House of COMMONS






rEDUCING CO2 and other EMISSIONS FROM shipping



Tuesday 21 October 2008


DR Andre stochniol


Evidence heard in Public Questions 1 - 53




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Oral Evidence

Taken before the Environmental Audit Committee

on Tuesday 21 October 2008

Members present

Mr Tim Yeo, in the Chair

Mr Martin Caton

Colin Challen

Mr David Chaytor

Martin Horwood

Jo Swinson

Joan Walley


Memorandum submitted by WWF


Examination of Witness

Witness: Mr Peter Lockley, Head of Transport Policy, WWF-UK, gave evidence.

Q1 Chairman: Good morning and thank you for coming back to the Committee. We are taking up the subject of shipping which we have referred to on a number of occasions but have never investigated in detail; this is our first ever session, as you know. We have had your memorandum, but would you like to say how significant you think the contribution of shipping to global climate change actually is and how you see that changing in the future?

Mr Lockley: Certainly, and actually now, for the first time, we can make a reasonable estimate of what shipping emissions are because there has been quite a lot of uncertainty about them. The updated Greenhouse Gas Study published at the recent MEPC meeting has come to a consensus estimate of around 850 million tons of CO2 and that is around four per cent of global emissions of CO2. As a country, if shipping were a nation, it would be I think seventh in the world, above the UK but below Germany, but it is growing. Those emissions have roughly doubled since 1990. That same update study did some projections up to 2050 and whilst there is obviously a lot of uncertainty surrounding those it seems that shipping emissions are likely to at least double again by 2050. So they are a significant contributor to climate change and one that is predicted to grow. As we always say with aviation, at a time when global emissions have to come down, they are going to become an even more significant contributor in the future.

Q2 Chairman: Shipping often gets linked with aviation in discussion about climate change and I guess there are similarities in terms of international activities. It is hard to pinpoint exactly where responsibility lies and of course they are both currently excluded from the Kyoto process. What do you think the differences are between aviation and shipping?

Mr Lockley: There are differences in how you would allocate emissions. It is harder to allocate emissions for shipping; we think it is quite straightforward for aviation. Ships tend to do multiple leg journeys so, instance, they might drop half their cargo in Rotterdam and pick some more up, come on to the UK; they also do the same thing with fuel, it is quite easy for a ship to tanker fuel around the world because they are very efficient at carrying cargo so equally they are very efficient at carrying a large bulk of fuel around the place and they can pick up wherever it is cheapest. It is harder to attribute emissions to countries on a bunker fuels basis as you would do with aviation. As you say, they are treated very similarly to date in climate change policy both in the UK and in the Kyoto arrangements. They are of roughly the same magnitude but the none CO2 effects of shipping, unlike for aviation, actually have a cooling effect so although shipping's total CO2 is greater when you look at the overall impact it is smaller than aviation. There are differences as well in the technology profile, if you like, over the last few decades. While aviation has got more and more efficient and jet engines are now extremely efficient bits of technology, historically shipping fuel has been so cheap that there has not been the driver to make those technological improvements. I think it is fair to say there are still a lot of technology options around in terms of improving the efficiency of engines as well as some other possibilities which we will maybe come onto later.

Q3 Colin Challen: In the interim advice from the Committee on Climate Change a couple of weeks ago and the eight per cent target, Lord Turner wrote that the 80 per cent target should apply to all sectors in the UK economy including aviation and shipping, but did not really seem to think that it was practical to actually measure shipping's contribution, but still thought that other sectors would have to pick up the tab if shipping was not reduced by 80 per cent. What do you make of that? What are the implications? Is this going to lead to confusion or is it the result of confusion?

Mr Lockley: I think what Lord Turner said is that our overall target has to take account of aviation and shipping. He cannot, at the moment, see a way in which you could include aviation and shipping emissions within the target in a legally robust way. We can debate that, but what he has said is that other sectors should come down further in as much as aviation and shipping do not make an 80 per cent cut themselves. In order for the others to pick up the tab we will have to know the size of that tab. I think he has opened a space where we can define what shipping emissions mean for the UK in a way that is robust enough to adjust our overall targets accordingly even in advance of an international agreement which may take some time to negotiate. I think there is now a bit of work to be done and we will be pursuing this to work out what a reasonable allocation of emissions for the UK would be for shipping so that we know the extra effort that has to be made in the other sectors. That is why Lord Turner was at pains to say that the overall target for the UK should be at least 80 per cent and there is scope to go further if we do not make those reductions in aviation and shipping.

Q4 Colin Challen: How long will do you think it will take to actually make that UK assessment of shipping's contribution?

Mr Lockley: I think it need not be a very complex exercise. I think you can get quite good estimations on the basis of imported cargo to the UK. We have data on what percentage by ton, by value and by bulk the UK imports and we are ready today to make a first order estimate of around four per cent of global shipping emissions belong to the UK. The theory behind that is that it is the importer who generates the demand; it is the importer who bears responsibility for the emissions and therefore for shipping you would allocate on the basis of how much demand is being generated by consumers in the UK.

Q5 Mr Chaytor: If there is already very good data on cargo imported to the UK, what is the advantage of your proposed system, the route-based method of calculating emissions?

Mr Lockley: A route-based method would give you quite exact figures on which ships are coming to the UK. The problem, which we acknowledge with the route-based system, is if you then try to apply, for instance, a carbon trading scheme that was on routes only to European ports or only to Annex 1 country ports, then there would be a possibility of evasion. An individual ship could decide to dock at Casablanca on its way from Shanghai and will only have to pick up the tab for the emissions from Casablanca to Europe, whereas taking a percentage of import data you step back and you look at a ship's annual emissions, for instance. It has been sailing around the world and say it has emitted a hundred tons of CO2 you can then ask what proportion of that was work done in order to bring cargo to the UK or to Annex 1 countries if you are thinking about the global scheme. In that case it would not have benefited that ship to have stopped at Casablanca because you are simply looking at the final work done for import.

Q6 Mr Chaytor: In terms of the likely estimates that would emerge, how different would they be from the Government's current system of just recording fuel taken from the international bunkers?

