Draft:Environmental regulation in the shipping industry

Environmental Regulation in the Shipping Industry
The shipping industry generally have a green image due to the fact that ships emit less CO2 per ton-mile compared to air, rail, or truck transport. . Despite this image, the shipping industry is still a major contributor to environmental change and damage due to its rapid growth and large scale. There are several environmental effects of shipping, such as air pollution, water pollution, noise pollution, and oil spills. Ships are responsible for 3% of the world’s total greenhouse gas emissions, ranking the industry at the same emission level as the country Germany. At the same time, the shipping industry plays a crucial role when it comes to international trade, seeing as it carries 90% of the international trade volume (measured in tonnes). If the industry carries on with a business-as-usual strategy, their emission level is expected to increase 150-250% by 2050. It has previously been estimated that it would be possible to reduce emissions by 75% per freight unit leading up to 2050. Whether this is still possible is up to debate.

Issues with environmental regulation
Environmental regulation concerning the shipping industry has in the academic literature been criticized for being inadequate, except for regulation regarding oil spills . When it comes to other environmental issues, such as greenhouse gas emissions and invasive species, the regulatory process has been condemned for being notoriously slow. Some reasons have been pinpointed as to why the regulatory progress is being stalled, these include: Low environmental visibility, poor interest alignment, a broadening scope of environmental issues, as well as growing regulatory fragmentation and uncertainty.

Despite the criticism, the international regulatory bodies have devoted noteworthy efforts towards identifying and creating efficient regulatory instruments, in order to guarantee effective regulatory standards in the industry. The fact that these efforts seems to have fallen short reflect challenges often encountered in various domains of governance, where commercial and economic interests overshadow the public interest, resulting in its detriment. Because of this, the governance of the shipping industry may seem to be failling at what is required of them when it comes to matters of public interest, such as maintaining a healthy marine environment and lowering greenhouse gas emissions. In recent years, there has been growing concerns about the environmental impacts caused by the shipping industry from different stakeholders - ranging from shippers and carriers. Seeing as the situation is set to worsen as trade globalization intensifies, some shipping firms have taken the initiative to find ways to lessen the environmental damage of their operations while still enhancing their business performance.

The IMO and other regulatory bodies
The main regulatory body concerning the shipping industry is the International Maritime Organisation (IMO). The IMO’s mandate includes the promotion of environmental protection through a regulatory framework that aims to be “fair and effective, universally adopted and universally implemented”. The IMO has launched 21 treaties with the objective to provide environmental protection. These initiatives include conventions such as the International Convention for the Prevention of Pollution from Ships (MARPOL), the Ballast Water Management Convention (BMW), and the International Convention on Oil Pollution Preparedness, Response and Co-operation (OPRC). The MARPOL convention is one of the most significant conventions regarding international marine environmental protection. Its purpose is to minimize pollution of the oceans, including oil and air pollution, and has since its adoption in 1973 been amended with the addition of several annexes. The convention does however have some implementation issues due to the international nature of the shipping industry.

According to the shipping industry neither national or regional regulatory interference is wanted or needed. The sector considers the IMO as not only the best suited organization to regulate them, but also the only organization that should regulate them. This preference is due to the global nature of the industry: The introduction of regionally and nationally specified regulation would, according to the industry, lead to inefficiency in their operations as well as market distortion. In accordance with this, the IMO has been criticized for conforming with the industry that it is supposed to regulate. Due to these conformity-issues, the IMO has been criticized for lacking progress when it comes to the regulation of greenhouse gas emissions. The lack of progress can however also be explained by the fact that the decision-making process in the IMO favors informal consensus-building over regular voting. This gives veto powers to members that are opposed to environmental policy. Major countries from the Global South, such as China, Brazil, and India, are for example against the IMO pursuing a cap on greenhouse gas emissions, since they think it’s too early for the IMO to adopt such targets. Critics also pinpoint that the shipping industry, and specifically the IMO, is characterized by a conservative mindset that hinders transitionary goals such as greenhouse gas reductions and other environmental protection initiatives.

Since the 1980’s, the maritime governance regime slowly moved away from mainly being centered around the IMO. During the 1980s regional regulatory initiatives in the EU and its member states became of increasing importance. The new initiatives began due to an increasing discontent with the ambition level of the IMO, a lack of enforcement of IMO standards, and insufficient implementation. The new initiatives were regionally based, and included the use of special areas in IMO Conventions, the development and adoption of the European Union shipping policy domain and the Paris Memorandum of Understanding (MoU) on Port State Control, as well as new market-based measures by cargo and ports-owners. These new initiatives helped create a more decentralized form of governance that to a higher degree is based on cooperative interactions between different stakeholders in the shipping industry.

