The ambition is to Halve Maritime Emissions & Pay for Improvements needed in one cohesive supra-national scheme while addressing differentiated priorities from the developed and developing countries.

The goals are:

1. Mitigate the maritime GHG emission growth through the most cost effect measures and halve the emissions over long-term;
   
2. Reduce the gap in financing for adaptation to climate change in developing countries (in $bn annually);
   
3. Provide a global approach leading to agreement within the next 2 years.
   

The emission reductions will be achieved through near-term technical and operational industry improvements and by accelerating long-term step changes.
The scheme minimizes the administration burden and costs for ship owners, since it is a centralized system. It also avoids two major obstacles: unreliable emission baselines and allocation of emissions from international bunker fuel to countries.

We propose that CO2 emissions from international maritime transport are treated on international level rather than being allocated to countries. An emission reduction goal (cap) is established and applies to all destinations with emission reduction commitments (currently Annex I countries). An emission charge is established. It is linked to the goal and the prevailing forward carbon price. Aggregated funds from the emission charges are used to both stimulate innovations and cost-effectively mitigate growth of maritime emissions. Furthermore, $billions of gains generated through the aggregated approach are directed to climate change adaptation in developing countries.

Global but Differentiated

The scheme is therefore both global (as per the IMO) and differentiated (as per the UNFCCC). It applies to all ships irrespective of flag and nationality, and fulfils the principle of common but differentiated responsibilities and respective capabilities. See the proposed Global but Differentiated principle.

Implementation

IMERS would implement a charge on the CO2 emissions from international shipping based on fuel use and cargo destination. Fuel data will be extracted from obligatory fuel receipts (called Bunker Delivery Notes). Alternatively, ship managers could report fuel use for voyages ended during the previous month. The emission charge (fee) would be announced at least one year in advance to allow passing on the charges to end customers. The fees would be paid by the fuel payers, typically charterers, typically monthly. The emission charges are differentiated as per the climate change regime in force, based on destination of cargo. Under the current regime, ships transporting goods to:

• Annex I countries pay 100% of emission charges
  
• Non-Annex I countries pay zero;
  
• Both types of countries pay on average 60% of emission charges (variable multiplier).

The variable multiplier is the ship’s share of goods unloaded in Annex I countries, in a year or similar. The average value for the multiplier has been derived from the developed countries’ share of world freight costs, as well as share of unloaded goods, both of which are approximately 60%.
The liable entity is ship, and the scheme is enforced through port state control in Annex I countries.

Distribution of Funds

The charges raised would go to a supra-national fund established under the UN (under the IMO or the UNFCCC) and be used to:

• Invest in maritime technology transfer and stimulate longer term technology transformation;
  
• Purchase CO2 credits equal to the actual emissions in excess of the established emissions cap; and
  
• Contribute to climate change adaptation in developing countries.

Costs

A fee of US$9 per tonne of CO2 would bring about $6 billion annually from 2012 and raise shipping costs by circa 3% (to Annex I countries). This is equivalent to an extra $1 for every $1,000 of imported goods to Annex I countries. There is no impact on imports to non-Annex I countries.
The fee (a unit emission charge) is calculated in advance based on the prevailing forward carbon market price and a negotiated emission goal. This makes the proposed cap-and-charge an alternative to cap-and-trade, avoiding the barriers of emission trading (such as emission allocation and distribution of emission allowances).

Hybrid scheme: cap-and-charge

The scheme therefore is a hybrid one, both from the economics and goals points of view. It combines in a single scheme:

• a quantitative goal (cap) with a price instrument (charges): a “cap-and-charge”;
  
• emission mitigation, adaptation to climate change and technology action;
  
• differentiated responsibilities and capabilities, of countries and individuals.

Economically, it is an efficient alternative to emissions trading. Some called it called charge-and-cap as it combines a price mechanism with a quantity mechanism. We prefer to signify the quantitative cap that the scheme will deliver and use a name cap-and charge (some also call it cap-charge-and-trade).
The name does not really matter as long as the scheme can efficiently deliver the notional emission target (cap) at an affordable price ...

