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Shipping’s proposed $5bn research fund endures IMO scrutiny

The first-ever discussion at the IMO of the proposal saw governments broadly welcoming the suggestion, though some raised questions and objections

IMO members are considering an industry proposal for a research and development fund and administering organisation. But issues surrounding a mandatory levy and the governance and structure of the autonomous organisaiton foreshadow considerable haggling ahead

SHIPPING’s proposal for a $5bn decarbonisation research and development fund has been met with scepticism by governments meeting this week at the International Maritime Organization.

In its first talks about the idea, the IMO Marine Environment Protection Committee gave the proposal its political baptism of fire on Thursday, inserting it into the broader struggle over the development of more measures to slash greenhouse gas emissions.

Backed by eight of the biggest industry associations, the proposal seeks to impose a mandatory levy of $2 per tonne of fuel consumed by ships to fund R&D projects by raising an estimated $500m annually and $5bn over 10 years.

The funds would be administered by an autonomous organisation, to be called the International Maritime Research and Development Board (IMRB). The eight groups hope to have the organisation up and running by 2023.

Delegates to the virtual MEPC generally welcomed the creation of the board, at least in principle, with some asking more questions than others. Many identified shortcomings, ambiguities and potential complications as well as promising elements.

Though the concerns were various and oftentimes very specific to a country’s perspective, the structure and governance of the proposed board was a recurring theme.

The industry groups have sought to create an apolitical body in the new non-governmental organisation that will administer funds based on the R&D projects’ merit. That puts what would be $500m in annual revenues out of the IMO governments’ reach.

Countries questioned how an autonomous IMRB would operate from a legal perspective and in practice. Some asked whether there was even a need for the creation of an independent body.

Others also raised issues around intellectual property rights of the technologies that IMRB projects might create, while some emphasised that the goals of the organisation may need to be more clearly defined

Many countries also advocated that a portion of the revenues be set aside to support small island developing states and least developed countries.

The feature that attracted the greatest scrutiny though, was the mandatory nature of the $2 per tonne of fuel levy.

Greece was one of the most supportive governments of the IMRB arguing the fund helps deliver a global set up that will ensure a level playing field in international shipping.

“We favour mandatory contribution per tonne of fuel purchased because it incentivises fuel optimisation of existing fleet, it avoids connotation with double or triple taxation of activities and it is by far more equitable for a cyclical industry as it directly relates with the actual operation of the ship,” the Greek delegation said.

Japan also welcomed the proposal, urging IMO member states to start work on its finalisation.

Malta said the proposal was “commendable,” though called for some clarifications.

Since unveiling the proposal at the end of 2019, sponsors have at various times sought to make clear that this is not intended to be a market-based measure that will penalise fuel oil use but rather an R&D funding exercise, though it could offer some of the architecture for such a measure in the future.

The widespread acknowledgement that a $2 levy is insufficient to stimulate a move away from fossil fuels or create demand for alternatives supports the claim.

Market-based measures remain a highly controversial subject for the IMO and just a day earlier countries at MEPC showed sharp divisions in their willingness to even begin of considering them as a tool to cut emissions.

Thursday’s debate conveyed that while understanding and recognising the intention and theoretical difference, some governments do not see much material difference or believe the two issues are very closely linked.

Finland said the contribution should be raised from the proposed $2 per tonne of fuel given the financial requirements of decarbonisation.

China, on the other hand, said the proposal was not mature enough in its current form. The development of zero emissions fuels is a commercial matter and the IMO’s priority should be ensuring all countries benefit from technological advancement, it said.

Other European Union countries were generally supportive of the proposal, with some raising questions about the governance and the fund’s exact goals.

Several EU countries and some non-EU countries, however, insisted that the proposal be considered in the context of mid- and long-term measures, in a redux of Wednesday's talks on market-based measures, which they want to begin immediately.

“We believe the discussion on this proposal needs to be linked to the broader discussion of the next package of measures... and with an eye on the mid- and long-term measures,” Norway said.

This effort to bundle the IMRB in a broader discussion is an effort to accelerate the consideration of the mid to long term measures, which include MBMs.

But like the contentious debate on market-based measures, other governments took greater issue with the mandatory nature of the $2 per tonne payment, many of them tying it to potential impacts on states.

The US said while it was still considering the proposal, it has substantial concerns about the mandatory levy and cannot support such funding obligation through the IMO. Alternative funding options are needed for the proposal to move forward.

Brazil, one of the countries that had been opposed to starting market-based measure talks, did acknowledge the $5bn fund sponsors’ intention for the measure not to be market based.

“However, it is our belief and concern that in practice this charge will act a de facto carbon tax, thus penalising shipowners especially those who operate in remote areas far from their destination markets,” its delegation said.

Argentina and Chile also made similar points on the implications of the levy especially for distant countries.

The United Arab Emirates said any market-based proposal should be discussed with other mid- and long-term measures. It supported the establishment of an IMRB but with a voluntary levy.

India further claimed that the mandatory levy could hamper the shipping industry and even make it potentially uncompetitive compared to others.

Russia warned that mandatory levies would be disadvantageous for shipowners with longer haul voyages or operating in regions where weather conditions or presence of ice mean higher fuel consumption.

Russia’s delegation also said it would be unable to support the mandatory payment if questions about “fair and equal access” to the technology emerging from the IMRB were not addressed.

The deliberations will continue with new proposals on the idea expected to come next year ahead of the next MEPC in June 2021.

If this week is any indication to go by, they will last well beyond that.

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