Other types of governance, such as private voluntary governance measures and regional regulation has also recently evolved to fill out the regulatory gap from the IMO. The increase of numerous different transnational green shipping standards can in the long run become a challenge for the IMO, seeing as the regulatory landscape will become increasingly hybridized. A central governance dilemma within the shipping industry is how to effectively merge private and public regulation in order to make shipping environmentally sustainable. This dilemma primarily stems from the fact that the IMO-based conventions have been acknowledged as being ineffective to the point where it can be described as a ‘maritime governance failure’. Regulatory issues include lack of consistency in inspection practices, efficiency issues due to cross-national differences in regulatory commitment and allocated ressources, as well as issues concerning paper-based validation.

Fragmented regulation
The shipping industry faces many unique challenges when it comes to managing and regulating environmental risks. This is due to the industry’s global nature. These challenges involve high levels of regulatory fragmentation as well as a recurrent lack of regulatory coordination both within and across international, regional, and national regulatory bodies. That the regulatory framework is fragmented, means that there is ambiguous and/or overlapping jurisdictions that is associated with different challenges. These challenges include a lack of effective enforcement and monitoring, as well as inconsistent and/or unclear standards. Environmental challenges can consequently become under-addressed and under-regulated. It has been argued, that in order to solve the fragmentation issues, unified regulation alone might not be sufficient. It may be required to develop adaptive measures that are better suited to their local contexts. The current enforcement of environmental regulation in the shipping sector has been criticized for being insufficient. Because of this, it can be argued that efforts should be made to strengthen the inspection and enforcement of the regulation, as well as possibly establishing a global monitoring system.

The fragmentation of the regulatory structure surrounding the shipping industry introduces a surplus of challenges and uncertainties to the industry’s business operations - instead of offering compliance options. Regulatory uncertainty is especially problematic for the ship-owner’s investment decisions. Since the typical commercial lifespan of a ship is 25 years, ship-owners and carriers must take the regulatory uncertainty into consideration when selecting new ships and equipment. Because of this, the timing of the introduction of new regulation shapes the industry as much as the content of the regulation. The regulatory uncertainty slows down the process of raising environmental protection standards, because ship-owners and carriers are more wary of making investment in environmental improvements. Simultaneously, ship-owners themselves contribute to the regulatory uncertainty by resisting regulatory changes. Various environmental concerns are currently being examined for possible regulation within the IMO, but the issues remain largely unsettled. These unsolved matters introduce further complexity and uncertainty to ship-owners and carrier’s operations and investments.

The industry’s view on regulation
Shipowners across flags and sectors of the industry have expressed different positions towards the regulation of the industry. A shared concern is the preservation of the industry's green image. According to the Baltic and International Maritime Council (BIMCO), the world’s largest international shipping association, trans-oceanic shipping is “the most environmentally friendly and cost-effective mode of transportation”. But despite wanting to preserve their green image, ship-owners have been found to have lobbied actively against environmental regulatory initiatives such as the Ballast Water Management Convention and different market-based measures meant to decrease greenhouse gas emissions.

Both national and international ship-owner associations are generally critical towards new regulation. According to the associations this is because that new or increased regulation means that ship-owners can expect rises in costs and complexities imposed on their operations, as well as a distortion of competition within the industry, and a decrease in the competitiveness of shipping compared to other modes of transportation of goods. When new regulation is introduced, BIMCO emphasizes that regulation should be feasible in practice, and that the implementation of existing IMO regulation ought to be prioritized over the development of new regulation. When new regulation cannot be avoided, the shipping industry jointly prefer international regulation over national regulation, and the IMO is the preferred regulator. The ship-owners themselves find that regional or national regulation adds costs and undesirable complexity to their shipping operations as well as hampering international trade.