Not tax

The fee is not a levy or a tax set at some arbitrary level. The goal (cap) together with the market (via the market price for carbon) dictates the level of the fee, rather than a single body that may be subject to outside influence. The example $9 fee was calculated for 2012 assuming 2.1% rate of emission growth, emission goal of reducing emissions by fifth by 2020 from 2005 level, and a carbon market price of $30/tCO2.

Organisation: We propose establishing a multilateral Governing Organization (GO) within the UN system. The GO will be an execution organization with parameters provided for. It will be responsible for collection and disbursements services for international maritime CO2 emissions. The emission reduction goal and how the revenue is further divided will be decided by the Conference of Parties (COP). The emission charge will be set through a formula linking the emission reduction goal, emission growth and prevailing market price for carbon.
Adjustments to New Realities.

Periodic governance mechanisms would allow for adjustment of charges and funding policy to new realities.

• Every 4-10 years the UNFCCC in consultation with the IMO should undertake a review and potential adjustment of the emission reduction goal, and the funding priorities (this may include relative size of the mitigation, adaptation and technology funds).
  
• Every year the body should undertake a market price review and setting of the new emission unit charge.
  

Decisions will be valid from the year after next, for the next period (4-10 years and 1 year, respectively). This approach will guarantee predictability and long-term investment signals for the industry.

NOTE: 2007 version described. (improvements added in 2008 version)
The description below is for the 2007 version. After recent consultation a simplified version is now preferred based around fuel delivered and the bunker delivery notes (BDN). BDNs are already required by the MARPOL Annex VI. The 2007 description has however an advantage of allowing to fully implement an IMO CO2 index. Furthermore, the 2008 Autumn version differentiates between Annex I and non-Annex I destinations to deliver on the UNFCCC principle of common but differentiated responsibilities (CBDR).
Data collection. We propose that ship managers submit a fuel used record to the scheme database for the recent voyages once a month, along with the volume of work and distance travelled for all ships under their management.
Monitoring and reporting. For monitoring and subsequent reporting the emissions are calculated by the scheme based on amount of voyage fuel used and type of vessel/engine, using appropriate emission factors (tier 2 methodology as per IPCC, 2006 Guidelines for National Greenhouse Gas Inventories).
Verification. Accounting and verification for the central organization will be subject to ISO 14064 standard for greenhouse gas accounting and verification. Electronic verification of fuel reports might be augmented in certain cases with the ship log verification by an authorised official at any port participating in the scheme.
Enforcement.

It is proposed to enforce the compliance in selected ports for:

• Provision of relevant data for the most recent voyages;
  
• Payment of the emission charges for the period ending three months earlier (or similar).

In cases of non-compliance port enforcement measures could be used, such as local financial penalties up to detention of the ship.
Additional details are available in the presentation on IMERS data requirements (0.6 MB).

They were discussed at the Technical workshop on Emissions from aviation and maritime transport, Oslo, Norway, 4-5 Oct 2007. The report and presentations from the workshop are available externally:

• workshop report by IISD
  
• workshop presentations

Practicability and Attractiveness

NOTE: Theses synopsis relate to the 1st generation of IMERS. The 3rd generation changes, including the rebate mechanism, are not reflected in the description below. These are provided for historical reasons.

The details of the scheme are provided below using two main criteria: Attractiveness and Practicability. Lessons learned have proved that successful schemes must combine policy appeal and economic efficiency with reliable data and feasible implementation. With some additional political will, the scheme can be operational even before 2012.

The mid-2007 IMERS synopsis, 1st generation (0.1 MB) used at the UNFCCC COP 13 in Bali meeting are included for comparison (note that the COP13 synopsis were based on the mid-2007 estimate of shipping emissions of around 0.5GtCO2; current estimates are double of that).