Mr Lockley: They would be considerably higher so at four per cent of global emissions the UK would be responsible for around 35 million tons of CO2. I cannot, off the top of my head, remember what the bunker fuel estimate is but it is definitely lower than that. In defence of the Government, that is not because they think that is the best way to tally up these emissions; it is because it is the UNFCCC recommended method for reporting as a memo item your shipping emissions.

Q7 Mr Chaytor: What are the downsides of the proposed route-based system?

Mr Lockley: The downsides of a route-based system would be possible evasion - ships doing extra docking - which would obviously incur extra CO2. If it were valuable enough to them to avoid the emissions on the longer part of the journey they might well do that than incur a CO2 penalty. We are optimistic that a percentage of cargo based approach could get around that. It is a variation on a theme which may be able to cut through that problem.

Q8 Jo Swinson: Two weeks ago the MEPS met; what would you say were the main outcomes of that meeting?

Mr Lockley: Firstly the market based instruments that we are interested in discussing here, there was only one sub-agenda item of a one agenda item on a long list so there was progress on things like ballast water and targeted treaties and so forth. In terms of greenhouse gases things were a little bit more fraught and more difficult. There was a long exchange in the plenary about whether it is possible to impose a market based scheme on all countries or whether you have to do a differentiated approach. In our view that exchange was not particularly fruitful; it was just a trading of positions. Developing countries raised their flag to say that any scheme should apply to Annex 1 parties only, that we should respect the principles of UNFCCC, common but differentiated responsibilities, and therefore they would object to any global scheme. In response all the Annex 1 parties raised their flags to say that this was a shipping issue, it fell under the International Maritime Organisation; the International Maritime Organisation always develops global policies and therefore any shipping has to be global. There was no rapprochement between the two sides in saying, "How can we think creatively about reconciling these two principles?" That is what we have been trying to do in finding a scheme that is both global but differentiated. We fully accept the contentions of the Annex 1 countries that it is impossible or impractical to do a scheme based only on which country a ship is registered to because it is very easy to change your flag, you can do it in about 12 hours, and if it became more expensive to operate a ship out of an Annex 1 country then there would just be an exodus to non-Annex 1 countries. Everyone acknowledges that, everyone at IMO understands that, and yet they are not prepared to go beyond that in looking at other ways in which you could differentiate a scheme. I think that exchange rather set the tone for the rest of the work on greenhouse gases and although there was progress on the technological and operational measures, there was certainly no progress on designing a global scheme. The thinking behind this - the UK was very clear on this in its submissions - is that despite the good work that IMO is doing to improve the fuel efficiency of ships, to come up with a design index for how you would rate the efficiency of ships, to come up with ship management plans, practical suggestions for reducing their efficiency, we expect the overall CO2 from ships to go up. Therefore, if we are going to have a comprehensive global climate change agreement it is going to need to cover all sectors and it is going to have to take control of shipping emissions. That, in our view, means capping emissions.

Q9 Jo Swinson: That would suggest that in the meeting the UK was sort of standing up there and saying, "Well, let's find an innovative solution". Was that the case? What was the UK voice at the meeting?

Mr Lockley: The UK is in a bit of a difficult position because the suggestion from the UK and from Annex 1 countries is that you do a global scheme but you would respect the principle of common but differentiated responsibilities in the way that you spend the revenue that you raise from that scheme. The revenue would be collected around two-thirds from Annex 1 countries (by that I mean the revenue would be collected from the ship operators but the costs would be passed on to importers and therefore consumers in Annex 1 countries), so about two-thirds of that cost would be borne by developed countries but you would spend all of that revenue on adaptation, for instance, or reducing de-forestation or technology transfer, all of these vital blanks of a global climate change agreement. You would spend that money in developing countries in such a way that they receive more than they pay. That is the theory behind a totally uniform scheme for all ships but whilst keeping developing countries on board by spending the revenue that you raise in those countries.

Q10 Jo Swinson: Where would the BRIC countries come in that? They are not quite at the stage of the UK but equally they are not in such dire straights as many developing countries. Clearly getting them on board with any solution would be important.

Mr Lockley: You have hit the nail on the head and the problem with making progress at IMO is that the BRIC countries are reserving their position on this question of common but differentiated responsibilities and they see it as two important principles to concede in the IMO because they would see they had then conceded something in the wider UNFCCC negotiation. At the simplest level you have a stand off between the US and China about whether China is going to come onboard, is the US going to come onboard and everyone is waiting to see how that resolves itself and they are not prepared to make the first move in their shipping forum. The problem with the UK position is that they do not have a credible story to tell about how we would spend that money if we were to raise it because they are opposed to any international form of taxation. Shipping is a global industry. We would advocate a global body to collect that revenue and then to feed it into a fund managed by the UNFCCC to do the climate work, the adaptation and mitigation. The UK explicitly stated they would be opposed to that because international taxation harms our national sovereignty therefore they cannot really sell the proposal to the developing countries because the developing countries do not believe they will ever see the money because it has to come through our national Treasury, our Treasury objects to hypothecating revenues and so on and so forth. There is a real structural difficulty there in how we could deliver on the proposal that we are advocating in this country.

Q11 Martin Horwood: You have answered some of my question actually, but it was on the same sort of theme of how you resolve the BRIC countries pretty legitimate attachment to common but differentiated responsibilities. It is all very well for you to say that the revenue from this scheme would be spent in developing countries, but not according to the way they would have done it originally probably. The moral justification for common but differentiated responsibilities is that they are not as responsible for the situation we are in as the rest of us. WWF, as I understood it, had always supported that principle of common but differentiated responsibilities, so surely any kind of universal capped scheme that you are advocating conflicts with that and are the BRIC countries not justified in objecting to it?

Mr Lockley: There is a question of how you would interpret that principle. We think that potentially, with the right governance structures in place, you can be distributing more money to those countries than they have paid out themselves, in the case of the least developed countries or the small island states quite substantially and the ones most vulnerable to the effects of climate change could get five or ten times the revenue that they were subject to pay. We are also looking at possibilities for exempting the least developed countries. You could do that, for instance, on ship size because smaller ships tend to trade with developing countries. There are ways in which you could design a scheme to exempt the smallest and most vulnerable countries. Do I think Brazil, India and China can afford quite a modest charge on shipping? Yes, I think they can. However, nonetheless we would like to see the scheme go through to meet mitigation objectives as well and therefore would be prepared to consider compromise schemes whereby you would not charge the shipping that was going through non-Annex 1 countries. This is what I was mentioning, the idea of a route-based scheme or a scheme based on imports; those would be imports only to Annex 1 countries so the consumer in the developing countries then would not bear the costs because only ships carrying goods to Annex 1 countries would be charged under the scheme.

