The MRV Regulation of the EU. Monitoring, Reporting and Verification of Carbon Dioxide Emissions from Maritime Transport

Term Paper , 2017 , 20 Pages , Grade: 1,3

Politics - Topic: European Union

This work examines the substance of the regulation 2015/757 on the monitoring, reporting and verification (MRV) of carbon dioxide emissions from maritime transport of the EU and its basis by the leading question: which regulatory interventions and creative compliance are to be seen behind the MRV regulation and what business case is possible? Therefore, the regulatory intervention in its public and private interest’s dimension is investigated. Moreover, the recent situation of the shipping branch and the ships’ ownership situation (owner-operator relation) are explained. A critical reflection of the regulation and an investigation for creative compliance is given. Concluding, potential business cases and the potential of the market are outlined.

Since July 1st 2015, the European Union’s (EU) regulation 2015/757 on the monitoring, reporting and verification (MRV) of carbon dioxide emissions from maritime transport became effective. According to EU 2015/757 art. 8, from 1 January 2018, ships voyaging to a port of call under the jurisdiction of a member state are obligated to apply to the regulation 2015/757 and must have a MRV system to report their CO2 emissions. By August 31th 2017, all shipping companies voyaging within the EU area are obligated to prepare a monitoring plan for each of their ships (EU 2015/757 art. 6).

Table of Contents

List of Figures

List of Abbreviations

1 Introduction

2 Theoretical Background
2.1 European Legislation
2.2 Regulatory Intervention
2.3 Creative Compliance

3 Essentials of the Marine Industry
3.1 The Branch’s Recent Situation
3.2 Ownership Situation
3.3 Environmental Impact

4 Investigation of the MRV Regulation
4.1 Scope and Purpose
4.2 Regulatory Intervention
4.3 Creative Compliance

5 Business Case based on a Regulation’s Monitoring Method

6 Conclusion and Critical Appraisal of the MRV Regulation

Annex
A-1: Price trend for IFO380 in Rotterdam in the past 12 months

Bibliography

Internet Bibliography

List of Figures

Figure 1: MRV Data Processing and Involved Stakeholders

Figure 2: Price trend for IFO380 in Rotterdam in the past 12 months IV

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1 Introduction

Since July 1st 2015, the European Union’s (EU) regulation 2015/757 on the monitoring, reporting and verification (MRV) of carbon dioxide emissions from maritime transport became effective (EU 2015/757 article (art.) 26). According to EU 2015/757 art. 8, from 1 January 2018, ships voyaging to a port of call under the jurisdiction of a member state are obligated to apply to the regulation 2015/757 and must have a MRV system to report their CO2 emissions. By August 31th 2017, all shipping companies voyaging within the EU area are obligated to prepare a monitoring plan for each of their ships (EU 2015/757 art. 6).

The global commercial shipping of goods and passengers offers untapped potential to reduce CO2 emissions by up to 25 to 75 percent¹ by renovating and applying existing technologies to increase efficiency.

Considering the urgency of the regulation’s requirements, this paper examines the regulation’ substance and its basis by the leading question: which regulatory interventions and creative compliance are to be seen behind the MRV regulation and what business case is possible? Therefore, the regulatory intervention in its public and private interest’s dimension is investigated. Besides this, the shipping branch’s recent situations and the ships’ ownership situation (owner-operator relation) are explained. A critical reflection of the regulation as well as an investigation for creative compliance is given. Concluding, potential business cases and market’s potential are outlined.

2 Theoretical Background

This chapter provides introductory background about the European legislation. Furthermore, regulatory intervention and creative compliance are defined.

2.1 European Legislation

The regulation EU 2015/757 amends the directive 2009/16/EC on port state control. The EU’s legislation consists of different legal acts, which are binding or non-binding for some EU member states or all of them. Regulations and directives as well as decisions, recommendations and opinions are forming the EU’s legal instruments.

Both, regulations and directives are binding legislative acts, which must be applied in all member states. However, directives are aiming for a certain goal, which must be achieved by all member states. The EU countries can decide on their own how they implement the directive in their national legislation. On the contrary, this legal freedom is not incorporated in the EU’s regulations. All member states have to apply the regulation in its entirety.²

Therefore, the directive 2009/16/EC is applied by each member state on an individual level but the regulation EU 2015/757 must be implemented as it is originally stated.

