While the consequences of climate change have activists up in arms, the international community’s response has been fraught with stagnation, and remains somewhat disillusioning. After a series of disappointing Conferences of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC), all hopes are set on the Paris summit to be held later this year. In the midst of this stalemate, the EU has been profiling itself as a protagonist of the global climate, with an ambitious Climate and Energy Package. In its latest move, the EU has adopted Regulation (EU) No. 2015/757 (‘the Regulation’), which came into force on 01 July 2015, and lays out a monitoring, reporting and verification scheme (MRV) for ships. The MRV requires ships to monitor their CO2 emissions according to a verified monitoring plan, and report the results to the Commission. This step has been on the EU’s agenda for over five years, and forms the first concrete phase of the inclusion of maritime emissions in the Union’s own reduction commitment. While according to the EU, the scheme would bring ‘momentum for international agreement’, the shipping industry reacted coolly, warning that the EU initiative risked putting multilateral negotiations ‘in jeopardy’.
Monitoring, reporting and verification: towards a take-two?
While the MRV scheme in itself brings costs for shipping companies, it is only the first step towards the implementation of a market-based-measure (MBM) entailing a far greater burden (see COM (2013/479)). A MBM uses economic policy instruments such as taxes and market entry conditions to provide incentives for private actors to behave in a certain way, in this case, to reduce their carbon emissions. While the EU is yet to decide on what form this MBM should take, one likely option is an expansion of its Emissions Trading Scheme (ETS), the EU’s ‘cornerstone’ strategy for reaching its Kyoto targets. This cap-and-trade scheme allots a set amount of carbon credits to individual operators in particular sectors. When operators emit more than their allotted carbon quota, they must buy additional credits from competitors with a surplus. This encourages operators to improve their energy efficiency as a step towards an improved ‘low carbon economy’. The MRV serves as a prerequisite for such a scheme, providing the data with which the Union can determine companies’ reduction targets.
The EU’s previous attempt at such an expansion was aimed at the aviation sector. In 2012, it implemented Aviation Directive 2008/101/EC, requiring airline operators to surrender carbon credits for the entire duration of their flight, including routes to and from EU aerodromes. This was done to increase the effectiveness of the Directive, and to create a ‘level playing field’ for EU operators. However the move gave rise to international controversy and resulted in the ATAA Case before the Court of Justice of the EU (CJEU), with several states claiming that the measure was extraterritorial and as such illegal. In that case, the Court found that the fact that the airplanes were physically present on EU territory gave the EU ‘unlimited jurisdiction’ over those planes at that time, and that therefore the EU was competent to require the surrendering of carbon credits. Predictably, the claimants were far from happy with this ruling, and intense political push-back forced the EU to ‘temporarily’ limit the implementation of the Aviation Directive to intra EEA flights. The official compromise was that this implementation ‘pause’ would allow time for further multilateral negotiations within the International Civil Aviation Organisation (ICAO). However, the stop-the-clock decision did not require a binding agreement to be reached by the ICAO, only that it would ‘negotiate’. This was two steps backwards for the Union, as the slow pace of the ICAO negotiations had formed the original impetus for the EU initiative.
Turning to the maritime sector we see a similar story. Negotiations within the International Maritime Organisation (IMO) have been slow to deliver, although much lip-service has been paid to the tightening of the MARPOL regulations on ship energy efficiency (EEDI & SEEMP). Still, for the EU this has not been enough, as ‘the international discussions have yet to bring agreement on global […] instruments that would cut GHG emissions from the international maritime transport sector as a whole, including existing ships’. Indeed, the EU has not been shy in its move towards a unilateral MRV scheme, holding several consultation rounds and including the shipping industry in discussions on policy design and scope.
On 1 July 2015, the MRV entered into force, requiring ships heavier than 5000 gross tons (GT) to monitor CO2 emissions for the duration of their voyage as of 2018. Again, the EU has included the sensitive requirement to include voyages from the last port of call outside the EU to the first port of call in an EU Member State and vice-versa. Companies will be required to submit a verified ‘monitoring plan’ to the Commission by the end of 2017, in which they specify how they plan to meet the monitoring requirements in the Regulation. Some have expressed the concern that the EU’s requirements will lead to the ‘unhelpful complication’ of any global MRV that the IMO hopes to produce. Still, as remains the case with the aviation sector, the pace of the IMO negotiations suggests that this is more a concern for the long-run.
The MRV has been met with ‘disappointment but not surprise’ from the shipping industry, that sees the EU initiative as an ‘unhelpful’ pre-emption of ongoing negotiations within the IMO. Already in 2013, the International Chamber of Shipping published a brief advocating against an EU MRV. Some heavyweight companies also warn of a ‘danger’ that the MRV will be seen by other states as an ‘attempt to present them with a fait accompli’, limiting room for an international agreement and increasing resistance to the Regulation’s planned implementation.
In responding to the shipping industry’s criticisms, it is useful to address the conflicting interests underlying the EU’s unilateral move. On the one hand, shipping companies rightly argue that just because the Union has the economic power, does not mean it should be able to dictate the design and timing of an emission reduction scheme. In this sense, waiting for the multilateral process is a more democratic route, allowing all participating states to contribute to the form of the monitoring scheme, as well as any market-based measure to follow. Furthermore, a global MRV would have a broader scope, rendering it more effective. On the other hand, one may ask what the costs of the MRV actually are for the shipping industry. The technology and data needed for the reporting are in fact already present on board most ships, meaning that the additional costs are low, lying largely in the administrative verification and reporting procedures. Furthermore, as the IMO is already negotiating a global monitoring system, it is only a matter of time before companies will need to make these costs anyway. Shipping companies should not lean on the structural weaknesses of the international system to postpone their responsibility in sharing the costs of climate change.
While the unilateral nature of the EU’s measure is in itself a cause of tension, its territorial scope also presents pressing legal questions. Can the EU effectively place requirements on the conduct of companies carried out outside of its jurisdiction? For its part, in dealing with the tricky Aviation Directive in the ATAA case, the CJEU simply ‘bent’ the traditional approach to fit the problem at hand. The Court held that the Directive automatically fell within the EU’s ‘unlimited jurisdiction’ because the planes were present in EU aerodromes. Thus we can cautiously assume it would do the same thing for any claim regarding the maritime MRV or (yet to be decided) market-based-measure. However, the various criticisms of the ATAA case suggest that other international tribunals may not follow the CJEU’s line of reasoning.
Ultimately, it was the political resistance that foiled the EU’s previous attempt at carbon regulation. This leads us to the dissatisfying conclusion that both in the aviation and maritime sectors, we are forced to wait until all the key global players have reached some kind of agreement. One can only hope that this time, more are willing to play along.