CHINA, together with an influential group of developing countries, have proposed a market-based emissions-cutting scheme at the International Maritime Organization — a significant move from countries historically reluctant to consider such measures.

Argentina, China, Brazil, South Africa, and the United Arab Emirates — countries that have tended to vote down potentially costly green regulations — have proposed an ‘International Maritime Sustainability Funding & Reward’ mechanism to lower emissions and spur uptake of zero-carbon fuels. The proposal is scheduled to be discussed at an IMO meeting starting May 16.

It is similar in concept to Japan’s ‘feebate’ scheme, taxing ships for emitting more than average and rewarding them for emitting less than average.

But China’s scheme has no flat carbon levy and gives bigger allowances to developing countries, in response to their concerns about cost, fairness and greater need to adapt and mitigate the effects of climate change.

This will add to its political allure, but potentially at the cost of environmental effectiveness.

China’s proposal tackles from the outset developing countries’ objections about cost and fairness by giving them larger allowances than do rival plans. But this leaves less revenue to spend on green technology and could weaken its environmental effectiveness unless it is balanced by an increase in stringency.

The proposal (ISWGHG 12/3/9, to give it its formal IMO document title) also borrows from the industry-backed International Maritime Research Fund, a framework for how to raise and spend money for green research.

Market-based measures, or MBMs, such as carbon taxes and cap-and-trade schemes, are meant to close the price gap between dirtier and cleaner fuels to promote decarbonisation.

They are seen as essential for shipping to meet its climate ambitions — since green fuels cost far more than current ones — but fiendishly hard to agree politically.

China’s proposal would set upper and lower CO2 emissions benchmarks for ships based on the Carbon Intensity Indicator’s C-rating guidelines and the ship’s capacity in deadweight or gross tonnes, and actual distance travelled in a calendar year.

It would tax ships above the emissions benchmark and reward ships below it, using the funds to finance capacity building and climate mitigation in remote developing countries, support green research and development, and address concerns about intellectual property to make green technology accessible to developing countries.

China said the MBM would be able to incorporate “almost all the goals set out in other carbon measures”, including raising enough revenue and encouraging first movers while being workable and fair to poorer states.

The plan hoped to address concerns about different MBMs’ price, level of ambition, negative impacts on states, availability of zero-carbon technology, complexity and administrative burden.

An IMO delegate told Lloydֹ’s List that regardless of the plan’s pros and cons, the fact that China had proposed one represented a big step by countries that had tended to vote down emissions rules.

Another source said the Chinese and Japanese proposals were “still very vague” about how they achieved decarbonisation steps, especially how to spur long-term, scalable solutions. But he said China’s proposal was a sign of the IMO — long criticised as a climate laggard — taking decarbonisation seriously.

The Marshall Islands, Norway, and the International Chamber of Shipping have also proposed market-based measures, and these will also be up for debate alongside China’s new plan at the IMO’s intersessional working group on greenhouse gas emissions from ships from May 16-20.

How it works

The IMSF&R would raise or lower the benchmark by 5% for ships that use partly zero-carbon or alternative fuel, or those serving one or more ports in “developing countries likely to be negatively impacted”.

The amount taxed or paid would be the difference between the benchmark limit and the actual emissions.

China would put 40% of the revenues to reward good performers, 30% for capacity building and mitigation in developing countries, 20% for R&D and technology transfer (from richer to poorer countries) and 10% for administrative costs.

The amount of money paid per tonne would vary from year to year based on total contributions, the proportion of rewards, and the saved emissions to be rewarded.

If more ships pay in and fewer ships get paid, the better ships get higher rates and vice versa.

China said this meant bigger rewards for first movers early on and smaller rewards later, when the industry is on track to meet its goals. A cap would be needed to stop “extremely high” reward rates, it added.

An International Maritime Sustainability Funding and Reward Board would be set up to give and take the money — this could draw on a similar industry-backed plan already before the IMO.

Implementing the plan would mean developing or updating a series of IMO instruments but could use the same application scope as the CII mechanism, a short-term emissions measure.

Data on ships would be collected through the IMO Data Collection System. Companies — as defined by the ISM Code — would calculate the contribution/reward rate, verified by their administration.

China said the possibility of pooling different ship types and companies, as well as the use of carbon credits as an alternative way of compliance, needed further consideration.

The plan is based on the IMO’s official ambition to halve emissions from 2008 levels by 2050, and so is less ambitious than plans that aim for net or absolute-zero emissions.

“In general, the IMSF&R mechanism would bring far fewer negative impacts on fleets than all the other mid-term measures proposed so far, including a carbon/fuel levy, a cap-and-trade system and a fuel standard,” China said, adding that negative impacts should still be assessed.