The maritime sector is combating climate change through comprehensive decarbonization measures. Ports are strategically positioned to lead the drive towards greener shipping, designing new fuel infrastructure and addressing emissions from transportation and industrial cluster activities. The impact of ports is significant, especially considering their proximity to residential areas, which underscores the importance of their environmental impact.
Negative environmental impacts associated with ports include air and water pollution, solid and liquid waste from ships and cargo, noise, dust, and harmful aquatic organisms from ballast water, all of which can have detrimental effects on biodiversity. Additionally, the visual and olfactory impacts from port activities, such as the stacking of bulk cargo and containers and continuous artificial lighting, pose challenges, particularly in urban areas. Heavy traffic and congestion around ports also contribute to public health concerns.
However, ports and port cities are taking proactive measures to maximize economic benefits while mitigating negative impacts. City-led initiatives to decarbonize and improve port operations offer opportunities to reduce emissions and enhance public health by promoting cleaner air. These are being taken alongside implementing current and forthcoming regulations, accelerating efforts to address emissions within the maritime sector.
In this blog post, we look into the regulations, cutting-edge technologies and collaborative endeavors shaping the landscape of effective port emissions reduction.
Maritime Decarbonization Regulations and Targets
Ports interact with many entities depending on the nature of operations, port emissions and decarbonization, extending beyond their port-related emissions sources. They also need to engage with national and local governments, port authorities, ship owners and charters, logistic partners, and indirectly, the cargo owners when looking at decarbonization and net zero. This also applies to ports that have cruise and ferry services.
The graphic below is based on the scope of a landlord port (cargo operations handled by tenants). The GHG emission categories have been grouped into Scopes 1, 2 and 3. For an operating port (cargo operations dealt with by the port itself), the sources shown in Scope 3 in the figure would be considered under Scope 1. Emissions from the generation of purchased electricity will be Scope 2 or Scope 3 emissions, depending on the ownership of the electricity-consuming operation; an operating port will have relatively more Scope 2 purchased electricity emissions than a landlord port.
Introduction to EU and IMO Regulatory Standards for Air Quality and Carbon Performance in the Maritime Sector
The European Union (EU) has established itself as a global leader in decarbonization regulation with a strong environmental commitment and ambitious goals. Having a cohesive framework of local, regional, national and international regulatory agencies, it is playing a pivotal role in shaping policies for air quality, carbon performance and emissions reduction not just in Europe but also globally.
The International Maritime Organization (IMO) is a global UN authority that sets regulations that influence and guide the practices of maritime entities worldwide.
The intersection of EU and IMO regulations creates a comprehensive regulatory landscape for the maritime industry. As we delve deeper, we’ll explore the intricacies of these dual regulatory standards and their profound impact on advancing sustainable practices in the maritime sector.
The IMO aims to achieve net-zero GHG emissions from international shipping by or around 2050, with indicative checkpoints for 2030 and 2040.
Both the EU and the IMO seem to have overly focused their regulations on the vessels, as they are the primary sources of emissions. However, emissions become a direct health factor for nearby communities during the port stay. Also, the EU and IMO are member-state-driven organizations, meaning the owners and charterers have no direct interaction with the IMO or EU. The table below demonstrates the unbalanced regulatory landscape, with very little regulation directly targeted at ports.
IMO, EEXI (Energy Efficiency Existing Ship Index)
Since 1 January 2023, it has been mandatory for all ships to calculate their attained EEXI to measure their energy efficiency. This will then be compared against the required EEXI, determined by ship type, engine and capacity, and the maximum acceptable attained EEXI value. All vessels must have an EEXI Technical File on board. If non-compliance, the ship may be issued a Condition of Authority.
Compliant ships receive an International Energy Efficiency Certificate (IEEC).
The IMO Marine Environment Protection Committee (MEPC) intends to review the effectiveness of the EEXI measures by 1 January 2026 and possible amendments may be made accordingly.
IMO CII (Carbon Intensity Indicator)
The CII (Carbon Intensity Indicator) system aims to enhance a ship’s energy efficiency by setting stricter emission targets each year. This involves a yearly assessment of a ship’s actual carbon emission performance, with monitoring beginning on 1 January 2023.
