UK Chamber Brexit Position No.7: Environment

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1 7 December 2017 UK Chamber Brexit Position No.7: Environment The position of the Chamber regarding the United Kingdom regulation of the marine environment after withdrawal from the EU Issue The Government stated in their first future paper concerning the UK withdrawal from the EU that the UK was committed to ensuring [we] become the first generation to leave the environment in a better state than [we] found it. 1 To pursue this objective and to limit commercial operational disruption, the Withdrawal Bill is designed to preserve the current framework of environmental regulation. 2 Furthermore, the Government identifies the withdrawal from the EU as an opportunity to develop a comprehensive approach to improving our environment in a way that is for our specific needs 3 To realise this, the Government has announced that it will establish a new independent regulatory body to ensure a Green Brexit 4 The UK Chamber of Shipping supports the approach of the Government in preserving the environmental regulatory framework for the maritime industry at the time of departure. In recognition of the Governments identification of the withdrawal as an opportunity to improve the environment for our specific needs, this paper will provide guidance on the opportunities for change in maritime environmental regulation. Analysis The withdrawal from the EU means that the UK will no longer be under the jurisdictional authority of the EU in relation marine environmental regulation. But as the marine environment will remain a common European concern, and as the UK will depend on trade transiting EU waters, the UK will still have to concern itself with marine regulations produced in Brussels. For the transition from EU membership to non-membership, the Government s Withdrawal Bill provides for the continuation of current UK observed EU marine regulation. It provides UK shipowners with clarity in what environmental requirements they must comply with in the immediate event of withdrawal. While maintaining current standards, the future direction of marine environmental regulation is free to be determined. 1 HM Government The United Kingdom s exit from and new partnership with the European Union, p. 45 at Climate Change Act, HM Government The United Kingdom s exit from and new partnership with the European Union p. 45 UK National Energy Efficiency Action Plan Dept Energy and Climate Change April 2014 There remains considerable potential for energy efficiency improvements and emissions reductions in the shipping sector. The Government is committed to addressing greenhouse gas emissions from ships by developing and adopting measures at the International Maritime Organization (IMO). 4 Michael Gove, Environment Secretary, 12 th November

2 The relationship with the EU may still determine much UK marine environmental policy in the future. Acceptance of trade terms which correspond with EFTA would require the UK to accept EU marine regulations. If the Government does not agree a deal with the EU on trade which binds marine regulation, then the UK will have more flexibility to pursue an alternative set of environmental policies. The relevant regulations must therefore be considered for review. Air The most advanced set of maritime environmental regulations refer to air pollution. The public emphasis on air pollution that has led to the Paris Agreement, has led to increased emission controls for the shipping sector. 5 The EU has been at the forefront of emission regulation, both within EU waters, and in influencing the environmental agenda at the International Maritime Organisation. The EU MRV (Monitoring, Reporting, Verification) regulation entered into force on 1 July It requires ship owners and operators to annually monitor, report and verify CO2 emissions for vessels larger than 5,000 gross tonnage (GT) calling at any EU and EFTA (Norway and Iceland) port. Data collection takes place on a per voyage basis and starts 1 January This data on emissions produced in UK waters on voyages to and from the UK are reported to the European Maritime Safety Agency (EMSA). In addition to the MRV, the EU Energy Efficiency Directive 6 requires further reporting of a companies estimated carbon footprint. This has been enacted into UK law by the Energy Saving Opportunity Scheme (ESOS). 7 The scheme which is applicable to companies of over 250 staff or 38 million in turnover, overlaps with MRV in double-counting the effect of ship emissions. The scheme can enforce penalties of up to a combined 150,000 for non-compliance. It had been mooted that shipping be exempt from the scheme, however, there are no current plans for a change to current reporting responsibilities. The confluence of IMO and EU actions can be identified in Sulphur and Nitrogen oxide emission regulation. The EU has led initiatives on restricting the emittance of such particles through the EU Sulphur Directive which gold plated MARPOL Annex VI and the EU National Emission Ceilings Directive 8 which has now been validated in the IMO NOx Technical Code The delimitation of SECA areas in the North Sea and Channel and the UK agreement to NECA zones covering the same region from 2021, will remain binding after the UK withdrawal from the EU. Another initiative which the EU has developed is the Emission Trading Scheme (ETS). This has not been extended to shipping, and the EU has recently deferred consideration of its inclusion until This deferral by the EU is on the understanding that the IMO agrees new more robust measures which follow Paris Agreement limits. Therefore, if no substantial progress is made, then shipping may be included in the costly and confusing trading system after Sea Below the waterline, marine regulations have become increasingly demanding. The Water Framework Directive (WFD) which came into force in the UK in 2000 involves several considerations for the maritime industry. 9 The first consideration relates to the disconnect between the WFD and the Sulphur Directive. To comply with the sulphur directive, the use of open loop scrubbers is required within UK territorial waters. However, the use of such scrubbers would therefore contravene the requirements in the WFD restricting the discharge of water in such areas. The effect of such discharge has been identified as innocuous and the result is a costly disincentive 5 Paris Agreement 6 EU Energy Efficiency Directive 2012/27/EU 7 HM Government, 8 EU National Emission Ceilings Directive (NECD) (2001/81/EC) 9 European Commission: 2

