Taking action on emissions

Frustrated at the sluggish pace of progression at the International Maritime Organisation and under intensifying pressure from external stakeholders to act on climate and air quality concerns, charterers have taken matters into their own hands – and not everyone is happy about it.

Brokers and traders must now familiarise themselves with the Global Maritime Forum’s Sea Cargo Charter and associated charter party clause, launched last week with the backing of the world’s top shippers. Anglo American, Cargill Ocean Transportation, Dow, Norden, Total and Trafigura have all played a part in creating the Charter, which aims to create a transparent reporting system for shipping emissions.

The Charter establishes a common baseline to quantitatively assess and disclose whether shipping activities are aligned with adopted climate goals.

While it is “in line with United Nations decarbonisation targets”, it has been formed outside the purview of shipping’s UN regulator. It’s this point that has drawn criticism from some of shipping’s industry bodies, including the International Chamber of Shipping and BIMCO. While applauding action on decarbonisation, the concern is that without following the IMO’s due process, reporting requirements will not be as efficient as they could be.

Recognising the need for IMO alignment, the Charter is intended to evolve over time in line with adjustments to the UN body’s policies and regulations. It also aims to support other initiatives developed to address climate, environment, and social risks in shipping, such as the Poseidon Principles.

UN deputy secretary general Amina Mohammed welcomed the commitment to transparent reporting of shipping emissions but cautioned that the shipping industry’s ambition must be matched with country ambition. He added that as a vital sector in national economies, the voice of shipping is essential in urging Governments to step up their climate ambition and put in place the policies that businesses need to speed up the transition from the grey to the green economy. “Several green hydrogen and ammonia projects and net zero emissions vessel concepts, in Chile, Denmark, Japan and Morocco, provide exciting proofs of concept and should be encouraged elsewhere,” he said. “We should also keep firmly in mind the vast commercial opportunities ahead – particularly for those who move strongly – as we decarbonise the global economy.”

Jan Dieleman, president of Cargill Ocean Transportation and chair of the Sea Cargo Charter drafting group, believes that a standard greenhouse gas (GHG) emissions reporting process “will simplify some of the complexities often associated with reporting”.

Founding principles

The Charter is applicable to bulk ship charterers and that includes those with interest in the cargo on board, those who charter out the vessels, disponent owners and all charterers in the charterparty chain. The Charter applies globally and to all chartering activities where a vessel fall under the IMO’s regulations.

It is based on four principles: assessment of climate alignment, accountability, enforcement and transparency. For the assessment principle, signatories will measure the GHG emission intensity and total GHG emissions of their chartering activities on an annual basis and will assess their climate alignment relative to established decarbonisation trajectories.

For accountability, signatories will use validated verification mechanisms to provide unbiased information, relying exclusively on data types, data sources and service providers that are identified in the Charter’s supporting Technical Guidance.

For enforcement – where brokers and traders really need to take note – signatories commit to making compliance with the Charter contractual in their chartering activities. That means that they will use the Sea Cargo Charter Clause in charter parties and will expect that shipowners, disponent owners, and other partners in the charter will work together to collect and process the information necessary to calculate carbon intensity and total GHG emissions and assess climate alignment. The Clause will need to be included in the charterparty to facilitate this. The Global Maritime Forum explains that the Clause – and supporting definitions – is designed to be “generic…broad in its nature and non-prescriptive”. The Sea Cargo Charter Clause can be seen here:

Finally, to meet the transparency principle, signatories are required to report the climate alignment scores of their chartering activities on an annual basis with those scores being published annually in June. The goal is that annual self-reporting will encourage the signatories to improve their public scores year-on-year.

In practical terms, the Charter’s scoring system could lead to a rise in charter costs for signatories, but that should be offset by more favourable lending terms.

Collaboration

Grahaeme Henderson, global head of Shell Shipping & Maritime, one of the signatories, described the Charter as “an important step in laying the foundations for a net-zero emissions shipping industry”.

Heidi Aakre, vice president shipping at Equinor, another signatory, recognised that sustainable shipping cannot be achieved by one actor alone: “We have to collaborate and be transparent to deliver on our maritime ambitions.” Henderson urged that the same spirit of collaboration be adopted in the pursuit of the technological advances needed to unlock decarbonisation solutions, and in building industry support for regulation which can create an ambitious but level-playing field under which to invest.

Signatory Trafigura has some experience of collecting fuel consumption data having worked since 2019 with shipowners to implement a voyage charterparty clause that collects the fuel consumption data associated with its spot charters. However, it too presses the need for a whole-industry approach to fully understand the sector’s overall greenhouse gas footprint.

The full roll call of the 17 founding signatories is ADM, Anglo American, Bunge, Cargill Ocean Transportation, COFCO International, Dow, Equinor, Gunvor Group, Klaveness Combination Carriers, Louis Dreyfus Company, Norden, Occidental, Shell, Torvald Klaveness, Total, Trafigura, and Ørsted. Others are invited to join the initiative.

While last week’s launch was the culmination of months of work, the journey is only just beginning for greater transparency on shipping’s green transition. As Jean-Marc Bonello, consultant at the University Maritime Advisory Services, noted: “The hard part of decarbonisation is not the technical aspects, but the behaviour change required to centuries-old ways of working.” Major charterers have taken the lead. Can they collectively change those historically entrenched mindsets for which shipping is so famed?
Source: Baltic Exchange