To be eligible for the CII rating, ships must have a SEEMP Part III (a specific section of the Ship Energy Efficiency Management Plan supporting CII targets) prepared by 31 December 2022.
Starting 1 January 2024, a Statement of Compliance containing information about fuel consumption and CII-related data will be issued.
To ensure adherence to SEEMP Part III and CII requirements, the ship’s flag administration is responsible for conducting periodic audits. These audits may include annual reviews of the company, additional shipboard verifications, and company audits occurring at least every six months after the issuance of the Statement of Compliance.
European Regulation
FuelEU Maritime
The recently adopted FuelEU Maritime regulation sets reduction requirements at five-year increments until 2050 (against the 2020 reference value).
The yearly average GHG intensity of the energy used on-board a ship shall not exceed the following limits:
- 2% from 1 January 2025,
- 6% from 1 January 2030,
- 14.5% from 1 January 2035,
- 31% from 1 January 2040,
- 62% from 1 January 2045,
- 80% from 1 January 2050.
EU MRV (Monitoring, Reporting, and Verification)
The EU MRV (Monitoring, Reporting, and Verification) regulation, a framework and process for monitoring, reporting and verifying greenhouse gas emissions from maritime transport activities, was amended on 10 May 2023, marking a significant development in the inclusion of maritime transport activities within the EU Emissions Trading System. This amendment also introduced protocols for the monitoring, reporting and verifying emissions related to additional greenhouse gases and newly encompassed ship types.
- Monitoring: Shipping companies are required to monitor and collect data on their vessels’ emissions, including carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O). This is typically done using designated tools and systems, such as the THETIS MRV module.
- Reporting: Companies must compile and report the collected emissions data to regulatory authorities. This includes submitting detailed reports on their ships’ CO2, CH4, and N2O emissions.
- Verification: The accuracy and completeness of the reported data are subject to verification by accredited assessors who independently evaluate monitoring methodologies, data collection processes and overall adherence to regulatory requirements.
The MRV framework ensures transparency and accountability in tracking and reporting emissions, providing a basis for regulatory oversight and developing emission reduction strategies.
ETS (Emissions Trading System)
Emissions trading schemes work on the ‘cap and trade’ principle, where a cap is set on the total amount of certain greenhouse gases that sectors covered by the scheme can emit. This limits the total amount of carbon that can be emitted, and it decreases over time.
The EU ETS is a market-based approach to controlling pollution by allocating a limited number of emission permits to entities, such as companies or industries. In the EU MRV regulation context, the ETS is extended to cover maritime transport activities. The EU ETS has a phased-out implementation process starting 1 January 2024.
- In 2024, stakeholders will be required to buy and surrender allowances for 40% of their verified emissions for intra-EU voyages and 20% of their emissions for voyages into or out of the EU.
- In 2025, this increases to 70% of emissions for intra-EU voyages.
- In 2026, the figure will reach 100% of emissions for intra-EU voyages and 50% for voyages into or out of the EU.
By 30 September each year, Shipping Companies will be required to surrender their allowances from the previous year under the EU ETS.
The inclusion of shipping markets in the EU ETS at the start of 2024 has added $10,000-$100,000 in carbon emission offset costs to dirty and clean tanker round-trip voyages from the US Gulf Coast to EU and European Economic Area ports (source S&P Global).
How does the CSDDD differ from CSRD?
There are several similarities between the CSDDD and the Corporate Sustainability Reporting Directive (CSRD). Both directives concern sustainability, but the CSDDD targets upscaling supply chain due diligence. The CSRD, on the other hand, is fully focused on sustainability reporting to increase transparency from companies operating in the EU. The two directives are not mutually exclusive and are intended to be applied in tandem by companies that fall under both scopes.
The Corporate Sustainability Due Diligence Directive (CSDDD)
This will require firms to alleviate the negative impact of their activities on human rights and the environment by tackling forced labour and global warming. The Directive will have an immense reach, with the EU expecting it to impact about 13,000 countries within the EU and around 4,000 elsewhere when fully implemented.
But Member states have compromised and approved a significantly scaled-back version to the one intended, reducing the number of companies it will impact by raising the thresholds of those covered by the new legislation to 1,000 employees, up from 500, and those with revenue greater than €450 million, up from €150 million.
