Data is the key to a future of emissions trading

High profile decisions at July’s Marine Environment Protection Committee will accelerate the International Maritime Organization’s decarbonisation ambitions for shipping, but a proposal of apparently smaller consequence could lay down a data marker for global emissions trading.

Less convergence is apparent on carbon pricing. Proposals before MEPC 80 aim to incentivise greener fuels, with levy and reward initiatives coming from ICS and China, a ‘feebate’ suggested by Japan and a straightforward levy scheme recommended by the Marshall Islands.

However, these proposals are very different in scale and scope to the EU Emissions Trading Scheme, which authorities in Europe officially extended to the maritime sector in January, applying it to ships of 5,000 gt and above calling at EU ports, irrespective of flag.

Under the ETS, shipowners comply by either using up CO2 emissions allowances or trading CO2 credits with others who have allowance to spare. Compliance requires organisations to have an approved plan for monitoring and reporting annual emissions, which must be verified by an accredited company by 31 March of the following year. Once verified, operators ‘surrender’ the equivalent number of allowances by 30 April of that year.

The emissions in the scope of the EU ETS will phase in, with 40% of surrendered allowances coming under the scheme for reporting in 2024, rising to 70% in 2025 and 100% from 2026. Credits and purchases will apply to these percentages one year in arrears., while from 2026 the ETS will also include methane and nitrous oxide.

As a Market-Based Measure, the scheme aims to enforce the ‘polluter-pays principle’ and incentivize lower emissions. The prospect of commercial gain or the necessity to minimize additional costs will pull and push owners towards developing strategies that best meet their position.

Some might simply move tonnage away from EU ports. Others will seek to comply by reducing ship speeds when routes pass through EU ETS jurisdiction, while a substantial group will seek to make a more searching evaluation of their options. In these cases, ship performance data that has been analysed to develop an integrated position on efficiency and emissions will be invaluable.

By fine-tuning the correlation between weather, hull fouling, shaft power use and fuel consumption, for example, an owner will minimise ETS allowance consumption and maximise the credits for trading.

Measuring the true impact of such strategies relies on the development of data analytics models which recognize trends and patterns that are not discernible to the human mind and learn from them to predict future behaviours and self-improve in accuracy. Automating data acquisition and reporting is also a robust basis for accountability the aligned with the EU MRV – the mature CO2 emissions reporting system which entered into force on July 1, 2015.

This is the also the basis for evaluating the effectiveness and ROI of innovations which vendors claim will optimize efficiency-emissions gains. Integrated performance analytics allow owners to model and evaluate the impact of new decision-making applications, structural changes, stored energy, fuel alternatives, energy saving devices or other add-ons designed to reduce or capture carbon emissions and weigh them up against the life expectancy of a given ship.

And data, it seems, is becoming as highly prized by regulators as it is for investors. After all, while the European Commission seemingly supports IMO’s ‘lite’ approach to carbon pricing in the run up to MEPC 80, a separate submission to the July meeting asks for the CO2 emissions data IMO gathers through flag states, aggregates and anonymises to be shared with the EC in a transparent and non-anonymised basis.