Private governance can increase shipping's efficiency and reduce its impacts.

• Author: Metzger, Daniel J.

ABSTRACT

The shipping industry is a huge component of the world economy, and although it is often described as an efficient mode of transport, it still contributes as much carbon dioxide to the atmosphere as a major industrialized nation. Efficiency technologies and practices are available that would significantly lessen shipping's environmental impact, but "amazing loophole[s]" in international environmental law and a set of market failures have prevented them from being widely adopted. These problems have been studied before, but the public regulatory proposals being discussed run into steep, if not insurmountable obstacles. This Note argues that shipping inefficiency can be better addressed through private environmental governance. By operating privately, these forms of governance bypass the problems that traditional public regulation faces, allowing higher efficiency standards to be widely adopted without depending on political will. In so doing, private governance can better align the incentives of consumers, firms, and those firms' suppliers.

TABLE OF CONTENTS I. INTRODUCTION II. BACKGROUND A. Shipping's Contribution to Greenhouse Gas Emissions B. Technical Capacity to Reduce Emissions C. Existing Public Governance Structures 1. UNCLOS 2. UNFCCC 3. MARPOL 4. Customary International Environmental Law III. ANALYSIS A. Reasons for the Problem: Public Governance Deficits and Market Failures 1. Flags of Convenience 2. Principal-Agent Incentive Problem B. Proposals that Are Already in Place 1. Greater Port State Controls on the Ships that Visit Them 2. Market-Based Mechanisms 3. Regulating More Strictly Under National Laws IV. A PRIVATE GOVERNANCE RESPONSE A. Distinguishing Private and Public Environmental Governance B. Shipping Efficiency Is Particularly Well-Suited to Private Governance 1. Private Governance Solutions Obviate the Issues Raised by Flags of Convenience 2. Split Incentives Can Be Addressed by Supply Chain Contracting 3. Private Solutions Avoid Many of the Problems that Plague Existing Proposals V. CONCLUSION I. INTRODUCTION

International shipping is already among the most efficient forms of transport, (1) but its contribution to climate change equals that of a major national economy. (2) Recent estimates show that in 2012 shipping accounted for approximately 2.2 percent of global carbon dioxide emissions. (3) These carbon releases are expected to continue to rise, (4) but full utilization of existing efficiency technologies and operational measures could reduce them by 30 percent or more. (5) Numerous examples of efficient technologies are already available. They range from concepts as simple as better hull coatings that reduce drag as a ship moves through the water, to slow-steaming to reduce fuel use, and even to novel applications of wind technology that supplement a ship's propulsion. (6) Efficiency-oriented tools allow shippers to reduce the carbon intensity of transport per unit moved, (7) and can be used to align the motives of those paying for transport with groups that seek emissions reductions by lowering fuel costs. (8)

These technologies are effective, (9) but several barriers prevent their widespread adoption. Inefficiency in shipping is a collective action problem with a global scope. Without a global scheme to price climate impacts, ship owners externalize the cost of their emissions. An individual ship owner who internalizes those costs by operating in an efficient way at the expense of speed-of-service places him or herself at a disadvantage relative to his or her competitors. Regulatory solutions are appropriate for collective action problems in some contexts, but are poorly suited for addressing inefficiency in shipping because shipping is international and strong participant biases resist adopting efficiency improvements.

Although public governance structures face steep challenges, several are either already in place or have been proposed in order to address shipping emissions. In 2013, the International Maritime Organization (IMO)--the United Nations (UN) agency tasked with regulating shipping--adopted fuel-efficiency standards which bind International Convention for the Prevention of Pollution from Ships (MARPOL) Annex VI parties. (10) In the same year, the European Commission published a strategy for incorporating maritime shipping emissions into the European Union's (EU) greenhouse gas reductions efforts. (11) That strategy was codified as a regulation, integrating reductions of carbon emissions from maritime shipping into the larger picture of EU climate policy. (12)