Q12 Martin Horwood: So that would be a levy rather than a cap and trade scheme.

Mr Lockley: We are agnostic on whether we do a levy or a trading scheme, but what we are talking about now is the scope of any scheme that you choose to do.

Q13 Martin Horwood: This would be insanely difficult to administer. You would have levies on some bits of ships' cargo but not another bit.

Mr Lockley: If you did a scheme that looked at each individual bit of cargo and where it was going, yes I think that would be administratively quite difficult. Otherwise, from a design point of view, that is probably the ideal way of doing it but the data requirements are quite heavy, whereas simply taking a percentage would be quite simple because we know the overall percentage of imports to the UK from Annex 1 countries and we know the overall bubble of shipping emissions. Therefore it should be possible to differentiate in that way.

Q14 Martin Horwood: Let me just get this straight, so you would apply the levy or the cap at almost a national level, a governmental level, not on the ship itself as it docked.

Mr Lockley: No, these would be operator based schemes so the levy would be on the ship operators and owners, but only for trade that they were doing to Annex 1 countries. It is not coming in at a government level.

Q15 Martin Horwood: Can you tell me what your impression of the UK Government's position on these different mechanisms?

Mr Lockley: They have pegged themselves to a global scheme. They said they were interested in exploring the sorts of thresholds I was talking about where you say that this scheme only applies to ships over a certain size as a way of exempting the most vulnerable countries, particularly the small island states who are most reliant on shipping for food imports. They are prepared to consider differentiation at the margin but essentially their position is to have a global scheme. However, as I said they are not able to really deliver on how they would spend the revenue because it is based on hypothecation or international taxation. This is quite a difficult position for them to reconcile because domestically they are saying that shipping is an international industry and perhaps best dealt with internationally and we do not want to take those emissions within our own targets, but as soon as there is any money going then the Treasury would like to have a portion of that.

Q16 Martin Horwood: So you are saying basically that the British Government position is inconsistent with itself.

Mr Lockley: Yes.

Q17 Chairman: Indeed is VAT not an international tax as far as the 27 EU countries are concerned?

Mr Lockley: If you wanted to change the VAT structure on shipping, yes.

Q18 Chairman: I meant in terms of the Government's position about international taxes. We accept that we do not have complete freedom to set VAT rates in this country and the proceeds are now essentially an international tax.

Mr Lockley: The proceeds go into the UK coffers.

Q19 Chairman: Not quite all of them; some of them go to pay for the running of the EU.

Mr Lockley: My understanding is that that is a portion that the Treasury chooses then to give to the EU. It has been routed through the UK coffers and that is the important thing so far as they are concerned. We would be concerned that if the money were coming into the Treasury, as with the ETS auction revenues, it might not then come out again in the proportions that we would want it to.

Q20 Mr Caton: While we are talking about the European Union, the European Commission has said that it is prepared to take regional action in the absence of international agreement. What form do you see that action taking? How effective could it be?

Mr Lockley: I would imagine that would be a regional emissions trading scheme so shipping would join the existing EU ETS much in the way that aviation has done and then you would need some way in which to define the scope of the emissions that you brought inside that emissions trading scheme. The obvious one is routes to European ports but then we get back into the issue of evasion. There are difficulties with doing any regional only schemes. You can have ships docking at North Africa, for instance, and there is also a possibility of a modal shift so the ship not only docks at North Africa it then puts all the cargo on a truck and takes it through Spain in order not to be subject to the shipping charge. The extent to which that would happen I think has not been studied a great deal and given that shipping is extremely efficient at transporting a ton of goods, I would be surprised if there were a wholesale switch to a different mode of transport. The possibility of simply touching at a non-EU port in order to be liable only for the emissions on the last leg into the EU is a more real possibility. The Commission's position has been useful in stimulating the IMO to take the issue more seriously because the IMO, certainly the secretariat, has been quite pro-active in pushing the idea of a market based instrument. I think they take their responsibilities under the Kyoto Protocol now quite seriously - perhaps belatedly - and they have set up a process in order to report back to UNFCCC, to COP15 in Copenhagen about what they have achieved in this area. It was the realisation that something regional would come along if they themselves did not take action and they clearly looked over at the aviation industry, seen what has happened there and realised that they do not want to be in the same position.

Q21 Mr Caton: So what has been the UK's position on EU action on shipping emissions?

Mr Lockley: As far as I know they have supported the EU line that this is a fall back. We would rather see something global but if we do not get sufficient progress then yes, we would support regional action. However, I would check that with the UK Government.

Q22 Colin Challen: What real potential is there for further emissions reductions from improvements and technology in shipping and operational practices? I was reading the Chamber of Shipping's memo which rather suggested to me that they thought we had got to as good a place as we could with these things and there are problems in changing some of the operational practices. What do you think is the situation and what should the Government be doing to help develop emissions reductions from shipping?

Mr Lockley: There is potential around. For instance, simply by travelling slower ships can save up to 40 per cent of fuel on some of the routes. The reason they do not do that is to do with the structure of their contracts and the way port charges are worked out. I would speak to the industry in more detail about why exactly that happens, but if it were possible to change the incentive structure for ships in order that they crossed oceans at the optimum fuel speed then there are significant savings to be made just on that alone. Perhaps the most inspirational thing that happened during that quite difficult week at IMO was the presentation by a company called Sky-Sails who have a very high tech take on a very old idea which is sails for ships. They now produce very large power kites which run out in front of the ship and describe a figure of eight in order to maximise the pull on the ship. Although these have only been demonstrated on a couple of ships to date, they are quite promising as a piece of technology and in the optimum conditions they save up to 57 per cent of a ship's fuel. That is not going to be the case for every route and every wind direction, but clearly there are substantial savings there. I think while perhaps the status quo does have to change quite significantly, there are clearly substantial reductions available.