3 for scrubbers. The WFD also regulates the management of ballast water in conjunction with IMO Ballast Water Convention requirements, and has added further limitations to the development of onboard and portside infrastructure. The EU Biocides Regulation 528/2012 was adopted in 2014 to address the negative effects of antifouling paints. 10 The regulation restricts the placing of biocidal products on the EU market. However, shipping is already regulated under the 2001 International Convention on the Control of Harmful Anti-Fouling Systems on Ships (AFS Convention) which is implemented in EU Regulation 2009/ This leads to the inefficient situation where there are two regulations proscribed to solve the same problem. This causes confusion in operational implementation and compliance. While the UK will only regulate the coating of ship hulls by reference to the IMO AFS Convention, UK ships calling at EU ports will still require clarification on which EU regulation to comply with and the withdrawal from the EU will have little effect on this. The EU Port Reception Facilities Directive is presently being discussed as a potential stricter regulation to MARPOL Annex V. 12 The UK Government has expressed its opposition to this directive and following the withdrawal from the EU, this could be amended or removed. Infrastructure The EU Ship Recycling Regulation (EUSRR) came into force in December It contains a general obligation for EU flagged ships to be recycled in EU approved recycling facilities. This obligation applies six months after the combined output of the EU recognised ship recycling facilities is 2,5 million LDTs (lightweight tonnage), or latest by 31 December Furthermore, Article 29 of the EUSRR called on the Commission to report on "the feasibility of a financial instrument that would facilitate safe and sound ship recycling and, if appropriate, accompany the report by a legislative proposal". The Commission has now reported and the likelihood of this mechanism being imposed has receded. The Commission may return to consider this issue at a later date and if adopted the charges are likely to be punitive to EU shipowners. There is no obvious practical reason for the UK to remain bound by this regulation, particularly as it is broadly in line with the IMO Hong Kong Convention, though this has yet to be ratified by enough States for it to enter into force. Not being bound by this regulation has the attraction that potentially UK vessels could be recycled outside the EU approved yards and that UK shipowners would be outside the threat of any future EU financial mechanism. Another regulation which has limited the development of shipping in the UK is the Habitats Directive. 14 The Habitats Directive has previously complicated the provision of new vessels calling at UK ports through the consideration of vessels as projects. The policy discriminates against shipping by adding onerous additional restrictions. The provision of shipping services to a port are considered through the safety and environmental regulations related to navigation. The extensive use of the Habitats Directive, to provide further regulations, deters the investment and development of new shipping lines serving the UK economy. 10 European Parliament: 11 European Commission: 12 European Commission: 13 European Parliament: 1257/2013, 14 Joint Nature Conservation Committee: 3