Practicability

Scheme Design
Emission allocation:	-- (None1; using the UNFCCC SBSTA option 1 – no allocation)
Allowances distribution:	-- (None needed)
Participating entities:	Fuel payers for charges; ship managers and/or suppliers for reporting
Reporting, Verification and Compliance:	Direct electronic; compliance enforced in selected ports, both for the provision of data (such as BDN) and payment of charges
Implementation Feasibility
Accurate data & availability:	Emission growth: available
Minimum operational data:	Fuel data, used or delivered: available (starting with Bunker Delivery Notes, BDN)
Reuse of existing work, and procedures:	Voyage data for validation; CO2 index from real data once the scheme operates, used as a performance measure for ships, routes etc.
Authorities and their roles:	IMO for governance; World Bank, or similar,  to manage adaptation funding (recommended Adaptation Fund under the UNFCCC)
Scheme Parameters
Emission target:	Yes; enclosed calculations done for notional reductions of 20% in 2020, and 50% in 2050 from 2005 level
Emission baseline and/or emission growth:	Baseline not needed, and avoided as it is currently commercially inadequate. Emission growth only needed (average 2.1% pa used till 2035)
Grouping for equity:	Bubbles for containers, bulk, tankers, etc., could further improve the scheme equity and speed up implementation
Time to implement:	2 years – could be operational BEFORE 2012

Attractiveness

Scope and Goals
Geography:	Worldwide
Participants:	All vessels > 400 GT
Emission target:	Global, or per vessel bubbles (containers, bulk, tankers, …)
Additional goal:	Adaptation to climate change in developing countries
Emissions:	International, CO2 only at the beginning
Political Appeal
Common but differentiated responsibility:	Through financing policy for adaptation;  differentiation at point of distribution rather than collection
Impact on competitiveness:	None in sector; negligible outside shipping
Benefits to participants:	A hassle-free long-term solution, increased cash flow, compliance easily verifiable, long term investment clarity, better image of shipping
Legal basis & precedents:	Could be under MARPOL; IOPCF -  a precedent for a direct fund; aviation route charges as an example of delegating collection and billing responsibility to a central organisation (Eurocontrol in Europe)
Costs	(for 2010, key assumed prices: fuel $500/tHFO, carbon $30/tCO2)
Price impact:	Low: 0.1%, equivalent to adding $1 to price of $1,000 of imported goods
Participant costs:	Negligible          (20 minutes reporting time for ship managers per month)
Unit emission charge:	$10/tCO2 or $30/tFuel           (linked to emissions and carbon price)
Operational costs:	Under 5%           (a centralized solution; operational ratio higher in the initial years)
Effectiveness	(assuming 1GtCO2 baseline in 2005; for others – multiply results by the respective baseline value in GtCO2
Emission mitigation:	$4bn/pa; Total mitigation of 26 GtCO2 by 2050         (30% of it is emission avoidance)
Improvements:	+0.5% annually, $2bn/pa Technology Fund, for transformational R&D and technology transfer
Adaptation:	$4bn/pa, for developing countries (likely as contribution to the UNFCCC Adaptation Fund)
Eligibility ("Carrot & Stick"):	Only parties that legally support the scheme are eligible to participate in the scheme benefits (adaptation, technology and so on)
Market linkages:	Cost-effective through usage of carbon markets, and a dedicated maritime emission registry
Flexibility
Mechanisms used:	CDM, CERs without limits; also programmatic CDM for increased quality
New and existing ships; and new entrants:	Applies to both existing and new ships; no problems with including new entrants as scheme is based solely on charges, rather than allowances
Adjusting to new realities:	Charge annually; funding policy reviewed and adjusted periodically by IMO
Starting small, and learning by doing:	Can be limited to ship type or size threshold; easy scaling up thanks to the harmonized charge that does not vary with the number of participants

¹ The scheme avoids the complex problem of allocating emission allowances to countries, flags, routes or ships, and associated issues, such as lack of a reliable emission baseline, high transaction costs for small emitters etc. It achieves an emission cap on shipping emissions through a hybrid price-quantity mechanism that is linked to established emission markets, thereby delivering the reduction in the most cost effective manner.