June 29 2009 09:58 AM

Since the Kyoto Protocol was ratified in 1997, carbon emissions have been making headlines. 2007 marked the 10-year anniversary of Kyoto, and the protocol’s signatory countries must meet their carbon emission reduction targets between 2008 and 2012. With increased celebrity attention, the release of Al Gore’s popular documentary An Inconvenient Truth in 2006 and Gore’s subsequent Nobel Prize win, and the recent introduction of cap and trade legislation in the US House of Representatives, public awareness in the US about climate change has never been higher.

Emissions associated with shipping had largely gone unnoticed and unregulated until 2005, when lobbying groups began arguing for international regulations for the industry. However, even in the European Union, where groups had been working to regulate the industry for several years, governments were finding it difficult to effectively regulate an industry that crosses so many oceans and borders. The United States’ Environmental Protection Agency (EPA) began studying particulate emissions associated with truck, train, marine and air shipping in the late 1990s. The EPA found that truck and rail transport consume 35 billion gallons of diesel fuel each year, and that the particulate matter caused by truck and rail transport alone has had a dire effect on both the environment and human health, with respiratory problems and significant numbers of premature deaths blamed on shipping related particulate emissions. Since then, the EPA has created numerous programs to help curb particulate emissions and to make all forms of transport more fuel efficient. 

With shippers’ particulate emissions now under increased regulatory scrutiny, focus is shifting toward non-particulate emissions, especially carbon dioxide, the gas most responsible for global warming. With a successor to the Kyoto Protocol being negotiated as we speak, the regulation of greenhouse gas emissions from shipping is probably coming soon, so shipping companies of all kinds and sizes need to get prepared.

Developed countries such as the U.K. that have signed the Kyoto Protocol have established aggressive emissions reduction targets and already have several years’ experience with carbon trading (aka “cap and trade”) schemes. The basic premise of cap & trade is that national governments allocate or auction pollution permits (called allowances) to every regulated emitter – which are typically large industrial point-source emitters. The number of allowances issued every year gradually declines, resulting in an overall, gradual decline of carbon emissions. This is the “cap.”

Although “cap and trade” was first used here in the US, to reduce acid rain pollution, the U.S. did not sign the Kyoto Protocol, so there still isn’t a domestic cap & trade system. Nevertheless, greenhouse gas emissions and their environmental impacts have become increasingly worrisome to government officials, the public, and many companies. Consequently, a voluntary carbon market has emerged in the U.S. The voluntary market includes both the Chicago Climate Exchange, which launched in 2003, and a growing “over-the-counter” market that exists independently of the Chicago market and involves the sale of international and domestic carbon offsets. 

The Chicago Climate Exchange (CCX) is an exchange-traded, legally-binding, voluntary greenhouse gas (GHG) market. CCX members have committed to reducing their emissions by 4% and 6% by 2006 and 2010 respectively, relative to their 1998-2002 average. Members can purchase allowances from other members or credits from approved offset activities in order to meet their reduction commitments. 

Unlike the CCX, the over-the-counter segment of the voluntary market is not exchange-traded, and the tons that are traded aren’t commoditized. Buyers in the over-the-counter market consists of companies, organizations and individuals that want to reduce or offset their carbon footprint voluntarily. These voluntary buyers generally purchase offsets verified to the Voluntary Carbon Standard, the Gold Standard or the The Climate Registry standards. They also tend to place a lot of emphasis on the social and environmental co-benefits of the projects.

The voluntary carbon market is growing quickly. In 2006, Settelmyer says, the worldwide voluntary market was estimated at 24 million tons valued at just under $100 million, split roughly evenly between CCX and the over-the-counter market. “There’s a lot of activity in the voluntary carbon market among what people call corporate social responsibility or CSR buyers – companies that want to project a green image by offsetting emissions - but then you’ve also got a lot of growth being driven by businesses that are giving consumers the opportunity to offset emissions related with an event, a product, or a lifestyle,” Settelmyer says.” According to a previous ICF International study, demand for voluntary carbon offsets is expected to reach 400 Mt/CO2e per year by 2010.