Q23 Colin Challen: It certainly sounds to me like the idea of developing world trade on the basis of sail is innovative and we ought to investigate that further. Does the Government have a role to play here because if we were saying to the shipping companies and their operators that things have to slow down, they have to save emissions by reducing speed and so on, that is going to affect the whole business culture of just in time. You cannot simply say to one sector that they must go slower when all the other sectors are saying they want things just in time because they are not prepared to pay for warehousing costs. We would just end up with warehouses on the oceans.

Mr Lockley: My understanding is that ships quite often do not do that. They will steam across the ocean and then wait two weeks in a port because there is a first come, first served basis in the port, whereas if that could be restructured they would be perfectly happy to spend that time on the high seas and still do a just in time delivery. I think there are instances when it is a case of hurry up and wait and they are rushing across the oceans just to wait to deliver their cargo.

Q24 Colin Challen: Will the IMO's proposed design index and operational index make much of a difference, do you think? How quickly would that difference occur if it did?

Mr Lockley: I cannot pretend that I understand the design index. It is a mathematical formula stretching across an entire page which was being designed by a committee of a hundred people at IMO. I occasionally raise my head and hear the words "wave co-efficient" and go back to my e-mails! I think that is something you would have to ask the technical experts within the shipping industry. However, my sense is that with a formula that complicated there would be a lot of possibility for gaming the system. That would be my concern.

Q25 Joan Walley: I would like to turn to emissions which are affecting air quality. I think there is quite a lot of concern about the direct cause from shipping emissions of something like 60,000 deaths a year, including 27,000 deaths in Europe. I just wondered what difference you felt the latest IMO agreement under the MARPOL Annex could make in respect of actually reducing the impact of shipping emissions. I am talking about sulphur dioxide, particulate matter, that kind of thing.

Mr Lockley: The MARPOL VI agreements regulate sulphur emissions within special areas and in those areas ships will have to be emitting considerably less sulphur than they do in the current heavy fuel oil. There are two options, one that they switch to distilled fuel - essentially diesel - instead of burning very heavy fuel off the bottom of the refinery as they do at the moment; or they have SOx scrubbers on board. My understanding from talking to people in the shipping industry is that those SOx scrubbers are not really up to scratch yet, they are not robust enough to survive life at sea. I think there are problems about meeting those Annex VI obligations and already the other week we saw at the MEPC countries raising concerns and making first moves to dilute those because some of the cost estimates of what it would mean to actually meet them have started to come through and it is going to be very expensive. I am not saying it is going to happen, but there is concern that those regulations might be watered down which would be a great shame because they are very important in fighting that marine pollution. Directly in ports which is where there is the human health impact, ships are waiting in ports and running their engines in order to generate energy for functions on board, there are ways in which the ports authorities themselves could tackle that problem, for instance by providing onshore electricity, preferably renewable electricity, directly into the ships so that they did not have to run their engines. Our recommendation is that there could be legislation for that so that port dues would automatically cover that charge, so a ship would already have been charged for its shoreside electricity therefore it would not be saving anything by running its engines, whereas currently electricity is a charge on top and it is probably cheaper for the ship just to sit there chugging over its engine to generate electricity.

Q26 Joan Walley: Could I just check in respect of MARPOL VI, is that just about sulphur dioxide or is that about other emissions as well?

Mr Lockley: I think the latest amendments to MARPOL VI are specifically about sulphur dioxide. In the wider Annex VI there are other pollutants covered, although I would have to check that. I am happy to do that and get back to you.

Q27 Joan Walley: Thank you. In the comments you have just made about shoreside renewable generation, if that is not explicitly covered under this latest amendment to the MARPOL convention, how could that be addressed by the European Commission? Are you aware of talks within the EC about trying to get across Europe a common approach towards dealing with ships in harbour and using electricity in this way?

Mr Lockley: I am not aware of any. Clearly a European-wide approach would be preferable to simply doing it in the UK because it is a problem right across Europe. Potentially that is something the Commission could legislate for. I will speak to my marine colleagues to see if there are any moves afoot either in the UK or in Europe, but my understanding is that there are not at the moment.

Q28 Joan Walley: My reason for asking was that we have picked up from The Naval Architect back in January that "the UK Government and industry leaders have appealed to UK ports and their shipping line customers to unite in persuading the European Commission to move away from favouring shoreside electricity for ships in port". I just wondered if you had been involved or had any knowledge of those discussions and how we go about getting across those talks a common approach to the kind of dues you are talking about that would give a level playing field but provide that shoreside renewable generation.

Mr Lockley: I was not aware of that; that is interesting. I will take that up.

Chairman: Thank you very much indeed; that was a very helpful session for us.

Memorandum submitted by Dr Andre Stochniol

Examination of Witness

Witness: Dr Andre Stochniol, Founder, International Maritime Emission Reduction Scheme, London, gave evidence.

Q29 Chairman: Dr Stochniol, thank you for coming in; welcome to the Committee. As it is your first meeting with us I wonder if you would like to say a bit about your own personal background and how you came to be involved in the subject of tackling emissions from shipping.

Dr Stochniol: In early 2007 I developed a proposal for a hybrid scheme to reduce CO2 emissions from shipping and that includes mitigation and adaptation as has been mentioned before. The proposal was embraced by Norway and submitted to the IMO. This submission exceeded all our expectations and initiated multi-lateral discussions and submissions from Norway, Denmark and others. I have worked full time on the shipping scheme since then, funding the research myself. Research has included consultation with maritime and climate change representatives from over 30 countries, half of which are from developing countries. Before that I was director of international consulting for a global leader in technology (Enable Business Solutions) and that company employs 90,000 people around the world. For ten years I was advising and leading large transformation programmes for multi-national companies who wanted to work across the globe. I resigned in December 2006 and decided to dedicate my business and academic experience of 28 years to climate change. I am happy to be here to contribute to your inquiry.

Chairman: Thank you very much. Joan?

Q30 Joan Walley: I think you sat in for our previous witness session when we referred to the recent meeting of the IMO's Marine and Environmental Policy Committee which was held in London earlier this month. I would like to have your views on what you think the implications of the outcome of that meeting were and whether or not you think there will be a proposal to tackle greenhouse gases from shipping that is ready to agree by the Copenhagen conference?