4 Chamber position The UK has been a confident advocate for the elevation of marine environment standards. However, the EU proscription of such standards has not always resulted in the realisation of the most effective regulations. The Chamber supports the Government s commitment to improving the marine environment and the pragmatic approach it is determined to take in its achievement after Brexit. However, the Chamber recognises that the improvement of the marine environment can only be achieved through international cooperation. The Chamber endorses the Paris Climate Agreement and the contribution the shipping industry must make towards its fruition. The crucial detail in this acceptance is the identification of the share of responsibility. The methods which are being used to identify this share are at present skewed against the maritime sector. Shipping is a derived demand and the service which shipping provides to the UK economy is vital. The costs of reducing emissions from this demand should therefore be borne by all participants in that process. In maritime insurance, salvage costs are shared by those involved in the common maritime venture. General Average should be adopted for the preservation of the marine environment. Such an approach will both root transport users concern with their overall environmental footprint, and provide a greater financial resource to fund the new technologies required. The Government should consider the sharing of responsibilities throughout the supply chain when establishing a new independent regulatory body after the withdrawal. The UK withdrawal from the EU may allow for regulatory flexibility in the reporting of environmental actions by shipping companies. This depends on the Government providing a system which allows for UK shipowners to fulfil multiple reporting requirements simultaneously. The risk which the Government must avoid is to create a third set of environmental regulations which overlap with EU and IMO obligations. The current ESOS and Ship s Energy Efficiency Management Plan (SEEMP) overlap is another such example. Ships calling at port in the UK will still be calling ports in Europe, and will therefore have to comply with EU MRV. Therefore, if the Government seeks to establish a new reporting mechanism, it must also be applicable to EU MRV. In leaving the EU, how potential divergence in standards and initiatives is managed will be an ongoing concern for the shipping industry. Whether to include transport work in MRV for instance, will challenge UK ability to act independently in developing new regulations, while allowing UK shipowners to continue calling EU ports. It is important that the Government remain engaged with industry and transparent concerning negotiations with the EU on such issues. Another potential divergence in marine environmental regulation could concern shipping s inclusion in ETS. If the UK chooses not to be part of the EU ETS there is obvious benefit to shipping coming from outside the EU to call into a UK port before entering an EU port as the EU ETS would be charged on the emissions from the last port of departure to the port of arrival in the EU. This provides an opportunity to ports such as Falmouth which already benefit from bunkering schedules prior to entering the English Channel SECA. The UK Government has a good record of taking a pragmatic approach to EU directives. For example, the broader UK interpretation of scrubber discharges has been of assistance to the UK shipping industry. It is hoped that such an approach will continue to prevail post Brexit. Regarding the provision of refuse facilities at port, the UK is currently in the process of transposing the latest international regulations for MARPOL Annex V (garbage) into UK law. If it transpires that the forthcoming amendments to the EU Directive go beyond the requirements of the IMO, there seems to be no obvious reason as to why the UK should transpose those amendments as well. 4

5 The development of more environmental shipping depends on the construction and development of new ships and technology. For this reason, the additional costs which the EU remains interested in creating for the recycling of ships is counterintuitive. It deters Owners from expediting the renewal of ships and therefore limits the rate of change towards more fuel efficient and cleaner vessels. The UK should commit to the Hong Kong Convention and promote its ratification at the IMO. The Waterborne Freight Grant which was established in 2004 was intended to shift freight transport from road to sea. The scheme has failed through lack of sufficient funding and the restrictive terms of the schemes availability. Furthermore, there are insufficient disincentives to shift away from road. As part of the new UK industrial strategy and trade policy, the Government is seeking to broaden the geographical distribution of export activity. To assist in this, a consideration of the role of coastal shipping in the broader export facility would be beneficial. The advantages of such a modal shift would benefit the land environment through reduced urban emissions, and with sufficient support, the development of environmental coastal shipping could serve as a testing ground for new technologies that could lead the way in greener shipping. The UK hosts many engineering companies which seek opportunities to develop their technologies in operational environments. A new advanced WFG could enable these changes. Finally, the release from EU directives limiting the development of ports provides a substantial opportunity to the UK shipping and international trading sector. EU regulations such as the Habitats Directive, have limited development opportunities for new ports. The Chamber recognises the importance of continued consideration of the marine environment in developing new trade access points. The Government expectation to increase international trade diversity will require the consideration of all logistic corridors and their respective shipping services and the Government should incorporate shipping and the new environmental regulatory body within the industrial strategy. Key lines to take The Chamber supports the resolve of Government in improving the marine environment through more pragmatic measures. But close collaboration with the EU will still be required, in addition to confident independent proposals at the IMO. The simplification of reporting procedures to ensure non-duplication in jurisdictional administrative tasks is essential for the preservation of existing trade flows. The Government should seek to pursue objectives where environmental regulations can be of benefit to the development of international trade. Encourage and support research and development in the roll out of new environment enhancing technologies. 5