SEAaT San Fran Pilot

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Information about SEAaT San Fran Pilot

Published on November 7, 2007

Author: Herminia


Slide2:  Trade pipeline – China to US/Europe Containerisation increase Shipping doubling by 2020? Entitlement, equality and equity 85% of shipping activity in Nth Hemisphere Ship emissions travel Shipping emissions harm people on land Significant contributors to SOx and NOx Ships carry 90% world trade Most efficient prime mover Contribution growing with growth Fuel available and relatively cheap Existing fleet vs newbuilds Trade Growth Environment Energy Ships Few viable alternatives to hydrocarbons Refinery economics for marine fuel Crude cost $65 bbl Jet price $80 bbl Marine fuel $35 bbl Slide3:  Where is the pressure coming from? Slide4:  Who’s feeling it? Slide5:  A cross industry group encouraging and facilitating the efficient reduction of harmful emissions to air from shipping Slide6:  Raise awareness and acceptance of solutions for emissions reduction that are sustainable, economic and achievable Encourage and support abatement technologies, primarily for SOx and NOx emissions reductions Promote the development of emissions trading for shipping Work with legislators to implement flexible regulatory frameworks that allow abatement and emissions trading as options for compliance Abatement technologies:  Abatement technologies A range of technologies are under development Seawater scrubbing is established on land based applications for sulphur removal from exhaust gases “Marinizing” this technology is expected to reduce up to 95% of SOx emitted, with reductions in NOx and particulate matter also Approved abatement technology must show no harm to the marine environment. IMO approval guidelines for approval now finalised. Investment from ship owners and capital markets is slow Innovation and investment must accelerate if solutions are to be implemented Economic incentives will assist this What is emissions trading?:  What is emissions trading? Allows participants to buy and sell emissions reductions Markets for emission reductions can be created by regulation or operate on a voluntary basis All schemes operate on the principle that market forces will determine the value of emissions reductions available to trade The establishment of a market provides cost transparency and enables emitters to pursue cost-effective emission reduction strategies. Slide9:  Global emissions market activity – a lot of experience already California & West Coast Governors, CCAR NE RGGI UK CO2 (& NOx?) Norway CO2 Australian states CO2 trading? EU ETS Canada Large Emitters New South Wales CO2 trading Japan MOE scheme and METI targets Ontario NOx Poland NOx? Acid Rain Program Russia GIS? Brazil Carbon exchange NL NOx Chicago Climate Exchange NOx SIP Trading Program Renewables Markets Across US European Renewables markets Australia MRET scheme Actual or imminent Proposed Greenhouse gas credits Air pollution credits Renewables credits China SO2 Ukraine, Bulgaria, Romania GIS RECLAIM SO2 & NOx UK ROCs Emissions trading for shipping – why?:  Emissions trading for shipping – why? Proven, successful schemes on land that lower costs for industry Will provide an economic incentive to reduce emissions - this will improve compliance and benefit the environment An emissions trading scheme for shipping will encourage innovation and stimulate investment in the lowest cost techniques to reduce SOx Begin with offsetting, a simple form of emissions trading Sulphur offsetting for shipping can deliver the same or better environmental benefits as 1.5% sulphur fuel, at lower cost By exploring the simplest form of emissions trading, we can learn about the most appropriate trading scheme for shipping Sulphur offsetting for shipping:  Sulphur offsetting for shipping Groups of ships work together to collectively achieve an emissions level at least as low as that achieved using low sulphur fuel. Some vessels significantly reduce emissions by: Using ultra low sulphur fuel Operating abatement technology Low emissions ships are used to offset higher emissions made by others – the group in total meets emissions requirements Ships trading through the SECA Low emission ships SEAaT’s Idea:  SEAaT’s Idea Create a group of ship owners to explore how offsetting sulphur emissions might be applied to shipping Why? Understand the benefits and challenges Assess the economic and environmental impact Allow participants to develop their own strategies for complying with emissions reduction legislation The Group:  The Group Teekay Shipping – oil shuttle tankers Stena Line – passenger and car ferries BP – oil tankers P&O Ferries – passenger and car ferries NOL – container ships OOCL – container ships E.R. Schiffahrt – general over 50 ships range of vessel types and routes British Maritime Technology Limited The framework:  The framework Pilot is running initially for 9 months, April – December 2005 The offsetting of emissions is taking place only in the North Sea SECA Real ships are providing fuel consumption and position data, from which sulphur emissions are calculated Some ships generate credits by significantly reducing emissions by: Actually using fuel with sulphur content < 1.5% sulphur Virtually using fuel with sulphur content < 1.5% sulphur Virtually operating abatement equipment, reducing emissions to 