Dr Stochniol: Thank you, that is a very interesting question. I am afraid market based instruments were pushed aside, as has been highlighted by my previous speaker. There was chasm between the position of developed countries and developing countries and the principles of why and how to use these schemes. In effect market based instruments were only introduced on Friday, on the last day of a week long session. More proper discussion has now been moved to the next MEPC meeting in July 2009. This will be too late for the Copenhagen Protocol. The draft text for the Copenhagen Protocol needs to be ready by June 2009, one month before the next meeting. Basically the route through IMO and MEPC regarding market based schemes is not viable for Copenhagen any more; that is my assessment. One opportunity of progress is to bring a deal that reconciles the positions of the different parties through a ministerial approach, through the UNFCCC (United Nations Framework Convention on Climate Change). In Poznań in Poland later this year there is a meeting of climate change talks and there is also COP14 which is a meeting of the Conference of Parties. That is where I believe might be the last chance to resolve the deadlock between the developed and developing countries. Importantly there was a proposal in the last two months on how to break the deadlock, how to reconcile the position and this is really creating a global but differentiated scheme. I will describe it in more detail. Basically we did present that but it was just too late. Every country came with a prescriptive position. I did, however, make some additional important conversation and I will update you on those later. If the UNFCCC chance is not taken then I think the next chance of dealing with it is going to be in about ten years' time with the review of the Copenhagen Protocol or with the new convention. So we are talking 2020s. My assessment is that the rescoping action right now is twofold. One, we will repeat the Kyoto failure of addressing the maritime emissions; secondly, we will fail to address the funding needs of adaptation to climate change for the most needed, most vulnerable nations and people in the world. My view is that it is not possible, there was a chance of having a so-called inter-sessional meeting; this meeting is happening in March but that meeting is not going to deal with market based schemes, it is only going to deal with the indexes, the operation and design index. So, no chance.

Q31 Joan Walley: Can I just try to understand what you are saying in the sense that if there is no chance and nothing can be got ready for Copenhagen for the reasons you have just outlined, presumably you are saying that whatever then came about it would be too late to do anything. What would be the earliest time that you think something could be prepared by?

Dr Stochniol: We are talking about global. If we talk about global, if global is not ready then Europe can take unilateral actions et cetera. If the positions are not reconciled, that a scheme can be both global and differentiated, then the parties are not ready to talk about a global scheme and the conversation does not happen. So the next time my belief is that it would be in ten years' time after Copenhagen, when the Copenhagen Protocol came to be reviewed. Maritime and aviation issues have been discussed for the last 15 or 20 years. If we do not start with a new creative approach - which is the key to what has been said for the last 20 years - obviously we would not find a solution. That is why the idea of looking at cargo imported is very appealing because we can differentiate a scheme for shipping based on imported cargo.

Q32 Chairman: That is quite a bleak assessment. You are saying that if we miss this chance it could be 15 years from now before any effective action is implemented. The previous witness said that emissions from shipping have doubled since 1990. If they continue to rise at that sort of rate they would then form quite a significant percentage of global emissions and would still be outside any kind of international framework to reduce them, so they are becoming quite a substantial proportion of the total at that time.

Dr Stochniol: The part that I was mentioning was referring to the market based scheme. Obviously there might be some mathematical formula regarding the operational index and design index that might have an impact, but we have had this report, the market based scheme, and ship owners might simply not see the need to buy an engine which is ten million dollars more expensive. Secondly, the design index will only take effect in a very long time because the life of a ship's engine is 30 years. So if someone is buying or ordering a ship now it will have an impact over a very long time.

Q33 Mr Caton: I think it would be useful at this stage if you could tell us a bit more about your proposal for an International Maritime Emissions Reduction Scheme. Can you briefly outline its key principles?

Dr Stochniol: Let me focus on what I believe can unlock the principle, what can really unlock the multilateral deadlock. As I mentioned, Norway has submitted the elements of a potential scheme in 2007, last year, MEPC56/4/9 was the most important submission. Then the multilateral discussions started. However, all of the proposals are now saying it has to be global and uniform, all the countries pay the same; it does not matter whether you are rich or poor. So until very recently everyone thought that was the only way to address the emissions from shipping. In Bonn India brought the question: why do we not look at imported cargo? The negotiators that I have been working with from India and other countries in a way challenged me: find a way that you can differentiate the charges or differentiate the principle that can be both global and differentiated according to the common but differentiated responsibilities. So really it became obvious only in the last two months that a global and differentiated is actually viable. You can say it is innovation or a breakthrough but you have to list everything so let me go through it very quickly, the principles and the details. The principle is that any market based instrument to address CO2 issues from international maritime transport shall be both global (as per IMO) and differentiated (as per UNFCCC). Let me now describe why it is possible and there are several aspects. A differentiated policy is based on cargo imported. You can think about charges for the time being. It will apply to all ships irrespective of flag of nationality. So any ship that comes to London is treated the same; any ship that comes to Hong Kong or Shanghai is treated the same. It is always the same based on coming to a port. So only two destinations are defined: Annex 1 and non-Annex 1 countries. The destinations are treated the same as per the climate change regime, so Annex 1 destinations are included fully, a hundred per cent; non-Annex 1 countries currently are not included, zero per cent. That is the regime. The ship that transports goods to both countries - Annex 1 and non-Annex 1 countries because they go round the world - is included in a regime based on the share of goods unloaded in Annex 1 countries, so on average 60 per cent. That means that only the emissions that are really attributable to my demand of importing a car from Malaysia or from the USA are included. The worldwide share of emissions based on unloaded goods is 60 per cent, so if that would be implemented on day one we would cover 60 per cent of emissions. That principle fulfils, according to the discussions I had, the question of global and differentiated. So there are three advantages, and I stop after that. First, it will deliver on the IMO principle of being global for CO2 emissions. Second, it is compliant with the current climate change regime and the future climate change regime; other countries coming to Annex 1 countries are included automatically. Finally, the environmental results of that scheme would be very high and might be even higher than a uniform scheme because it only applies to Annex 1 so we can decide 20 per cent, 50 per cent reduction, whatever Annex 1 wants to lead the global world with. Basically what we are saying is that only because of the pressure of negotiations and discussions we found a way that could be global (as per IMO) and differentiated (as per the climate change regime). That is the breakthrough but unfortunately delegations had prescripted responses and not many people wanted to discuss. I did have conversations with delegations and many countries of the developing world were very interested.

