ISWG-GHG 16

Further proposal on the feebate mechanism

JAPAN
 Summary of improved design of the feebate mechanism
Main purpose of the feebate mechanism
To provide economic incentives to promote energy transition
Key aspects of improved design
Simplicity of the mechanism
→ fixing contribution rate at [20] USD/CO2eq ton for [five] years
Appropriate level of reward (strong incentive without over-subsidizing)
→ amount of reward
= [100] USD/CO2eq ton × GHG prevention (CO2eq ton)
* GHG prevention: the amount of GHG emissions prevented
by use of any eligible fuel instead of conventional fuel
reward to zero emission fuel
reward [100] USD
cost /CO2eq ton
difference contribution
Fund
conventional zero emission conventional zero emission
fuel fuel fuel fuel
[20] USD
/ CO2eq ton promote a just and equitable transition
 Revenues from mandatory contribution of 20 USD
[CO2eq million ton] Projection of GHG emissions Share of zero emission fuel
1,000 100%
800 80%
- 30%
600 GHG emissions (left
60%
400 Share of
40%
200 zero emission fuel
(right axis) 10% 20%
0 0%
2024 2025 2026 2027 2028 2029 2030 2031

contribution of 20 USD/CO2eq ton

Five years total estimated revenues: approx. 50 billion USD

Estimated budget Distribution for other purposes

for reward (just and equitable transition)
→ 2~9 billion USD/year → [2] billion USD/year
 Appropriate level of reward
Estimated fuel costs and incentives provided by the feebate WtW GHG
Annual
Fuel cost GHG
$ million/5 years Fuel type intensity (USD/GJ) prevention
(2027-2031) Reward rate: (gCO2eq/MJ)
(CO2eq ton)
400
100 USD/CO2eq
350 HFO 93.6 10.1-11.0
reward
300
250 Contribution rate:
fuel costs bio-oils 14.8 25.0-25.1 95,033
20 USD/CO2eq
200 without
150 reward blue
17.8 24.8-25.6 91,415
100 ammonia
50 bio-
8.4 24.9-26.4 102,751
0 methanol
HFO bio-oils blue bio-methanol e-ammonia e-methanol
ammonia e-ammonia 0.7 42.8-46.8 112,037
costs costs compensated by reward additional costs by contribution
* The annual energy consumption is assumed as 1,206,000 GJ. e-methanol 0.5 52.5-57.6 112,279

Cost difference between HFO and alternative fuels in 2027-2031

can be reduced by 23-70% by providing reward of 100 USD/CO2eq ton

* WtW GHG intensities and estimated fuel costs are derived from papers published by Mærsk Mc Kinney Møller Center for Zero Carbon Shipping (MMMC for ZCS) and Ricardo.
MMMC for ZCS (2022) Ammonia as a marine fuel. Prospects for the shipping industry. Documentation of assumptions for Navigate 1.0.; MMMC for ZCS (2022) Methanol as a marine fuel. Prospects for the shipping industry. Documentation of assumptions for Navigate 1.0.; MMMC for ZCS (2022) Bio-oils as
marine fuel. Prospects for the shipping industry. Documentation of assumptions for Navigate 1.0.; Ricardo (2022) Technological, Operational and Energy Pathways for Maritime Transport to Reduce Emissions Towards 2050; MMMC for ZCS (2022) We show the world it is possible. Documentation and
assumptions for NavigaTE 1.0.
 Other design elements
Application
ships of 5,000 GT and above engaged in international voyage
Eligible fuels
zero or near-zero emission fuels
with WtW GHG intensity below a certain threshold
(to be determined based on the LCA guidelines)
Scope of contribution
ideally WtW GHG emissions
But when LCA framework is premature, an option may be to start with
TtW GHG emissions
Remaining issues on LCA guidelines
Determining WtT default values
Methodologies for verification and certification etc.
 Feasibility of the mechanism
• Draft amendments to MARPOL Annex VI are provided in ISWG-GHG 16/2/12
• Japan believes that the proposed amendments can be used as a basis for further elaboration by
this Working Group for adoption in 2025.

Flow of contribution Flow of reward

Publish non-compliant ships (3)
Zero Emission Zero Emission
Shipping Fund (ZESF) IMO
IMO Transfer DCS data Shipping Fund (ZESF)
(3) incl. GHG prevention
Report (4) determine payment (5) Verify GHG
non-compliant ships of contribution Pay (4) prevention
contribution (2) Report DCS data incl. Request
(1)Report GHG emission GHG prevention for reward
(6) Pay reward
Administration (2) Verify GHG emission Ship
(5) Issue SOC (1)
Administration Ship
Identify Report GHG
May detain ships prevention*
without valid SOC Responsible shipping
company (* GHG prevention: the amount of GHG emissions prevented by use of any
Port state eligible fuel instead of conventional fuel)
 Combination of feebate and fuel standard

• Two flexibility compliance mechanisms (Surplus units and Remedial Units) are necessary in the
goal-based fuel standard.

• However, only these flexibility mechanisms would provide insufficient incentives for zero
emission fuels, especially during the initial phase of energy transition.

The proposed flexibility mechanisms can just eliminate the gap between conventional
fossil fuels and compliant fuels (not zero emission fuels).

Only above function will not be enough to make shipping industry decide investment for
zero-emission vessels and training seafarers to handle new fuels and will not provide
shipping industry sufficient reasons to accelerate the decarbonization of their fleet.

• Japan believes that proponents of the rewarding mechanism are not seeking excessive
incentives, but a “strong signal” that IMO has a clear intention to encourage
investment for the uptake of zero emission fuels to achieve the 2030 level of
ambition.