0.2% sulphur equivalent The reductions below 1.5% equivalent are used to offset higher emissions by other ships in the group The group aims to meet or better the legislative requirement of 1.5% sulphur equivalent emissions A price is being established for the reductions traded within the group so that economic impact can be assessed Data and results are transparent and web based for all participants Slide15:  “Business as usual” ships Fuel type or abatement achievement= 0.2% S Allowable sulphur limit in fuel = 1.5% Reductions available to sell Reductions required to buy The offsetting group of ships will meet or better the environmental requirement Abating ships will receive income to offset capital cost or higher fuel cost Business as usual ships can avoid difficulties and costs associated with fuel changeover by purchasing emissions credits Value of reductions could be based on ship owners alternatives – e.g, purchase of 1.5% fuel or equipment investment Cost of investing in emissions reduction equipment would be shared Low emission ships Fuel type = usual use, less than 4.5% sulphur Allowable sulphur limit in fuel = 1.5% Pilot Progress – 5 months of offsetting:  Pilot Progress – 5 months of offsetting Distance travelled inside SECA 439,000 nautical miles Fuel consumed 103,000 tonnes Number of ports visited 52 Actual fleet emissions (tonnes sulphur) 1,738 t SECA reference – allowed emissions 1,541 t Simulated Pilot Fleet emissions 994 t Effective fleet sulphur content 1.0% Fleet emission reduction vs current 43% Sulphur credits generated 927 Sulphur credits purchased 380 Sulphur credits in bank 547 The group as a whole is more effective in meeting the environmental requirements than if each ship had operated alone and reduced fuel sulphur content to 1.5% Slide17:  22 low emission ships Fuel consumption 69,644 t Average sulphur content 0.2% Total sulphur emissions 140 t 15 “business as usual” ships Fuel consumption 33,063 t Average sulphur content 2.6% Total sulphur emissions 854 t Balancing the Fleet Slide18:  46 ships Fuel consumption 102,707 t Average sulphur content 1.0% Total sulphur emissions 994 t Balancing the Fleet Total sulphur emissions if all ships use 1.5% fuel = 1,541 tonnes sulphur Slide19:  Balancing the economics How much is a credit worth?? Phase I Use a formula based value to balance the credits among the offsetting fleet Phase 2 Trade credits between participants, discovering the value of trading and banking Some value ideas: Purchaser’s alternative is LSFO. Credit could be based on hi-lo differential. Seller’s cost is diesel or abatement technology. Credit could have a component of seller’s cost Companies can be both buyers and sellers – internal offsetting Should credits attract a premium (extra 10% for avoided deviation costs etc)? Should credits sell at a discount to LSFO? Undercutting buyer’s alternative Fines and penalties cannot repair the damage to the environment How can we ensure that environmental responsibility is rewarded? Successes so far:  Successes so far The group has generated and traded emissions credits, met the environmental requirement, and established a safety margin of excess credits Providing data and analysis through to participants is valuable and informs their strategic planning Now know fuel consumption inside SECA Can construct scenarios to analyse best options for their fleet Working together and sharing assumed compliance costs produces a better environmental outcome than acting alone Challenges and learnings so far:  Challenges and learnings so far Data collection Clear guidelines and procedures are critical to co-ordinate numerous vessels around the globe under the management of several companies Reporting Methods other than manual data submission and calculation will be required to provide “real time” data for verification and trading Predicting behaviour and fuel use Wide variation in fuel quality and trade routes occurs, so the scheme must be flexible and responsive to changes in ship schedules and fuel use Balancing Building and maintaining a bank of credits available for irregular purchasers is key to ensure that the legislative limit is met at all times. It takes time and experience to accurately balance the fleet to 1.5% sulphur equivalent Next steps:  Next steps Optimum group size and balance Scenario analysis to assess a range of different parameters i.e. fuel price Further explore the economic impacts – what is a credit worth? Trading “game” between participants using real data Enables consequences of different choices to be explored Experiments with the establishment of an emission credit marketplace How the group will work together What if something goes wrong? Risks and liabilities for participating companies and the group The lifetime of banked credits Next phase of the Pilot Project - 2006 The balancing act needs::  The balancing act needs: Every tool in the toolkit Close communication between industry, legislators, the scientific community and environmental NGOs Engagement with the broader trading community – manufacturers, logistics chain partners, demand side management Policy support to experiment and explore solutions Future challenges : particulates and CO2 Slide24:  A cross industry group encouraging and facilitating the efficient reduction of harmful emissions to air from shipping

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