The Global Cap
20th July 2015 07:00 GMT

The decision to comply with regulations emanating from Annex VI of MARPOL is made by the ship operator, often in consultation with his charterer. The current most prominent rule is the use of fuels meeting a 0.10% sulphur limit within emission control areas (ECAs). There is little doubt that sufficient compliant bunkers are available with standard low sulphur marine gas oil (LS MGO) and with more than a dozen new ECA fuels already introduced into the market, with varying degrees of attractiveness.

The degree to which operators are complying in port and at sea is unknown.  Currently, five months after the introduction of the 0.10% sulphur limit in North American waters and in the North and Baltic Seas, it would appear that noncompliance in Europe could be as high as 20% at sea and less than 10% in ports according to ship emission measurements and inspection results. A great deal of money is being expended to make these measurements.  The Danish government alone is spending more than $1.25 million over the coming year developing monitoring technology on top of increased inspections by port state control processes. In fact the previous experience of low levels of enforcement in Northern Europe has resulted in the European Union (EU) imposing a minimum level of enforcement through inspections and testing. Compliance in North America, where only two jurisdictions are involved, is thought to be high with a combination of significant levels of resources within the US Coast Guard and well published punitive fines. However, the costs of enforcement and level of compliance in North America are as yet unreported.

The benefits of not complying with ECA sulphur limits are substantial. For example, the cost savings when lifting oil from Russian Baltic ports for export outside the ECA can be as high as $1.00 per cargo tonne. This could be 10% less than an operator who is complying and more than sufficient to be able to discount the rate offered to obtain the cargoes and make a greater margin than an owner who is complying.  

Even in the two most sophisticated marine regions of Europe and North America with relatively rich, developed economies, enforcement of the 0.10% sulphur cap has not been as high as most environmentalists or professional ship operators would like to see; the former to improve air quality and the latter to both improve the environment but also to be competing on a level playing field.

The savings of not complying with the other key emission regulation, namely the 3.50% global sulphur cap is hardly a factor, and enforcement has been relatively lax. However, the next stage of decreasing marine emissions is the lowering the global cap from a maximum of 3.50% to 0.50% sulphur, which would predominantly be a distillate product. If introduced in 2020, the regulation will see some 150 million tonnes of residual bunkers being replaced by 0.50% fuels under the unlikely assumption of 100% compliance. The lower sulphur fuels are expected to be around $150 per tonne more costly. The costs of bunkers would be increased by a net $22 billion, a 22% increase in the global bunker bill in 2020 alone. If the introduction of the global cap is delayed until 2025 total bunker costs will increase to $27 billion per annum.  

The attractiveness of not complying - particularly if many states do not provide enforcement with adequate penalties - will be immense.  If, as many people believe, might be expected, flags of convenience do not pursue transgressors operating in international waters, and port state control authorities do not have the powers or inclination to enforce Annex VI on the high seas, compliance could well break down since noncompliance will reduce total operating costs by more than 25% on most international voyages.  

Will the shippers of goods demand that their carrier comply? In some cases, but in many instances the shipper is unaware of who the carrier is. It is of note that practically half of bunkers are purchased by charterers, often anonymous organisations who are insensitive to public opinion and are not usually directly pursued when an instance of noncompliance is identified. This is a further anomaly for which an accepted precedent has yet to be devised.
In these circumstances, will profession ship operators such as the members of the Trident Alliance be able to afford to comply and compete? Unlikely. Hence the levels of compliance on the high seas could become intolerably low, making the introduction of a global cap impractical. It could be reasonably asked whether the International Maritime Organization (IMO) has overreached in drafting regulation that cannot be effectively enforced. In the future, perhaps greater attention should be paid to the enforceability of new regulations.

One approach might be to return to the original draft of Annex VI, which prohibited the sale of higher sulphur marine fuels, putting the responsibility on the state authorities responsible for maintaining inland product specifications. These authorities could sanction the suppliers though domestic legislation as well as making the inspection, sampling and testing easier and cheaper. Practically all nations have such authorities in place, and Annex VI makes provision for the registration of bunker suppliers. The sanctions and penalties would also be more effective. Bunker suppliers who persistently supply bunkers with too high sulphur levels could be fined within the local jurisdiction and possibly have their licence revoked.  