Q34 Mr Caton: It sounds, on the face of it, that you have resolved this impasse between the Annex 1 and the non-Annex 1 countries but, from what you say, the delegations - certainly the delegations from Annex 1 - were not open to that idea at this stage. Is that the case?

Dr Stochniol: It is not that the delegations were not open, the delegations are very often messengers of people who are coming with a decision and they have to stick with what the government has decided already. I have been working with these representatives for the last two years, so in individual private conversations many people have said that this can actually work. Secondly, just to validate that, there were plenty of experts so we convened a group of experts and out of the group of expert discussions everyone is saying that it could work. We would not get the evasion problems with the route based schemes or anything like that. We asked the head of the working group who has spent decades of work on this whether that proposal had ever been raised. He said it has not been raised in such a way.

Q35 Mr Caton: What about the shipping industry and the port authorities? Clearly you have spoken to them, what is their response to this approach?

Dr Stochniol: They would be happy to have a global approach. Just three days ago the ship owners from France explicitly said, "We prefer a simple scheme based on charges than a complex scheme based on trading that actually creates more problems than it solves". For them their key business is to transport goods from A to B and the additional charge, the economic impact on fuel, is so small (around five per cent) that they do not want to trade. They do not see a benefit and actually it would increase the cost and the money would go to goals that are not climate change.

Q36 Mr Caton: Your scheme is on the table. Are there any other viable schemes on the table?

Dr Stochniol: The scheme that I have just described started with the proposal of Norway and then came the proposal from Denmark which is more or less the same. It is simply that we are going to pay our own charges or levy and at the same time, because people want to have the trading of quantitative targets, there were some proposals regarding trading. There was a proposal from Germany that is based on the so called Maritime Emission Trading Scheme. I think the differences are profound only between charges and trading. When you compare the Norwegian proposal or my scheme or the Danish levy that questions how do we keep where the money is collected and how it is spent, but there is no principal question regarding economic efficiency. The biggest difference is the difference between charges and trading and the latest difference is only related to ships coming to Annex 1 ports. That has never been proposed. Trading can also be created like this but it is a bit more complex.

Q37 Jo Swinson: Assuming that this scheme or a similar scheme were actually implemented, what actions would you expect the ship owners to take and what would you expect the shipping industry to actually do to reduce the emissions?

Dr Stochniol: I think it is basically changing behaviour; it is incentives to implement the things that are already available like more efficient engines and of course future changes are very important. I would probably categorise it in four elements. One is the behaviour short term and really because the viability of the costs and especially the cargo costs would make the use of operational efficiency measures more attractive. Secondly, because we start collecting data, we will see transparency and comparability between the ships and some companies are already asking, "Can I know how efficient your ship is?" Therefore suddenly if we have the data we can compare their efficiency. So that is the behaviour. The second part is technology short term. Part of the scheme is funding for technology transfer because it is not a good point just to change the technology in one of the part of the world. That would be wider acceptance of the clean technologies. Finally, in several places in the world there are bottlenecks and no-one wants to fund it because it is common good, for example Malacca Straights. So with additional funding you can reduce congestion and implement electronic highway in Malacca Straights. Long term is a completely different story but even more important because the emissions are related to economic activity. So, first of all, more efficient engines will be ordered. I mentioned, for example, a ten million dollar engine. It is available now but it is not being bought because there is no case. There is no creditability regarding the cost of carbon for the next 20 years. They cannot make their business case to actually buy it. So that is very important. Regarding technology long term there would be additional investment in research and design and therefore the step changes like hydrogen in transport can come forward and with this you really save a lot of emissions and that is what everyone is asking for.

Q38 Jo Swinson: The charges you are proposing are about five per cent added onto shipping fuel costs. Is that going to be enough to get some of those big decisions changed, whether it is spending ten million dollars extra on a different type of engine for example or replacing part of the fleet? As you say, these are decisions that maybe only get made once every 30 years. Is that going to be enough of an incentive to change those kinds of decisions?

Dr Stochniol: I believe yes. I have been working in consulting as a manager and some of our programmes have been stretching for 50 years. In that case you are not looking at the cost of today, you are looking at the total cost of that and therefore I am absolutely certain that even that small charge would really change the business case into a favour of buying a more efficient engine.

Q39 Jo Swinson: Are there any other barriers that you would see to the shipping industry taking action that would need to be overcome?

Dr Stochniol: It is political. Most of the shipping industry is saying, "As long as it is global and it does not change the competitive landscape we are happy with that". As I mentioned even recently the French ship owners use the forbidden word "tax" but they would accept a tax.

Q40 Joan Walley: Just going back to your scheme, how quickly do you think it could come in and, if it were to come in, will it be done as an annex to an existing convention or would it be a brand new convention? If so, would that not take a huge amount of time in terms of negotiation?

Dr Stochniol: Absolutely. There are two answers here. One of course is the technical feasibility. From a technical point and also taking into account the climate change negotiations this scheme could start as soon as 2012 or 2013. There are no technical difficulties for such a rapid start. The necessary data is available and some of the emissions based design we do not have to worry about because this scheme does not require detailed data. For instance, I will give you some examples, the fuel receipts are available so every single ship has to have the fuel receipts for three years. If they buy fuel for 500,000 dollars they have to keep the receipt for three years. The receipts are also kept by suppliers therefore it is a very good tracking and foolproof method of doing that. Enforcement would only be done in Annex 1 countries therefore it is relatively easy to implement. Legally we already have a law that is dealing with international obligations and on the dominance of international law over domestic. This is the law of the sea. All of the delegations, including Denmark, said that this is the starting point; we do not need a new law, it is already there. So basically it could be included in the Copenhagen Protocol, the one that is going to be negotiated in Copenhagen. Going for a new convention, this might be a disaster because developing a new convention takes a few years and from my experience takes a decade or longer very often. I will give you an example. There is a convention that has been developed in 1996 called HNS Convention which stands for Hazardous and Noxious Substances, for transporting these dangerous substances on the sea. It was adopted in 1996; it has not yet entered into force. Twelve years later it has not been ratified by enough countries to enter into force. Even though, for example, the European Union has urged all of the nations in Europe to adopt it, only eight countries worldwide have ratified it. The UK, for example, was one of the countries that developed that convention in 1996 and accepted that they would ratify subject to the process in the UK. Twelve years later it still has not done. So basically it could enter in 2012 if it is done with climate change; if it is done as a separate convention we are talking about 15 years.

