UK Club has issued a legal update on the outstanding challenges of the new sulphur emissions requirements, due to come into force on January 1st 2020.
UK Club noted that the International Maritime Organization (IMO) had been working to reduce the harmful impacts of shipping on the environment.
It adopted AnnexVI (Regulations for the Prevention of Air Pollution from Ships) to the International Convention for the Prevention of Pollution from Ships (MARPOL Convention) in 1997. Regulation 14 therein covers emissions of sulphur oxides (SOx) and particulate matter from ships.
The IMO had been setting progressively stricter limits on the sulphur content of fuel oils used by ships. Last year it adopted a 2008 resolution that introduces a reduced global sulphur cap on marine fuels. The current global limit of 3.5% mass/mass (m/m) will fall to 0.5% m/m from January 1st 2020.
The 0.1% m/m limit in Emission Control Areas (ECAS) such as the Baltic Sea area, the North Sea area, the North American area, introduced on 1 January 2015, remains unaffected.
UK Club noted that “while the new regulation has been welcomed by all, there are challenges in ensuring its compliance and enforcement. These challenges will be discussed below.
Will there be sufficient affordable low-sulphur fuel oil (LSFO)?:
UK Club said that, with January 1st 2020 less than two and a half years away, there was a real concern over whether sufficient LSFO would be available to enable compliance. Improving hydrocracking technology in refineries was leading to higher productions of LSFO. Sulphur from residual fuels could also be processed away using hydroconversion or hydrosulfurization technology. Low sulphur distillates could be blended with high sulphur residuals to create heavy fuel oil with sulphur contents of 0.5% or less. “So, it seems likely that sufficient compliant fuel will be available”, the Club said.
However. blended LSFOs would bring challenges of their own, in the form of catalytic fines and other impurities. Increasing demand for 0.5% m/m fuel was anticipated to drive its price up to 50% higher than the cost of residual fuel, bringing with it challenges for closing loopholes for non-compliance.
One method to meet the legal requirements of MARPOL without the use of low sulphur fuel was the installation of exhaust gas cleaning systems known as “scrubbers”.
There are two general types of scrubbers: wet scrubbers and dry scrubbers.
Wet scrubbers spray alkaline water into a vessel’s exhaust to remove sulphur before it is released into the atmosphere, whereas dry scrubbers expose dry reagents to the exhaust stream to create a chemical reaction that removes the sulphur from the gas. The benefit of installing scrubbers is that ships may continue to use cheaper high sulphur fuels. However, the up-front cost of the scrubber ($1.5m to $2m), retrofitting costs, potential loss of cargo space on board, shipyard capacity to meet installation demands and training of crew to maintain the scrubbers were challenges for the shipowner. The estimated payback time for a scrubber was between two and four years, assuming that the current fuel price movements were proved correct.
Only scrubbers fitted with continuous emission monitoring equipment are acceptable. In the US, scrubbers are permitted but the ship must at all times still continue to comply with requirements and prohibitions in regards to water pollution.
Germany and Belgium have mandated for closed loop scrubbers in some of their ports and parts of their territorial waters. In closed loop scrubbers the washwater is treated to restore its alkalinity after it leaves the scrubber, and then recirculated in the system. Little or no water from the scrubbing process is discharged overboard.
The German green lobby group Nabu has claimed that discharge from scrubbers can have a significant impact on the marine environment.
“Accordingly, whilst scrubbers are generally effective for removing SOx from the gas exhaust, there are a number of considerations shipowners need to bear in mind when deciding whether or not to have scrubbers fitted”, YUK Club said
Alternative fuels – LNG and Methanol
LNG, when used as a fuel, significantly reduced the emission of SOx. It was traditionally used as a fuel onboard LNG ships only but was now also used in other trades such as short sea shipping. LNG’s use as a fuel had been recognized by the IMO in the development of the International Code for Ships.
Using Gases and other Low Flashpoint Fuels (the IGF Code), adopted in 2015. Other recent regulations include ISO 20519 (2017) which standardises LNG bunkering operations internationally. Methanol is a clean burning alcohol, and emissions of SOx and particulate matter from its combustion are low. Methanol is transported in chemical product tankers at atmospheric temperature and pressure, and stored in tanks similar to those used for gasoline. It can be produced from a wide range of feedstocks including natural gas, coal and renewables.
However. there were several challenges facing the success of these fuels as genuine alternatives to high-sulphur content fuel, the Club said.
LNG’s use as a fuel was constrained by the cost of retrofitting propulsion units capable of burning gas and by the lack of port infrastructure to handle bunkering. An LNG bunker barge cost between five and 10 times that of a liquid fuel barge.
But the biggest challenge for using LNG as a fuel was methane slippage due to the incomplete combustion of the methane in the engine. The global warming potential of methane was 25 times higher than CO2; consequently, the release of even small volumes of methane could easily negate the CO2 reduction benefits of using LNG as a marine fuel. The energy density of LNG and methanol was also far lower than for petroleum, which meant higher volumetric quantities were needed to propel a ship a given distance than with traditional petroleum fuel. Ships would therefore need to have larger fuel tanks (2.5 times larger in the case of LNG) which in practice meant reducing its cargo carrying capacity.
Commercial disputes and criminal penalties
Potential disputes under charter party contracts in regards to compliance with fuel emission regulations were foreseeable. Issues that might arise included whether the ship had been “fitted for the service”. If she was not able to burn compliant low sulphur fuel, which party would be liable to pay for deviations to take on compliant fuel, plus off-spec bunkers, difficulties in managing and segregating different fuels onboard to avoid contamination, delays, detention of the ship and even criminal penalties.
Owners and charterers were strongly advised by UK Club to bear in mind the potential issues above and to pay attention to costs and risks allocation clauses when negotiating their charter parties.
Most violations were likely to be met by fines, which, in the absence of any harmonization of sanctions framework, could vary in severity from jurisdiction to jurisdiction. Due to the economic benefits of noncompliance, it was likely that fines would be set at up to 10 times the economic benefit for a year’s operation. Therefore, fines in the region of $10m to $50m per ship could reasonably be expected. Penalties in the US would be more severe. In addition to the imposition of fines, the US Coast Guard (USCG) had the power to seize ships in breach of sulphur regulations, and the Environmental Pollution Agency (EPA) could impose fines of $25,000 per day for the duration of the violation. The PSC, in contrast, has no power to detain ships for non-compliance.
UK Club said that air pollution from maritime transport was a global environmental concern. The need to control the emission of SOx in shipping through regulations was acknowledged, but as highlighted above, challenges for compliance and enforcement remained. The Club hoped that some of these challenges could be addressed before the new global cap comes into force in 2020.
A form of this article previously appeared in Maritime Risk International.