The new thresholds will cut back the number of companies in the scope of the CSDDD by roughly two-thirds. Lower thresholds that had been in place for high-risk sectors were also removed, with the possibility to be reconsidered later. It is fair to say companies should take heed of the original intentions as they are only stalled and have not been removed entirely from further updates to the directive. Non-compliance could lead to fines of up to 5% of a company’s net global turnover.
The Directive comes with seven key requirements companies must meet.
- Centering social and sustainability due diligence as a key element in policy development and implementation.
- Identifying the current and potential adverse impacts on the environment and human rights from operations and the operations of all subsidiaries and supply chain partners.
- Actively mitigating the identified risks within the company and its supply chain.
- Creating an action plan and accompanying timeline to address identified risks.
- Establishing formal grievance mechanisms for employees and stakeholders.
- Aligning business model and future strategy with the Paris Agreement’s 1.5°C target.
- Publicly publishing sustainability reports with a focus on due diligence.
As companies prepare for the CSDDD to come into effect, leaning on technology is one way to efficiently tackle the new reporting burden without relying on overly complex and inefficient manual processes.
Corporate Sustainability Reporting Directive (CSRD): A Paradigm Shift
The EU’s Corporate Sustainability Reporting Directive (CSRD) is a groundbreaking example of mandatory reporting. While currently applicable to EU companies, this directive sets a precedent for global sustainability reporting standards. The CSRD requires companies to record and report greenhouse gas emissions under Scope 1, 2, and 3 to foster transparency and accountability.
While Scope 1 and Scope 2 emissions are within the control of the port, Scope 3 involves indirect emissions from port users, emphasizing the collaborative effort required for comprehensive port emissions reduction.
EU lawmakers have approved a 2-year delay in implementing CSRD reporting for non-EU companies and specific sectors, extending the reporting timeline for companies headquartered outside of the European bloc until 2026 to begin complying with the CSRD. But, businesses should not be compliant as this will be fully implemented.
Five steps to prepare for CSRD
- Perform a thorough legal entity analysis to understand which entities are in each scope. It might be prudent to get a second opinion – this must be accurate. If you get this wrong, you will use a baseline for the entire program based on incorrect assumptions.
- Decide which reporting strategy will best meet your business needs – for example, do you report at a group level, EU consolidated, or individual in-scope legal entity level? This will depend on the outcome of your scoping analysis and the nature of your business.
- Map out your value chain, including all direct and indirect business relationships, upstream and downstream. Make sure this is extremely thorough, as it is vitally important to double-check and triple-check it.
- Develop a way of evaluating and analyzing the data points that must be reported.
- Assess the gaps in meeting the European Sustainability Reporting Standards (ESRS) requirements. Use this as the basis for creating an implementation plan which establishes practical ways to align with the reporting requirements.
Drivers of Change: Collaborative Port Ecosystems, Technology and Innovation
Beyond regulatory shifts, industry players, customers, and stakeholders are also influencing demand for decarbonization. The collaboration between cargo-owning companies, manufacturers, retailers, and investment banks that influence sustainable shipping practices is critical for promoting environmental responsibility for their business.
Port authorities can leverage regulatory power to drive change further. Incentives and disincentives, including discounted or increased port dues based on environmental standards and systematic measurement and reporting of emissions, contribute to green shipping compliance.
Technology and innovation are playing critical roles in decarbonization efforts, offering alternative fuels, green shore power and operational efficiencies. In addition, the electrification of port infrastructure and effective data utilization for enhanced emissions monitoring and calculation are vital for ports to comply with green shipping regulations and foster sustainability.
Towards a Sustainable Future
As the maritime sector embraces decarbonization, regulators are recognizing ports as powerful catalysts for change and critical partners in reaching global emissions reduction goals. With regulatory frameworks in place and the commitment of stakeholders, the necessary journey towards a greener future is within reach. Collaborative efforts of regulators, ports and industry players, supported by technological advancements, will pave the way for a sustainable and environmentally responsible maritime sector.
Are you looking for ways to enhance your maritime decarbonization strategies? Start here.