But the disagreements about whether and how the Paris Agreement would address shipping's emissions exemplify why novel international agreements in this area are not likely to materialize. Prior to the 2015 UN climate summit in Paris, commenters suggested that emissions reductions from maritime transportation should be considered. (13) The Secretary-General of the IMO, on the other hand, forcefully argued that it should be the IMO that conducts any discussion of shipping's role in combating climate change, rather than the UN summit. (14) Environmental NGOs responded in kind, arguing that "[t]he IMO is misrepresenting the scope of shipping emissions, and ... [that] it is too easily influenced by the shipping industry." (15) This dispute came at the tail end of years of discussion about how the EU should address climate impacts of shipping. (16) The summit's final product--the Paris Agreement--makes clear that those arguing for exclusion have succeeded in keeping shipping out of the agreement entirely. (17)

Diligent compliance with existing international instruments designed to address climate change could begin to address shipping's emissions, but is insufficient. Even the most recent of these instruments, the Paris Agreement, does not do enough. (18) Several of the binding instruments in international law that address this issue have a global scope: MARPOL, the London Convention, the Convention on the Law of the Sea (UNCLOS), and the Kyoto Protocol, among others. In addition to these large-scale environmental treaties, regional agreements also play a role in shipping's governance. (19) Factors outside the arena of hard law have a significant impact on carbon emissions in the shipping sector as well. For example, rate structures can play a role in setting incentives in a way that helps or hinders efforts to promote efficiency. (20)

The existing scholarship on improving efficiency in shipping has demonstrated the technical viability of these efficiency measures. (21) Literature on shipping has described the most important barriers preventing more widespread adoption of these measures, (22) but solutions to these problems have not been forthcoming. (23) Previous literature on private environmental governance has highlighted the role that it can play in complementing regimes of traditional regulation. (24) Private governance instruments have been applied to concrete environmental goals, both explicitly referencing the existing body of legal scholarship (25) and acknowledging the need for private forms of regulation in novel areas. (26) Shipping is an unusually apt example of an area that is well suited to a private governance solution because it is difficult for governments to regulate, and ship owners face strong incentives not to operate in the most efficient way possible. (27) To date, legal scholarship has not focused explicitly on the relationship between private environmental governance as a coherent set of alternative regulatory concepts and the shipping industry, leaving a gap that this Note aims to fill. (28)

This Note argues that private governance instruments can fill the need of shipping more efficiently, thereby reducing the industry's emissions of greenhouse gasses. Part II of this Note describes the background of this issue, first by considering the current carbon impacts from maritime shipping, and second by characterizing the impact that these emissions have on climate change. Part II then discusses the public governance mechanisms currently in place that aim to regulate shipping's carbon emissions. Part III analyzes the reasons why increasing shipping efficiency is so difficult by discussing the governance deficits that have made this area challenging. Finally, Part IV proposes replacing traditional forms of regulation with private governance systems, building on two key assumptions: (1) excess carbon emissions are driven in part by market failures that can be addressed with incentive-shifting solutions, (29) and (2) it is impertinent to tether future environmental governance to new binding treaties both because those agreements are unlikely to occur (30) and because the existing instruments still have more to offer. (31) Ultimately, this Note argues that the application of well-designed private governance tools can dramatically reduce the carbon emissions of maritime shipping--thereby displacing or at least complementing national or international legislative activity.

2. BACKGROUND

   1. Shipping's Contribution to Greenhouse Gas Emissions

      International shipping is fundamental to the global economy: 80-90 percent of all internationally traded goods are shipped from one place to another. (32) As discussed here, international shipping only refers to shipping between ports of different nations. Many of the same vessels engage in domestic and international shipping, but because the factors contributing to the difficulty in reducing their emissions arise from their international activity; domestic shipping is not an explicit focus of this Note. Nevertheless, because many of the same ships are engaged in both domestic and international shipping, carbon reducing strategies that rely on changes in ship technology would cause reductions in domestic shipping emissions as well. Because they present a distinct set of issues, military and fishing vessels are not included in this discussion...