Q41 Joan Walley: We are almost across the River from the IMO and I think what you are saying really begs the question of where the IMO fits in relation to the international architecture about how these issues have been dealt with. Presumably the leadership would come from the IMO.

Dr Stochniol: The IMO is a multi-lateral organisation that really depends on the government and the representatives of the government to make any decisions. When we talk about IMO we have to understand that there is a secretariat and people who are facilitators and there are 150 or so governments that are part of that. Therefore they work together. If the government is not bringing anything on the table you cannot talk about it. Therefore the key issue here is that the CO2 emissions are part of a climate change and who decides on the priority, it depends who you talk to. In some of the nations they would say that it is the IMO that has to decide irrespective of what UNFCCC - the climate change people - say. In the UNFCCC they say that it is their priority to decide what happens to greenhouses and CO2 emissions and what they agree on the convention here is absolutely applicable everywhere. Therefore what you have is two kinds of languages in a way. One language of the people from maritime, one language of the people from climate change. They speak English but not the same language in the sense that they understand each other and that is a big problem that you have to reconcile on an international level, a verified political level, that it is a global issue and we should not try to see it as a compartment of only maritime or only CO2 in climate change. It cuts across.

Q42 Joan Walley: Finally on that, do you have any suggestions as to what role the UK could take if it is playing a leading role in all of this to, if you like, give the IMO the language of environmental sustainability?

Dr Stochniol: What happens in the next few weeks or few months is really essential. In my humble view the UK Government and perhaps even this Committee has a big diplomatic economic opportunity. I spent two years which has been a rollercoaster because several times I thought we were getting into a deal. Let me give you an example of some of the issues from my experience and then I will come back to the solution. The issues are very often the opportunity. Quote number one, "We have only two hours a week for this topic". That quote comes from a small team working in a major maritime nation on maritime and climate change; two hours per week on such an important topic. Quote number two: I spoke to many countries who said, "Why us? Why not come to X, Y, Z?" Basically because it is a global problem, a complex problem, everyone is free-riding, waiting for someone else to take a leading role despite the high promises or occasional rhetoric. Quote number three: "It seems like a great proposal but it may be incompatible with our policy". "What is your policy?" The answer, "We do not have one yet". Some of the quotes are coming from a government in Europe. Very often the officials are not asked to take initiative or ownership, let alone provide vision and leadership on the global stage. Lack of inter-department or clarity, not understanding shipping and the climate change makes it even worse because people speak different languages: climate, maritime, treasury, for example. Engaging non-state experts is really very often against the official's pride or policy. Basically they say "We can do it ourselves". Final two quotes (and I will not make any comment to shorten it). After a couple months of communication I get the following response: "Our experts are uncomfortable". "What about?" "I don't know yet." And the last quote: "It might be too early. We still have time until 2009." In this context I truly believe that the opportunity to unlock the deadlock in shipping CO2 emissions is now and for the taking. Based on my experience and recent consultations including in the IMO I believe there are three steps that are achievable. Step number one for the UK: identify a senior leader that will own the opportunity.

Q43 Joan Walley: Sorry, I did not get that.

Dr Stochniol: A senior leader, a senior official or minister; a leader. This person will own the opportunity and can therefore have the time, energy and remit to drive it forward. Step number two: bring the global but differentiated principle or approach to the climate change talks in Poznań in December. Step number three: when the deadlock between conversations on global and differentiated is unlocked you can capture the opportunity to create a scheme for CO2 emissions and this new super-national organisation can be based in London and created by London and people here. In a way what I am saying is that a global problem requires a global solution but the initiative can be taken by the UK Government and it is really feasible to implement. I would be happy to clarify any other details on this subject.

Q44 Mr Chaytor: You suggest that about ten billion dollars could be raised through your kind of carbon charging scheme. What are the assumptions underlying that and how have you calculated the ten billion dollars?

Dr Stochniol: First of all these ten billion dollars are coming assuming there is a global uniform. If we just constrain it to Annex 1 countries we will come to six billion (60 per cent) and that is the latest view. The assumptions are based on the emission growth that is currently happening and the target that we will put on the shipping so I assume that the global community could agree to 20 per cent of reduction of emissions of CO2 by 2020. So the gap is driving the demand for emissions and the carbon price drives the charge. Basically in 2012 the charge may be around five per cent of the fuel but by the way translates only to 01 per cent on the end customer. Myself, when I import that car from Malaysia costing 5000 dollars, I will only have to pay five dollars, and most of the public in the UK would pay 01 per cent. The assumption is that it is the quantitative target for the emissions and the carbon price on the market because the emissions are so large we get to six billion dollars from a very small charge which translates to one dollar in one thousand dollars on imported goods in the countries that people can afford and are willing to pay for it.

Q45 Mr Chaytor: What mechanism are you proposing for collecting the charge? Who would be responsible?

Dr Stochniol: Shipping is complex. So far no-one has designed an emissions trading scheme. There are multiple parties who can pay for the fuel so what we say is that it is the party that pays for the fuel to develop a charter. It might be the shop owner; it might be the ship manager. The one who pays for the fuel pays the emission charge. In a year we know that that ship has spent 100,000 tons of fuel, for example; we know the percentage of goods delivered to the Annex 1 countries; we know the price and the charge. It may be paid directly to the central account bypassing the national coffers. Basically what is very important in this scheme is that it is a super-national to avoid the domestic revenue problem. If we collect it nationally then we have a problem like we had in the UK. After two months of talks finally someone said, "We have found the word "fund" in the Norwegian proposal; we have to send it to Treasury" and then everything happened, we cannot hypothecate revenue. There is a precedent like international oil pollution compensation fund that the money is collected directly, bypassing international.