2.2 Regulatory Intervention

The public interest theory expects unregulated markets to fail due to monopolies and externalities. Furthermore, it underlies the assumption of a government’s capability to correct market failures imposing regulations.³ According to Mitnick⁴, “regulation is the public administrative policing of a private activity with respect to a rule prescribed in the public interest.” Regulation is restrictive, pointed at private interests and per se in favour of public interest.⁵ Public interest theory is criticised because markets and private orderings can regulate most market failures themselves. In case they cannot regulate them on their own, private litigations can solve the issue whereas governmental regulations exacerbate most failures.⁶

Public choice theory transfers the methods and relations of economies especially the behaviour of individual participants to the political or governmental sector.⁷ Thus, there is no single public interest and self-interest motivates people’s choices. Therefore, voter’s, lobby groups’, politician’s and official’s decision-making processes underlie the mechanisms of economies.⁸

Nevertheless, public and private interests are interacting. Interest groups collide especially if states defend public interest e.g. reduction of CO2 emissions, against private interest e.g. rent seeking enterprises⁹ or lobbying.

2.3 Creative Compliance

Creative compliance allows the affected party to use laws and as to escape their regulatory control and purpose without violating them.¹⁰ In the EU’s legislation, creative compliance occurs if a member state does not completely apply a regulation or directive. The enforced law is adopted to the codes of law but is not put into force or controlled by the member state. Therefore, the violator’s objectives are fulfilled aligning to the law but simultaneously not putting it into force. The establisher’s objectives aimed at are legally complied to but the violator defies the law’s purpose.¹¹ Thus, the law fails to capture and control the issue it was created for.

3 Essentials of the Marine Industry

This section investigates the recent branch’s economic situation and features. Besides this, the complex ownership situation of a ship is examined and the shipping industry’s global environmental impact is presented.

3.1 The Branch’s Recent Situation

Recently, the insolvency and liquidation of Hanjin Shipping, formerly seventh largest shipping company, has caused worldwide insecurity in the maritime transport market.¹² The company suffered from declining fright rates, ship oversupply and missing global economic prosperity.¹³ International shipping has to face serious cost pressure due to declining fright rates. In 2016, the World Container Index (WCI) quoted at its lowest reading ever at 701 US-Dollars (USD) per 40-foot container. Additionally, the WCI has decreased by 62 percent in the last year.¹⁴ Furthermore, IFO380¹⁵ fuel prices per metric tonne increased by almost 200 USD from 137 USD to 315 USD in the past 12 months (see annex A-1).¹⁶

Since January 1st 2017, the Maritime Port Authority of Singapore requires bunker tankers to be equipped with mass flow metering systems to accurately measure the bunkered amount of marine fuel oil (MFO). This requirement was introduced to increase transparency¹⁷ and regain trust due to several cases of corruptive and illegal behaviour of suppliers and operators.¹⁸ Frequently, ship operators are averagely provided with 3 to 4 percent less than the arranged amount¹⁹, the fuel is contaminated or of poor quality.²⁰

3.2 Ownership Situation

Naturally, vessels are managed by several firms responsible for certain tasks but are owned by one company/owner. The registered owner holds the legal title of ownership of the vessel and is mentioned on the vessel’s registration documents. The technical managing company is responsible for the ship’s technical operation, thus it has to purchase spare parts or repairs. Furthermore, there is the commercial manager as a company coordinating and leading daily business e.g. charter clauses, insurance or laytime.

