The Liability Regime for CO2 Shipping

A look at some of the legal challenges with the liability framework for the shipping phase of CCS: A critical study of the liability regime for CO2 leakage during cross-border CO2-shipping activities in the North Sea.

This is a guest article from Alice O’Brien, Researcher at the Scandinavian Institute of Maritime Law, part of the Faculty of Law at the University of Oslo, Norway.

To fast-track CO2 capture, transport and storage (CCS) deployment, industry-driven science-based innovation is required. The Norwegian CCS Research Centre (NCCS) aims to achieve this by addressing the major barriers identified within demonstration and industry projects.

One of those areas is the legal aspects of CCS, in particular the liability framework of the shipping transportation option. The Master thesis of NCCS-funded University of Oslo researcher Alice O’Brien makes two concrete recommendations:

• The HNS Convention must enter into force before large-scale CO2-shipping becomes a reality to provide consistent liabilities to shipowners and ensure predictable compensation for victims. It is vital that widespread ratification of the Convention continues to be encouraged by the International Maritime Organization and the EU to secure its entry into force.
• Shipping must be included within the CCS Directive and EU ETS to protect the environmental integrity of the CCS value chain and ensure there is an economic inventive to engage in shipping-based CCS.

The recommendations are based on a study that explores the legal challenges with the liability framework which regulates CO2 leakage during cross-border CO2-shipping activities in the North Sea. It is limited to examining the liabilities of the shipowner as a result of loss of containment during CO2-shipping.

Existing regulatory initiatives are geared towards pipelines

Research and regulatory initiatives for the transportation of CO2 have largely focused on pipelines. This stems from widespread practical experience in large-scale CO2-pipeline transport compared to CO2-shipping, which is only existent on small-scale. This is unsatisfactory because CO2-shipping is anticipated to play a central role in North Sea storage activities.

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The paper aims to close this research gap by identifying and analysing the key instruments applicable to CO2-shipping in respect of loss of cargo within the North Sea, with a view to advancing recommendations which integrate shipping within the supply chain. This requires analysis of the existing regime based on national and European Union (EU) law as well as in-depth analysis of the emerging global regime under the Hazardous Noxious Substances (HNS) Convention. It therefore adopts both a de lege lata and de lege feranda approach to consider how far the existing and emerging liability regimes contribute to the presence of effective legal frameworks for CO2-shipping.

Two key conclusions

This study makes two key conclusions. First, it concludes that the existing regime, based on national civil liability laws, the EU Environmental Liability Directive and the Convention on Limitation of Liability for Maritime Claims, not only fails to ensure the comprehensive regulation of all the types of damages which could arise from CO2-shipping; but the provisions which do apply, lack the clarity necessary to drive investment in CO2-shipping. It is therefore argued that reform is needed to provide a clearer and more harmonised liability regime which better incentivises investment in cross-border CO2-shipping. The HNS Convention applies directly to the carriage of CO2 by ship and presents an opportunity to globally simplify the existing legal liability framework for CO2-shipping. However, there are limitations to the Convention with regards to its application to CCS, including the risk of continued fragmentation after its entry into force. The paper suggests entry into force of the Convention is desirable but that future amendments may be necessary. Nevertheless, proposals to amend the Convention would likely stall its further ratification and caution should therefore be erred in recommending amendments prior to its entry into force.

Second, the paper analyses exclusion of shipping from the CCS Directive and the Emissions Trading Scheme (EU ETS) Directive. The CCS Directive defines the transport phase of CCS as ‘the network of pipelines, including associated booster stations, for the transport of CO2 to the storage site’. This definition is important because it does not mention the possibility of shipping CO2 between the capture facility and storage site. Exclusion of shipping means operators engaged in CO2-shipping for the purposes of CCS would interrupt the monitoring and reporting obligations and break the value chain of CCS endorsed by the CCS Directive. It follows that transport operators engaging in CO2-shipping for CCS would not be required to obtain an emissions permit, comply with MRV procedures or surrender allowances for greenhouse gases (GHG) emissions. This means there is no GHG emissions liability imposed on RSOs for leakage of CO2 during ship transportation.

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This has wide implications for the successful deployment of CO2-shipping as a transportation option in CCS. Where the monitoring and reporting obligations are not met, the EU ETS will not allow capture operators to claim CO2 was successfully stored. This is because the quantity of CO2 emitted from installations during operation of the CCS chain cannot be verified. Operators would remain liable to subtract emission allowances for CO2 permanently stored because the CCS activities would not conform to the requirements of the CCS Directive. Any amount of CO2 captured and transported by ship for CCS would be added to the installation’s total CO2 emissions.

The exclusion of shipping from the CCS Directive and EU ETS therefore negates the commercial incentive for engaging in CCS and fails to ensure the environmental integrity of the value chain. This could prevent the development of shipping-based CCS in the North Sea. Noting Article 24 of the ETS Directive allowing States to apply for the European Commission’s approval to unilaterally include activities not listed in Annex I, it is concluded that the EU must consider formal amendment of the CCS Directive and ETS Directive to include CO2-shipping within the EU ETS. This would send strong signals to the market and foster certainty for long-term investments in shipping-based CCS.

This is a guest article from Alice O’Brien, Researcher at the Scandinavian Institute of Maritime Law, part of the Faculty of Law at the University of Oslo, Norway.

Reference:
O’Brien, Alice, ‘The liability framework for the shipping phase of carbon capture and storage: A critical study of the liability regime for CO2 leakage during cross-border CO2-shipping activities in the North Sea.’ MarIus 512 (2019). Read more here.