Q46 Mr Chaytor: Who would be the members of the fund? How would the fund be established?

Dr Stochniol: It would be a super-national organisation like IOPC which is a super-national organisation that has a remit to deal with that and has a formula - that is very important - that tells you how the charge is being calculated. Otherwise you cannot implement an international charge unless it is transparent.

Q47 Mr Chaytor: In terms of the distribution of the fund, how would that money then be used? Would there be a formula for that?

Dr Stochniol: Let me give you the example of the six billion dollars. Let us say that six billion dollars are coming to the fund based on the target of emissions. Nearly half of that would go to reducing emissions by purchasing forestry credit or CDM credit by reducing emissions as well. So it is 2.5 billion dollars for that. Then 2.5 billion dollars is proposed to go to the adaptation fund under the UNFCCC. That is therefore adaptation climate change. The remainder, about one billion dollars, would go to the technology fund that is looking for technology transfer and long term technology transformation. Importantly the money that is going to adaptation, we can buy forestry credit, we can by credit on primary markets which is 40 per cent cheaper than on a secondary market.

Q48 Mr Caton: Would this super-national body that you mentioned be responsible for setting the emissions cap for shipping and also determining the carbon price?

Dr Stochniol: This is the kind of execution body, so the cap is really under the convention for climate change. In Copenhagen there are going to be negotiations and of course Annex 1 countries, including the European Union, would take some quantitative targets. That proposal is compatible because it is going to be driven by a quantitative target. If the agreement is that Annex 1 countries take 20 per cent emissions reduction by 2020 this is being accepted by that multi-lateral organisation. The second point of the equation is the carbon price and this is being set externally by the market so they do not do anything about it. They only take the forward price one or two years in advance and announce the charge for the ship owners what is the charge going to be in two years' time? Therefore the ship owners and the whole of shipping can include the price in their pricing scheme and pass it on to end customers. The multi-lateral organisation does not decide on the cap; that is being decided by UNFCCC. It does not decide on the charge because it is decided by the market. It does not decide how the money is being split because it should be part of the setting of the fund, whether 50 per cent goes to adaptation or not. This is a call for multiple nations around the world that adaptation to climate change should be treated on the equal footing of mitigation and therefore it might be very similar but it is only one option.

Q49 Chairman: How easy would it be to audit independently the emissions figures from individual ships?

Dr Stochniol: It is already legal and obligatory. Every single ship or 99 per cent of the ships world wide, every merchant ship, is required to keep the receipt of fuel for three years at any time on board. The emissions are directly proportional to the fuel; we know that one hundred per cent. If we do it globally for Annex 1 countries you can always enforce it in the port, it is under so-called Port State Control which is a way to enforce the safety of ships and fulfilment of bilateral obligations. The liability will stay with the ship. It is not the charterer of the ship this month or the charterer of the ship month, it is the ship. If a ship comes to the port and the information is not available on the central data base or emissions have not been paid for the last three months or whatever, it is not allowed to come in until it settles the charges. It is a hundred per cent auditable by the authorities legal instrument under MARPOL Annex VI which is the Bunker Delivery Note, the till receipt.

Q50 Chairman: So it is robust against fraud.

Dr Stochniol: That is correct. There was an example given by Peter Lockley from WWF about this. The ship can go on a route-base but can go direct to Casablanca. It does not matter because we are only looking at where the cargo is being unloaded or is destined to. If a container is on a ship going to the UK it does not matter whether it goes into Casablanca or whatever route it takes.

Q51 Chairman: You have suggested that the British Government have not been very active in pushing agreements on greenhouse gases within the IMO. Which countries have been more active in doing that?

Dr Stochniol: The reason I suggested that it has not been active was because I was initially asked to contact the UK Government by the secretariat of IMO and other people who knew the process. They said that the UK at that time - two years ago - wanted to do something about CO2 emissions and my initial proposal has been put forward to the UK but then it slowed down because of departmental questions of responsibility and other things that I do not go into in public session. Norway has been very open, has embraced the proposal and put it forward within three or four weeks into the IMO, to MEPC56. Denmark has been extremely active afterwards by preparing the global levy proposal and at the same time pushing internationally through diplomatic channels to get it working. From the other countries, Australia has been much more active recently arguing for a global approach. From the developing countries I think South Africa has been the most open to consider this kind of scheme as part of a package or similar. Basically there are several countries that are working intensively to put this forward. Of course the European Union as a whole was supporting the Norwegian proposal two years ago.

Q52 Chairman: Are you not able to say why you think Britain is being a bit of a laggard now?

Dr Stochniol: Can you repeat the question, please?

Q53 Chairman: You have identified some other countries that are now being more energetic in pursuing this agenda but Britain is not among them. Can you say why you think Britain is being rather slow?

Dr Stochniol: I think it would be a question of ownership, the one that I have suggested in my recommendation. Around 2007, at the beginning of the year, the issue of CO2 emissions had been very much politicised. In the past it was the maritime coastal organisations that always had a lead on all technical issues. Suddenly Defra came into the equation and there was a question of coordination and agreement of the position. What happens now is that we are coming to these two different languages, maritime and climate change. There is the question of who is to decide. All of the countries in Europe have agreed a position; the UK Government was not able to agree the position on that paper before the coordination meeting. My meeting that was scheduled with the senior directors for two months has been basically shortened to five minutes of conversation saying that the experts are not available. Then the word "fund" has been found in the proposal and that was sent to Treasury which does not speak climate change language or maritime language whatsoever. I do not know who put the question, but I can bet anyone that these people do not know about the UNCLOS Convention for law of the sea and I can put the differences to that. I have spoken to the creator of a convention in Malta and he told me that anyone who is looking at this kind of international funding should first read the convention or talk to experts before they say, "We have to hypothecate" or whatever. It is international; it is outside our boundaries; it is heritage of mankind. These are the words that are being used. One article is saying that whatever is discovered on the seabed belongs to everyone and the revenue is to be shared between the nations. Basically I think it is a question of coordination, a very much politicised agenda and perhaps lack of ownership. I was at one stage asked, one year later, "When you find out who is responsible let us know". That came from the other side of the Government.

Chairman: Thank you very much for your time for coming this morning. It has been a very interesting session from our point of view.