MBMs at MEPC 63

Working late at night did not help the IMO MEPC 63 to achieve further progress on reducing shipping emissions in early 2012. Two objectives were planned in this area: (1) to adopt a resolution on Technical Co-operation and Transfer of Technology relating to the improvement of energy efficiency of ships, and (2) to launch an impact assessment of the proposed Market Based Measures (MBMs), particularly on developing countries. Neither of these objectives were reached.

A proposal by a group of developing countries for the Resolution was put on hold until MEPC 64, due to reservations from developed countries. The terms of reference to conduct the impact assessment could not be agreed, mainly due to different views from developing countries regarding certain details, including the need to consider compliance with the UNFCCC and the position that the assessment should be done by government experts rather than consultants. MEPC 63, held from 27 Feb - 2 March in London, agreed that no consensus could be reached on either of the objectives and postponed further discussion to its next session (MEPC 64, from 1-5 Oct 2012)

The session started well ...

At the session’s opening remarks the new Secretary General, Mr. Koji Sekimizu proposed, among others, that MEPC set itself the challenge of completing all the work on the establishment of a MBM by a target year of 2015, in line with the timeframe established by the Durban Conference for the legally binding global climate change agreement. He stated that the impact assessment should be started immediately and be finalized by 2013 so that MEPC can decide on the specific MBM.

Energy efficiency matters

There was good progress on technical matters; the implementation guidelines for EEDI and SEEMP were developed, and finalized at MEPC 63.
However, it became clear early on in the session that the agreement on the Resolution may be challenging (the Resolution was "promised" to the developing countries at the time of adoption of the new chapter 4 to MARPOL Annex VI at MEPC 62). Given the importance that developing countries associated with it, delegation of Brazil stated that if the Resolution is not completed at the session, then any other item that proves to be “immature” would need to be referred to the next session as well (it was clear to many participants that this referred to the impact assessment of the MBMs, which developed countries wanted to launch at MEPC 63).
During the session a large group of developing countries submitted a proposal for the Resolution which varied in certain details from the Chairman’s draft prepared before the session. An informal group facilitated by the MEPC Vice-chairman attempted to reconcile the proposals (working till late hours ... the picture above was taken after one of these late sessions). However the group failed to prepare an acceptable draft text of the Resolution, mostly due to various reservations from developed countries.

Market-based Measures

The discussion in that area was focused on:

1. Report of the third Intersessional Meeting
   
2. Impact assessment
   
3. Consideration and possible consolidation of MBM proposals
   
4. Climate finance and use of MBM revenues
   
5. Relation between an MBM and the WTO Rules
   

Report of the third Intersessional Meeting

This was relatively simple. The Committee approved the Report of the third Intersessional Meeting of the GHG working group (GHG-WG 3). It noted among others that the GHG-WG 3 acknowledged the findings and conclusions of the MBM Expert Group's report, including its identification that there would be a need for further study of both the direct and indirect impacts on developing countries due to the introduction (and non-introduction) of an MBM for international shipping under the IMO.

Impact Assessment

This was the most important topic within agenda item 5, and generated significant debate, both at the plenary and during long informal consultations. The main issue was the agreement of the Terms of Reference (ToR) for the impact assessment. However, it proved impossible to agree the ToR by consensus, mainly due to different views between representatives of developing and developed countries regarding certain details (mostly relating to UNFCCC criteria and whether the assessment should be carried out by governments or by consultants). As a result, MEPC 63 postponed the ToR for further consideration at the MEPC 64.

Consideration and possible consolidation of MBM proposals

Various views were expressed on this topic, including that the resultant MBM could be a combination of different MBMs or some compromise solution rather than any of the proposals in their initial form. No proposal was eliminated at the session. MEPC invited all MBM proponents to refine their proposals as soon as possible, and not later than MEPC 64.
Furthermore, the proponents of MBM proposals which rely on the Energy Efficiency Design Index (EEDI) were invited to clarify/modify their proposals regarding the use of EEDI.

Climate finance and use of MBM revenues

Given the relevance to our proposal in this area, this section is somewhat more detailed ...
The Committee recalled that MEPC 59 noted that there was a general preference for the greater part of any funds generated by an MBM under the auspices of IMO to be used for climate change purposes in developing countries, through existing or new funding mechanisms under the UNFCCC or other international organizations.
In the debate on the possible uses of revenue from an MBM for international shipping under the IMO and its relation with the wider efforts in the world community to mobilize climate finance for use in developing countries it was, in particular, noted that:

1. divergent views were expressed on the use of revenues and the relation between an IMO MBM and climate finance, with a number of delegations advocating disbursement of revenues as a way to accommodate (reconcile) both CBDR and the IMO principles, while others opposed this if applied universally to all ships and advocated an approach that would ensure no net incidence on developing countries;
   
2. a large number of delegations (mostly developed countries) expressed the view that the greater part of any MBM revenues should be used for climate finance in developing countries;
   
3. a number of delegations, including Brazil and Republic of Korea, expressed the view that an MBM for international shipping under IMO should not be used as a source for general climate finance in the context of the Green Climate Fund where funding should be provided by developed countries (statements of Brazil and Republic of Korea are annexed in the MEPC report);
   
4. if international shipping was to contribute to international climate financing, it should only contribute in a manner that is proportional to its share of global GHG emissions, which according to IMO's Second Greenhouse Gas Study 2009 is approximately 2.7% of global emissions;
   
5. a number of delegations stated that the RM is an innovative and constructive proposal that addresses the CBDR principle and should be analyzed and considered further; and
   
6. GHG-WG 3 had noted that there were several possible uses for revenues generated by an MBM for international shipping, as identified in the MBM proposals.

The possible uses for revenues were:

1. incentivizing shipping to achieve improved energy efficiency;
   
2. offsetting – purchase of approved emission reduction credits;
   
3. providing a rebate to developing countries;
   
4. financing adaptation and mitigation activities in developing countries;
   
5. financing improvement of maritime transport infrastructure in developing countries (e.g. Africa);
   
6. supporting R&D to improve energy efficiency of international shipping; and
   
7. supporting the Organization's Integrated Technical Co-operation Programme.

The Committee noted the ongoing work under UNFCCC on climate finance, and also noted the AGF report and the G-20 report on mobilizing funding sources for the Green Climate Fund, in which international shipping had been listed as one possible source of finance.

Relation between an MBM and WTO Rules

The Committee recalled that at the third Intersessional Meeting of the GHG working group (GHG-WG 3) a large number of delegations concluded that no incompatibility exists between a potential MBM for international shipping under the IMO and the WTO Rules. However, a number of other delegations, notably India, maintained the view that there are inconsistency issues between an MBM and the WTO Rules.
At the session the Committee considered document MEPC 62/5/27 (India) on the possible incompatibility between WTO Rules and a MBM for international shipping, which was deferred from the last session, and agreed to continue the debate at MEPC 64 and invited further submissions and contributions.

Further information

Official information on the progress achieved at MEPC 63, on its wide agenda, is available from the IMO.

For more details on why and how to operationalize equity for a maritime MBM, including applicability of the Rebate Mechanism proposal (RM), see the following document, available in 3 languages:

• MEPC 63/5/6 in English , Ensuring no net incidence on developing countries from a global maritime Market-Based Mechanism
  
• MEPC 63/5/6 in French , Garantir qu'un mécanisme international fondé sur le marché n'aura aucune incidence nette sur les pays en développement
  
• MEPC 63/5/6 in Spanish , Garantizar que un mecanismo de mercado marítimo a escala mundial no tenga incidencia neta en los países en desarrollo
  
• Base proposal is also available in these languages.