MEPC80 - this is not the end.... but it is, perhaps, the end of the beginning.

Written by?Laurids M?hl Schack & Peter Jonathan Jameson

To start, lets rewind to Thursday July 6th to examine the state of the maritime industry, which MEPC80 sought to help: The shipping industry, like every other, faces the urgent need to decarbonize for the sake of our planet. However, there is a significant amount of uncertainty and a lack of robust regulation, leading to widespread paralysis among industry actors in terms of making investments, taking risks, and committing to sustainable practices. Furthermore, the industry's current ambitions have not been aligned with the Paris Agreement.

An uneven and unequal playing field remains, leaving smaller players without the necessary resources and scale to take action. To address these challenges, the industry is desperately in need of global regulations that include; clear targets, market-based measures, and transparent guidelines on emissions across different fuels, similar to the EU's Renewable Energy Directive (RED III) and FuelEU Maritime.

Did the MEPC80 indeed alleviate these challenges? The short answer is: No, not entirely.

Now, let’s look at why.?

When we examine the outcome of MEPC80, there has been a lot of positive media coverage and celebration across the industry. The IMO has indeed made significant progress since stating in 2015 that the industry should not be subject to emissions limits, to in 2018 introducing targets to cut emissions in half by 2050, till today where targets align with the Paris agreement. Getting to today is no small feat, heroically carried out by both governments, organizations and NGOs. However, upon closer inspection of the outcome, MEPC80 can also be considered a missed opportunity and rather disappointing, given what could have been:?

We now have "Net Zero" targets, however these targets lack specificity, using vague phrasing like "by or around 2050," as well as lacking binding intermediate targets, rather we got “indicative checkpoints”. Targets alone are a step on the journey, yet standalone insufficient in a very global and fragmented industry, which require financial incentives or coercive regulation to drive action not only in the top, but across the long tail of owners.??

In addition to targets, it is encouraging that the IMO has mentioned the introduction of "mid-term measures," likely to come into force by 2027. These measures include carbon pricing and fuel standards. However, these ideas are not new nor surprising, and we continue to lack necessary details and clarity driving the financial incentives to create a level playing field for all participants, regardless of their size or resources.

As a real world example, the lack of details around fuel standards can hinder investments in fuel production plants due to uncertainty about whether a certain feedstock qualifies as green. Similarly, the absence of details regarding the size and structure of a carbon price can hold back investments in both vessels and green technology.

Even after MEPC80, investment decisions within the industry continue to rely on assumptions and scenarios.??

This lack of progress from the IMO can largely be attributed to some nations prioritizing their individual interests over the fight against climate change, such as relying on cheap export costs or low-value cargo.

It serves as a reminder that the views of the IMO are no more than the weighted average of the member nations’ views.?

In summary, the outcome of MEPC80 does not alleviate the challenges faced by the shipping industry prior to the meeting. While it represents progress, it is still disappointing considering the potential for more substantial action. Looking at initiatives like the EU's FuelEU Maritime, Renewable Energy Directive (RED), and ETS provides a clearer picture of what could have been achieved. It is not unreasonable to consider the outcome disappointing, as the industry continues to face uncertainties and lacks the necessary clarity to drive investments and transformative action.?

Moving forward, the outcome of MEPC80 maintains uncertainty for ship owners, operators, and the broader ecosystem, which cascades into their respective supply chains. As a result, investment in areas such as fuel supply, vessel orders, and technological research and development will be further hindered.

However, the outcome still presents an opportunity for frontrunners in the industry to gain a competitive advantage by proactively adopting sustainable practices. This is because cargo owners will face continuous pressure to decarbonize regardless of IMO. Essentially, we are left at the mercy of market dynamics, where individual players in the shipping industry seek to create and profit from the competitive advantage available. Additionally, we should expect to witness more ambitious regulations at the country or regional level, similar to what we have seen in the past with the EU and potentially the United States. This further adds to the uneven tapestry for the industry to navigate.?

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Looking ahead to the next MEPC, we can only hope for more bold actions, including clarity and clear incentives and enforcement to guide the industry towards a sustainable and decarbonized future. However, given the past week’s MEPC80 conclusion, one could fear that talks in 2024 once again would fail to deliver the needed clarity on incentives and enforcements as these mid-term measures have been under review for some time.

We are only reaching the end of the beginning towards creating a credible plan to decarbonize shipping – we missed the chance to fast-track ourselves into the beginning of the end.?