Since the Kyoto Protocol was ratified in 1997, carbon emissions have been making headlines. 2007 marked the 10-year anniversary of Kyoto, and the protocols signatory countries must meet their carbon emission reduction targets between 2008 and 2012. With increased celebrity attention, the release of Al Gores popular documentary An Inconvenient Truth in 2006 and Gores subsequent Nobel Prize win, public awareness surrounding climate change in the US has never been higher.

Emissions associated with shipping had largely gone unnoticed and unregulated in the US until 2005, when lobby groups began arguing for international regulations for the industry, and 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 emissions associated with truck, train, marine and air shipping in the late 1990s. The agency reports that truck and rail transport consume 35 billion gallons of diesel fuel each year, and the greenhouse gass particulate matter caused by truck and rail transport alone has had a dire effect on both the environment and human health, with several respiratory problems and premature deaths blamed on shipping-related emissions. The agency has created numerous programs both to help curb emissions and to make all forms of transport more fuel efficient.

Emissions Trading

Developed countries such as the UK that have signed the Kyoto Protocol have instituted aggressive emissions requirements and carbon trading schemes. Although carbon trading is new and conceptual, the basic premise is that the government allows each company a certain level of carbon emissions, and those with emissions below the maximum may sell carbon credits to those who emit more than the maximum.

The US did not sign the Kyoto Protocol, but greenhouse gas emissions and their environmental impact have nonetheless become increasingly worrisome to government officials, the public and a number of companies. Consequently, a voluntary carbon market has emerged in the US that includes both the organized Chicago Climate Exchange, which launched in 2003, and what is being called an over-the-counter market that exists independently of the Chicago market.

The Chicago Climate Exchange (CCX) is an organized, voluntary, legally binding greenhouse gas (GHG) market. CCX members have committed to reduce their emissions by four percent and six percent 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.

The over-the-counter segment of the voluntary market is differentiated from the organized market in that there is not a single marketplace or standard for these projects. End
users in the over-the-counter markets consist of companies as well as individuals that want to reduce or offset their carbon footprint.

Although smaller than the compliance markets, according to Scott Settelmyer of TerraCarbon, a financial services firm focused on carbon markets, the voluntary carbon market is quickly growing. 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. A recent survey of market participants indicated that this market is expected to grow from 25 million tons to between 400 million and 1 billion tons by 2012, driven in large part by greater consumer awareness and desire to offset emissions.

Theres 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 youve 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.The voluntary carbon market also exists even in those countries where carbon is regulated, Settelmyer adds. Certain industries, such as media, are not governed by the Kyoto Protocol requirements, but companies like News Corp. are participating in the carbon market nonetheless, purchasing offsets and reducing their carbon in an effort to go carbon neutral.

Carbon Offsets for Shipping

Carbon offset companies began appearing in the early part of the decade. These companies allow individuals, businesses and organizations to offset their emissions by funding carbon offset projects such as forestry, renewable energy or industrial gas projects that reduce greenhouse gas emissions.

Many see carbon offsets that directly target shipping emissions as a way to do something now, rather than wait for the slow wheels of legislation to turn. Although carbon offsets have been maligned by some as an easy way out of fixing emissions-related problems, they can provide an important part of the solution. Offsets help to remove pollutants from the atmosphere or prevent or reduce emissions and, in conjunction with legislation, innovation and corporate responsibility, can help to mitigate the impacts of the shipping industry.

Climate Legislation Catches up to the Shipping Industry

Legislation is currently in the works in Europe to cap shipping emissions in much the same way that carbon emissions are already capped according to the Kyoto Protocol. In the US, some state governments are looking into requiring the use of cleaner fuels for marine shipments, and the EPAs SmartWay Transport program is funding new technologies to make trucks more fuel efficient and to help government organizations and companies purchase hybrid and biodiesel vehicles. Environmental groups, such as Friends of the Earth, are lobbying state governments to more closely regulate shipping emissions.

Regulating an international process such as shipping is a tricky thing. Its fairly straightforward to regulate emissions for trucks within one countrys borders, but regulating shipping emissions between countries is nearly impossible essentially, if one country does it, the rest will have to follow, which means that any country to propose a crackdown on emissions draws immediate criticism for unilateral action that affects an international industry.

In the US, 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 states proposed requirement preempted the federal Clean Air Act and thus couldnt stand, many believe that its only a matter of time before various other ports attempt similar regulations. The California petition was the first to invoke the landmark ruling of the Supreme Court earlier in the beginning of 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 wont be the last.

Still, an international agreement is likely not far off. In April 2007, the EU Commission began drafting legislation addressing shipping industry emissions by including the sector in Europes carbon dioxide cap-and-trade system, which was instituted shortly after the EU member countries signed the Kyoto Protocol. The Commission said the legislation would be completed and sent out for a vote by the end of 2007. An EU directive ratified in December 2005 stipulates that EU ships must use fuel with .1 percent of sulfur or less by 2010. However, as of late 2007, maritime emissions, which are amongst the largest contributors to shipping-related pollution and health problems, still do not fall under the Kyoto protocol.

With the global shipping market projected to triple by 2020 and an increasing number of shipping emissions regulations on the horizon, the time is right for shippers to take a hard look at the environmental and health impacts of their business and how best to mitigate them.

Jason Sperling is the founder and CEO of ShipGreen. ShipGreen, the first offset company to focus solely on shipping emissions, allows online retailers to add software to their websites that enables online shoppers to easily offset the emissions caused by their order shipments. For more information, please visit www.shipgreen.net, call 310-658-9374 or email Jason at jason@shipgreen.net.