Reducing CO2 and other emissions from shipping - Environmental Audit Committee Contents


Examination of Witness (Question Numbers 1-19)

MR PETER LOCKLEY

21 OCTOBER 2008

  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[2], 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, for instance, they might drop half their cargo in Rotterdam and pick some more up, travel 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 roughly of the same magnitude, but the non-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 fewdecades. While aviation has become 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 may 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 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 that around four per cent of global shipping emissions belong to the UK. The theory behind this is that 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 work was 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 rather 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 MEPC 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 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 scheme 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 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 sets 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 improving 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 blocks 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 into 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. 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. 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 would then not bear the costs because 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 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 bits 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 is 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 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. 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.



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