS proposal as submitted to IMO can be downloaded here.

About Author

Craig Eason Stockholm
Craig Eason is the owner and editorial director of Fathom.World. He has a background in the shipping industry having started his career as a cadet on oil tankers and gas carriers before becoming a navigating officer on a range of vessel types. A change in career, with ensuing university studies, and he has now gained 20 years experience in written and broadcast journalism. He now is in demand as a knowledgeable and competent editor and event host and moderator, both for in-house events and ones for the public.

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