There are a number of issues to be resolved with such an approach, including monitoring sales taking place outside port limits, supplying ships operating scrubbers, and suppliers in states with less rigorous legal regimes. No system is perfect, but if we are serious in wanting to reduce sulphur oxide (SOx) emissions from the marine sector, then the control of the supplier together with the existing controls in the ECAs may provide a better solution.

At the same time, a case has been made to only restrict the use of lower sulphur fuels near land, taking account of the disposition patterns of SOx emissions and the overall cooling effect of SOx, together with the increased CO2 generated in converting residual products to distillates.

Perhaps it is time to take a more holistic approach to both determining the impact and timing of introducing a global 0.50% sulphur cap, as well reassessing how to maintain a more commercial level playing field for the shipping sector.

*This was first published in the June 2015 issue of the Bunker Bulletin, the Bunkerworld magazine.

Robin Meech,
20th July 2015 07:00 GMT

Comments on this Blog
Chrysanthos Chrysanthou - Celestyal Cruises SA
23rd July 2015
Thanks always to the point. To my understanding we can be more effective if we can combine requlation/efforts with an innovative strategy ensuring transparancy and foreseeing incentives. Chrysanthos
Marco Antonio Costa Tritto
28th July 2015
Very good reflection, Robin. The enforcement is one of the most important point in all this process. In 2006 just after the arriving of the 1st SECA, I was one of the speakers in SIBCON in that year and touched this aspect during my speech cause I knew that more restrictions would come on board, more and more difficulties to enforce would be coming and I felt that the authorities would be not prepared for the days to come as well. Since then in other opportunities to speak that I had I again touched in it. It is very simple: rules without due enforcement and heavy fines are useless. Is it easy to enforce? Of course not mainly due to the complexity of our industry so far and somber than in the future but has to be find the proper and efficient way step by step. Shipowners, suppliers and authorities have an important role in this process. Indeed more the authorities cause have the power to enforce and apply fines. For me the money received from fines should be invested in technology to inspect the vessels more and more properly. As you said, if we have part complying and part not, the competition in the market will be totally unfair and the serious companies that want to respect the compliance, will be in trouble to be competitive in their market. In the end what the environment wants is compliant emissions for better quality in the air and as we will have ahead several types of marine fuels capable of complying (bunker with 0.5% sulfur, distillates, LNG and so on) I think that the main instrument to avoid non-compliance should be heavy fines and information to the industry about the offenders. By other side, for me to enforce from 2020 or 2025 makes no difference, would be only a postponing with no gain: in EU was already decided to enforce from 01/01/2020 and the world cap should follow as well from that date. Early starts the new rule, early as well the industry can find other solutions for the problems in a practical environment, included the improvement in the enforcement. In the end, the air is eager for better quality and will thank so much on behalf of the next generations.
Heinz Otto
16th August 2015
Hi Robin and collegues
We have learned that the reduced environmental impact of cleaner fuel -for brisk rapid transportation of goods from coast to coast to cost a lot more money on fuel.
Then why not learn, we also, that to use the power of the wind also reduces environmental pollution and may also mean saving money at the end.
With sailing ships, shipowners have built their financial strength.
Is it not also the object of the IMO, charterers and owners to summarize in a commitment framework?
Cop21 will hopefully force the solution to turn the greenwashing industry actually a green transportation industry.
No customer of transported goods understands the problem between charterers and shipowners, which has such a delay in the environmental protection of shipping result.
regards @windotto
Heinz Otto
1st September 2015
Hi you all,
the Global (CO2)-Cap is not a question whether, no it is a natural fact.
So the IMO must get enforced, to set limited and reduced emissions, when they all work in Paris on the COP21.
IF not, there must follow a proscription and political pressure.
Cargo sailers are a better solution, than scrubbers and measurements.
It is clear to all of us, also to me, that the "change of systems" is a huge effort for the maritime world.
But we have to try it asap.
agoetfme agoetfme
3rd September 2016
agoetfme agoetfme
3rd September 2016

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