The operating company decides how and where the vessel is employed. This company does benefit from the operation’s profits as it decides on bunkers and port services. Charterers are taking over the role of the ship manager if they charter the ship on a demise charter, controlling all operations, costs and responsibilities for a certain contractually fixed period.²¹ They charter the ship’s transporting capacity either partly or wholly. In this case (bareboat charter), the charterer pays all costs associated with the ship’s operation e.g. fuel, crew and the ship owner is responsible for the asset depreciation and capital cost amortization.²²

A company can be operator and technical manager at the same time. Depending on the ownership situation, the market fails to implement energy efficiency or fuel saving measures due to split incentives. Split incentives let stakeholders profit from e.g. fuel saving whereas they are not paying for them.²³

3.3 Environmental Impact

Globally, the International Maritime Organization (IMO) is a United Nations agency acting as a driver to prevent pollution caused by ships.²⁴ The IMO provides the international legal framework to prevent vessel’s pollution.²⁵ In this case, the EU took over control to foster a reduction of CO2 emission.²⁶

An IMO study estimates the increase of emissions caused by maritime transport between 50 and 250 percent until 2050.²⁷ From 2007 to 2012, the average total shipping’s emissions represent 1,015 million (mn.) tonnes (t) of CO2, which account for 3.1 percent of the annual global CO2 emissions. Besides CO2, there are several other GHGs emitted when fuel is consumed e.g. methane (CH4) and nitrous oxide (N2O). All three GHGs combined represent the CO2 equivalent accounting for 1,036 mn. t of CO2. Furthermore, the annual averages for NOx²⁸ was 20.9 and for SOx²⁹ 11.3 mn. tonnes.³⁰ Compared to CO2, CH4 is 25 and N2O is 298 times more potent to increase the greenhouse effect.³¹

4 Investigation of the MRV Regulation

The theoretical introduction and branch’s summary create a basic understanding and form a common ground for a deeper investigation of the MRV regulation’s regulatory intervention and creative compliance.

4.1 Scope and Purpose

The regulation EU 2015/757 aims to integrate maritime shipping’s emissions into EU policy. The long-term goal is to reduce GHG emissions. The regulation requires ships equal to or larger than 5,000 gross tonnages (GT) to monitor, report and verify their CO2 emissions if they call at a member states’ port. Therefore, companies have to prepare a monitoring plan for each of their ships affected by the regulation.

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¹ IMO, Second IMO GHG Study 2009 (London: IMO, 2009), [http://www.imo.org/en/OurWork/Environment/PollutionPrevention/AirPollution/Documents/SecondIMOGHGStudy2009.pdf], accessed February 2017, p. 1.

² European Union, “Regulations, Directives and other acts,“ [https://europa.eu/european-union/eu-law/legal-acts_en], accessed February 2017.

³ Andrei Shleifer, “Understanding Regulation,” European Financial Management 11, no. 4 (2005): p. 440.

⁴ Barry M. Mitnick, The Political Economy of Regulation (New York, NY: Columbia University Press, 1980), p. 7.

⁵ Joergen Gronnegaard Christensen, “Regulierung im Interesse des Gemeinwohls Eine kritische Bilanz,” dms – der moderne staat – Zeitschrift für Public Policy, Recht und Management 1 (2012): p. 168.

⁶ Andrei Shleifer, “Understanding Regulation,” p. 440.

⁷ James M. Buchanan and Robert D. Tollison, The Theory of Public Choice II (Ann Arbor, MI: The University of Michigan Press, 1984), pp. 12-13.

⁸ Eamonn Butler, Public Choice – A Primer (London: The Institute of Economic Affairs, 2012), pp. 15-17.

⁹ Joergen Gronnegaard Christensen, “Regulierung im Interesse des Gemeinwohls Eine kritische Bilanz,” p. 168.

¹⁰ Brian. A. Rutherford, Financial Reporting in the UK: A history of the accounting standards committee 1969-1990 (New York, NY: Routledge, 2007), p.125.

¹¹ Agnes Batory, “Defying the commission: creative compliance and respect for the rule of law in the EU,” public administration 94, no. 3 (September 2016): p. 689.

¹² “Insolvente Reederei wird endültig aufgelöst,” Wirtschaftwoche, February 17, 2017, [http://www.wiwo.de/unternehmen/dienstleister/hanjin-shipping-insolvente-reederei-wird-endgueltig-aufgeloest/19406802.html], accessed February 2017.

¹³ “The fall of Hanjin shipping,” Hellenic Shipping News, 15 December 2016, [http://www.hellenicshippingnews.com/the-fall-of-hanjin-shipping/], accessed February 2017.

¹⁴ “WCI World Container Freight Rate Index Drops to Record Low,” Ship & Bunker, March 11, 2016, [http://shipandbunker.com/news/world/389406-wci-world-container-freight-rate-index-drops-to-record-low], accessed February 2017.