The voluntary carbon market exists even in those countries where carbon is regulated. The emissions generated by certain industries, such as media, software development and shipping, are currently not subject to caps under the European cap & trade system, , but companies like News Corporation and Google are participating in the carbon market by purchasing offsets and reducing their carbon in a public relations-driven effort to reduce their environmental impact or even go “carbon neutral.”

Climate Legislation Catches up to Shipping Industry
A few leading global transportation companies see carbon offsets that compensate for shipping-related emissions as a way to do something now, rather than waiting for the slow wheels of legislation to turn. (Cite Maersk; FedEx, UPS, First Global Direct; others). and, in conjunction with legislation, innovation, and corporate responsibility can help to mitigate the impacts of the shipping industry. 

Efforts to cap commercial aviation-related carbon emissions are already moving forward in the European Union, and before long other transportation-related emissions, including shipping, will likely be limited in much the same way that carbon emissions are already capped in many other sectors. In the U.S., meanwhile, some state governments are looking into requiring the use of cleaner fuels for marine shipments, and initiatives like the E.P.A.’s SmartWay Transport program are funding new technologies to make trucks more fuel efficient -- and to help government agencies and companies purchase hybrid and biodiesel trucks. 

Environmental groups are lobbying state and national governments to more closely regulate shipping emissions, but regulating international shipping is tricky. Regulating emissions for trucks within one country’s borders is fairly straightforward, but regulating shipping emissions between countries is nearly impossible, so in order for such laws to be effective, international cooperation is essential. Otherwise, any country that proposes a crackdown on emissions draws immediate criticism for “unilateral” action that affects an international industry. In the U.S., California drew such criticism for attempting to require ships coming within 24 miles of its coast to use cleaner, low-sulfur fuels. Although federal courts ruled that the state’s proposed requirement preempted the federal Clean Air Act and thus couldn’t stand, many believe that it’s only a matter of time before other ports attempt to enact similar regulations. The California petition was the first to invoke the landmark ruling of the Supreme Court earlier in early 2007 in Massachusetts vs. EPA, in which the Supreme Court ruled that the EPA has the authority to regulate greenhouse gas emissions, and most believe it won’t be the last.

Still, an international agreement is not likely far off. An EU directive ratified in December 2005 stipulates that EU ships must use fuel with no more than 0.1 percent sulfur by 2010. However, as of late 2007 maritime emissions, which are among the largest contributors to shipping-related pollution and health problems, still do not fall under the Kyoto protocol. In April 2007 the EU Commission began drafting legislation that would address shipping industry emissions by including the sector in Europe's Emission Trading System, the pan-European carbon dioxide cap-and-trade system instituted shortly after the EU member countries signed the Kyoto Protocol. 

Voluntary Actions Anticipate Carbon Regulations
With the global shipping market projected to triple by 2020 and ever more shipping emissions regulations on the horizon, a few shipping companies are already taking action. For example, in late March, 2009, Maersk Logistics began offering a portfolio of environmental services to its clients, including a supply-chain carbon footprint calculation, and carbon credits from greenhouse-gas reduction projects. 

Jason Sperling is the Managing Director of GreenWorld. Steve Gutmann is Senior Commercialization Manager at EcoSecurities. GreenWorld, and its parent company RED, unveiled the GreenWorld web application platform (greenworldapps.com) in March 2009 with the mission of becoming the leading carbon market web application solution for companies and their customers. By emphasizing simplicity, scalability, and ease of use, GreenWorld helps consumers offset carbon emissions, and helps businesses gain increased customer loyalty and satisfaction. EcoSecurities is one of the world's leading companies in the business of sourcing, developing and trading carbon offsets. EcoSecurities structures and guides greenhouse gas emission reduction projects through the project cycle, working with both project developers and buyers of carbon offsets. A sample of voluntary offset projects can be viewed at www.ecosecurities.com/projectnet