Industry self-regulation
As a result of the highly fragmented regulation and due to shortcomings of the existing legal mechanisms of the industry, voluntary self-regulatory initiatives have emerged. While self-regulation has had some success in highlighting the ineffectiveness of the existing regulation, as well as showcasing companies trying to amend the existing regulation, it is important to note that private regulatory approaches towards global governance cannot be a substitute to public policy and international regulation, but instead is an imperfect supplement to it. There is a general agreement in the academic literature that global business activities, and hereunder the shipping industry, can only be effectively governed if the inadequacies of both governmental and self-regulatory initiatives are recognized by both the governed and the involved regulatory bodies such as nation states, the EU, and the IMO. This means that private regulation must be not only integrated with, but also reinforced by, more effective state or organization-based regulatory policies at both the national, regional, and international levels.

Industry market-based measures and self-regulatory initiatives have arisen in the shipping industry due to the general absence of consistent international environmental regulation. These private regulatory initiatives are not yet orchestrated by the IMO. If the IMO continuously doesn't orchestrate these initiatives, the disjuncture in the transnational governance regime regarding the shipping industry will increase.

While the majority of the shipping industry still remains critical towards market-based measures and other self-regulatory initiatives, some national shipping associations now supports market-based measures that aims to reduce greenhouse gas emissions as well as the EU MRV proposal. Increased support of regulation has also been seen in relation to the SECAs (Sulphur Emission Control Area), which are areas where the emissions of vessels are highly limited. The shipping industry lobbied against the SECA in the North and Baltic Sea, but in 2014 the Trident Alliance was created as a coalition of mainly Scandinavian shipping companies with the purpose of promoting strong SECA enforcement. The alliance was created due to fear that weak enforcement may create incentives for some companies to not comply with the SECA in order to attain competitive market advantages. The creation of alliances between major shipping companies that are pro-regulation increases anticipations on the IMO to recuperate its role as the primary regulator within the industry in order to ensure consistency within global regulation. Due to the slow progress of environmental regulation done by the IMO, the regulatory space is now to a higher degree being filled by private forms of governance.

Another reason for the increase in private regulatory initiatives is due to the fact the shipping companies know that regulatory pressures regarding environmental protection are growing, but the uncertainty surrounding implementation is constant. These two factors lead to companies in the shipping industry participating in different private green shipping initiatives, as well the adaption and development of voluntary environmental standards led by the industry. These standards serve to offer environmental goals, comparative benchmarks, and tools for measuring and accountability. The initiatives also provide deliberative arenas for the industry to debate different environmental solutions. Some of the new initiatives are driven from increasing demands from the industry’s customers. For example, brand retailers are increasingly beginning to pressure the shipping companies to either act or report on certain environmental issues in order to better the sustainability of their own supply chains.

Benefits and examples of industry self-regulation
While the increased use of private self-regulatory initiatives by different actors within the shipping sector can lead to increasingly hybridized regulation, it can also lead to new beneficiary opportunities for the companies doing the initiatives. These benefits include increasing efficiency, a reduction of business transaction costs, and a boost in brand reputation.

An example of both the successes and the challenges of private hybrid initiatives is the Clean Shipping Project. The Clean Shipping Project is a partnership that encourages private governance as a supplement to existing regulation. The partnership improves transparency and generates positive incentives for shipping companies to pursue environmental goals. But its effectiveness is partially hindered by the specific market characteristics in the shipping industry.

Another example is the Green Marine Environmental Program (GMEP) in North America that offers a framework that helps establish and reduce environmental footprints. Participants in the program need to show yearly improvements on particular environmental performance indicators in order to keep their certification. The program is based on self-evaluations that are independently verified every two years. The results of the evaluations are made public in order to increase transparency. By doing this, the project benefits the North American shipping industry by incentivizing sustainable development initiatives.

Another hybrid private initiative is the Shipping KPI Standard made by BIMCO. The KPI standard is tool for standardized exchange of shipping performance information. As of 2023 the Shipping KPI standard includes seven performance standards covering the environment.

The effectiveness of industry self-regulation
Studies have found that self-regulation and other market-based measures have been judged to be less effective due to differences in national regulatory commitments and resourcing, as well as a lack of consistency in inspection practices. These issues are aggravated by the general difficulties associated with paper-based validation. Different alternative forms of regulation within the shipping industry have been limited in their success, in the situations in which it has been implemented and studied. The regulatory mechanism should in theory be effective in cases where industries become globalized and thus leaves the nationally regulated arena. But, the issues that the shipping industry has faced regarding self-regulatory measures shows, that even within highly globalized industries, there might be difficulties associated with self-regulation or attempts at self-regulation. Self-regulation can, despite these challenges, be a regulatory supplement to the implementation gaps that exist within the environmental regulation of the shipping industry