¹⁵ IFO380: Intermediate fuel oil with a maximum viscosity of 380 Centistokes.

¹⁶ “Rotterdam Bunker Prices,“Ship & Bunker, [http://shipandbunker.com/prices/emea/nwe/nl-rtm-rotterdam#IFO380], accessed February 2017.

¹⁷ “MPA: From 2017 Mass Flow Meters Will Be Mandatory in Singapore,“Ship & Bunker, April 8, 2014, [http://shipandbunker.com/news/apac/236132-mpa-from-2017-mass-flow-meters-will-be-mandatory-in-singapore], accessed February 2017.

¹⁸ Peter Levring and Winnie Zhu, “Danish Fuel Supplier OW Bunker Collapses Months After Its IPO,” Bloomberg, December 11, 2014, [https://www.bloomberg.com/news/articles/2014-12-11/marine-fuel-supplier-ow-bunker-collapses-months-after-its-ipo], accessed February 2017.

¹⁹ Insatech Marine, “Bunker Management System,” [http://www.insatechmarine.com/solutions/bunker/bunker-management-system], accessed February 2017.

²⁰ UK P&I Club, “229 – 01/02 – Contaminated Bunkers – Singapore,” January 1, 2002, [https://www.ukpandi.com/knowledge-publications/article/229-01-02-contaminated-bunkers-singapore-1468/], accessed February 2017.

²¹ IHS Fairplay, “Data Definitions – Vessel Types – Owners & Managers,” [http://www.ihsfairplay.com/About/Definitions/definitions.html], accessed February 2017.

²² Evi Plomaritou, “A Review of Shipowner’s & Charterer’s Obligations in Various Types of Charter,” Journal of Shipping and Ocean Engineering 4 (2014): p. 317.

²³ European Commission, “Analysis of market barriers to cost effective GHG emission reductions in the maritime transport sector,” 2012, [https://ec.europa.eu/clima/sites/clima/files/transport/shipping/docs/market_barriers_2012_en.pdf], p. 64, accessed February 2017.

²⁴ IMO, “Introduction to IMO,” [http://www.imo.org/en/About/Pages/Default.aspx], accessed February 2017.

²⁵ Liu Nengye and Frank Maes, “The European Union’s role in the prevention of vessel-source pollution and its internal influence,” The Journal of International Maritime Law 15 (2009): p. 412.

²⁶ European Commission, “Reducing emissions from the shipping sector,” [https://ec.europa.eu/clima/policies/transport/shipping_en], accessed February 2017.

²⁷ IMO, Third IMO GHG Study 2014 (London: IMO, 2015), [http://www.imo.org/en/OurWork/Environment/PollutionPrevention/AirPollution/Documents/Third%20Greenhouse%20Gas%20Study/GHG3%20Executive%20Summary%20and%20Report.pdf], accessed February 2017, p. 4.

²⁸ NOx: refers to NO and NO2.

²⁹ SOx: refers to SO and SO2.

³⁰ Ibid., pp. 1-2.

³¹ Umwelt Bundesamt, “Die Treibhausgase,“ [http://www.umweltbundesamt.de/themen/klima-energie/klimaschutz-energiepolitik-in-deutschland/treibhausgas-emissionen/die-treibhausgase], accessed February 2017.

• College: The FOM University of Applied Sciences, Hamburg
• Course: Business Law
• Grade: 1,3
• Author: Florian Beyer (Author)
• Publication Year: 2017
• Pages: 20
• Catalog Number: V536576
• ISBN (eBook): 9783346126085
• ISBN (Book): 9783346126092
• Language: English
• Tags: Business Law, MRV Regulation, MBA, FOM MBA, FOM Assignment, Assignment, EU MRV Directive, Regulation 2015/757, Regulatory Intervention, Business Case, Shipping Industry, Marine, Schifffahrt, CO2 Emission, Emission Monitoring, Bunkering System, Master of Business Administration, FOM Hamburg, monitoring, reporting, verification, Creative Compliance, Marine Industry, Monitoring Methods, IFO, HFO, Fuel, Hausarbeit, Seminararbeit, FOM Hausarbeit