Tough decisions, as the clock ticks down

A greener future for shipping

Richard Clayton, Chief Correspondent of Lloyd’s List, looks forward to a momentous year of decision making for commercial shipping

The International Maritime Organization (IMO) is the United Nations agency that regulates shipping, mainly through the work of two subcommittees – the Maritime Safety Committee (MSC) and the Marine Environment Protection Committee (MEPC).

MSC was the driving force behind IMO regulations for many years, but MEPC has, unofficially, taken precedence since IMO signed up to the UN’s Sustainable Development Goals. The two broad goals that are having the greatest impact on shipping are Goal 13: ‘Take urgent action to combat climate change and its impacts’, and Goal 14: ‘Conserve and sustainably use the oceans, seas and marine resources for sustainable development.’

Fuel consumption

The container ship Margrethe Maersk off the California coast. Researchers from the US National Oceanic and Atmospheric Administration studied the vessel’s emissions from a research aircraft and a research ship, and found that, as the container ship reduced speed and shifted to low-sulphur fuels near the coast, air pollution emissions plummeted, in some cases by as much as 90 percent. Photo: NOAA / PD

In 2011, IMO became the first international body to adopt mandatory energy-efficiency measures for an entire industry sector, with a suite of technical and operational requirements for new and existing vessels that entered into force in 2013. Expectations were that by 2025 all new-building ships would be 30% more energy efficient than those built in 2014.

The new fuel consumption data collection system requires aggregated data to be reported to a ship’s flag state after the end of each calendar year. When it confirms that the reported data comply with requirements, the flag state issues a Statement of Compliance to the ship. The data are transferred to the IMO Ship Fuel Oil Consumption Database, from which the IMO Secretariat draws up an annual report for the MEPC subcommittee. Collecting these data on fuel consumption gives the IMO a statistical platform from which to take decisions and, crucially, supports IMO’s claim to be the single competent forum for regulating international shipping.

IMO welcomed the Paris Agreement on Climate Change, which was drafted in December 2015, unanimously recognising the agency’s own role in mitigating the impact of greenhouse-gas emissions from international shipping.

Sulphur limits

The next step in its strategy was to put into effect a significant reduction in the sulphur content of fuel oil used by ships, from 3.5% mass/mass to just 0.5%. There was no doubting the need for the change. As IMO Secretary General Kitack Lim explained, the reductions are expected to have ‘a significant beneficial impact on the environment and on human health’, particularly for people living in port cities and coastal communities beyond the existing emission control areas.

The date for introduction of the new global limit was contentious, with some states arguing that there would not be sufficient compliant fuel by an initially agreed launch date of 1 January 2020; they were pushing for a delay of five years. After much negotiation, a decision was reached in favour of sticking to the tighter deadline, although a review would be undertaken on whether enough compliant fuel would be available.

Even though this decision was acclaimed as a landmark for the environment and for human health, it left little time for a global industry to evaluate the alternative fuel sources, make necessary investment in compliance strategies, train seafarers and shore employees in bunker handling, enable oil refineries to plan fuel policies, and allow engine manufacturers enough time to develop and install compliant propulsion systems.

Regulations governing sulphur oxide emissions from ships are included in Annex VI to the International Convention for the Prevention of Pollution from Ships (MARPOL Convention). Annex VI sets progressively stricter regulations to control emissions from ships, including sulphur oxides (SOx) and nitrous oxides (NOx).

One year to go

There is now only one year to go before the new global sulphur limit kicks in. The maritime sector, from flag states to class societies, and from bunker associations to shipowner organisations, has been feverishly assessing the options, which effectively boil down to (a) use an IMO compliant fuel with 0.5% sulphur content; (b) install an exhaust-gas cleaning system (known as a scrubber) and continue to burn 3.5% sulphur fuel; or (c) use an acceptable alternative such as LNG or methanol. A high-sulphur fuel can be used where IMO 2020-compliant fuel is not available – in such cases a Fuel Oil Non-Availability Report must be tendered.

For ships operating mostly or partly in Sulphur Emission Control Areas, currently the Baltic Sea, the North Sea, and the coast of North America, the transfer is not expected to cause much concern. Operators have had to source compliant fuel for several years – since 1 January 2015 in the case of 0.1% sulphur fuel. But for vessels operating outside these areas, the shift from 3.5% to 0.5% will be significant.

For many, the option of installing a scrubber in time for launch date is no longer available. By the end of 2018 it is estimated about 1,200 scrubbers will have been fitted or ordered to be fitted to meet the deadline, compared with IMO estimates of about 3,800. This has a bearing on whether refiners provide sufficient quantities of high-sulphur fuel to serve the ships with scrubbers. For these ships the time it takes of pay off the additional investment in a scrubber has been a key factor.

The consensus appears to be that those who have already installed or ordered will see a swift return on their investment, while those who have left the decision to invest beyond 2020 will see not only a lengthening of payback time but also a narrowing in the price difference between high- and low-sulphur fuel.

Ballast water

The fuel consumption data collection and global sulphur limit regulations have not been the only environmental demands in shipowners’ in-trays. The long-running Ballast Water Management Convention was adopted by IMO in 2004, but it was not until September 2016 that the tonnage threshold was passed.

The International Convention for the Control and Management of Ships’ Ballast Water and Sediments was introduced to halt the spread of invasive aquatic species, which damage local ecosystems, affect biodiversity, and can cause substantial economic loss. It entered force on 8 September 2017, one year after Finland handed over the instrument of acceptance.

This convention requires all ships in international trade to manage their ballast water and sediments to certain standards, according to a ship-specific ballast water management plan. All ships will also have to carry a ballast water record book and an International Ballast Water Management Certificate. The performance standard is being phased in over time, to allow owners to install an on-board treatment system. After a slow start, more than 60 type-approved systems are available; the US Coast Guard has nine systems already approved and ten more under review.

Shipowners were reluctant to invest in treatment systems until they could be sure their system was widely approved, with the US Coast Guard – the initiator of this regulation – holding back the longest. The main techniques used for ballast water treatment are ultraviolet radiation, electrochlorination, and chemical injection systems.

A year of decisions

Complying with these three IMO-driven requirements has become a major headache for shipowners, and they dominate technology conferences across the maritime world. The year to 1 January 2020 will be one of decisions for owners, operators and managers, not helped by a further requirement to pursue a major reduction in greenhouse-gas emissions by 2050. Neither the IMO nor shipowners’ organisations want compliance to become a tick-box exercise. However, some financially stretched owners are likely to make decisions not only about emissions reduction but also about whether it’s possible to be both green and profitable.

One of the consequences of these ongoing discussions is the impact they have had on the service sector, including classification. Class societies have a depth of technical knowledge that most shipowners lack, so it’s expected that owners will seek to form closer partnerships with class. This will only be aided by digitisation, and especially by the increasing use of data analysis, to drive optimisation of vessel operations. This in turn will call for differently skilled seafaring and shore staff.

Faced with a transformation of the environmental landscape for commercial shipping, decisions will be taken over the next year that could see seismic changes in the industry. Few shipping leaders have so far invested in new technology to ease this transformation, and the clock is ticking.

Richard Clayton joined Lloyd’s List in mid-2017 as Chief Correspondent. He has long experience as a maritime journalist and was previously for many years Daily News Bulletin Editor then Editor of Fairplay magazine.