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Going after dirty cheaters

Ocean shipping consortium urges tougher oversight of air pollution rules.

   Several large ocean shipping companies have tentatively agreed to collaborate on ways to ensure regulatory authorities enforce new international requirements on sulfur emissions from commercial vessels, which could lead to divisions between haves and have-nots over the proper involvement of government. 
   The issue has enormous implications for international shipping because the switch to cleaner fuels is expected to lead to astronomical increases in operating costs in the next few years. Companies that skirt the rules could end up with a decided economic advantage over compliant operators.
   Representatives from a dozen shipowners and operators, calling themselves the Trident Alliance, met in Copenhagen in late May with the aim of creating a level playing field in the maritime industry
   “The magnitude of this [change in air pollution rules] is huge. It can be the difference between making profit and losing money,” Bryan Wood-Thomas, vice president of environmental policy at the World Shipping Council, said.
   Some European members of the World Shipping Council, which represents international container lines in the United States, are active in the Trident Alliance.
   Revised International Maritime Organization standards governing air pollution from ships went into effect in 2012. The international marine pollution treaty set new limits on nitrogen oxide (NOx) emissions from marine diesel engines and the sulfur content of marine fuels. It also created emission control areas (ECA) with even higher targets to reduce NOx, sulfur oxide (SOx) and particulate matter in and around busy ports where the concentration of pollution is higher and the health impact on residents greater. Vessels can meet the standards through cleaner fuels or alternative mechanisms such as smokestack scrubbers.
   The sulfur content of vessels operating anywhere in the world is currently limited to 35,000 parts per million (ppm), or 3.5 percent of total fuel content, compared to 4.5 percent under the prior cap.   
   In areas designated as ECAs, the sulfur content of fuel used on board ships must not exceed 1 percent, or 10,000 ppm. Lower sulfur fuel is generally made by blending distillates with heavy fuel oil.
   Ships operating up to 200 nautical miles off U.S. shores must meet the most advanced standards for NOx emissions and use fuel with lower sulfur content. ECAs also exist for the Baltic Sea, North Sea and Caribbean, with the coverage area varying by region.
   Liquefied natural gas is also becoming a viable fuel option for the maritime industry and a handful of carriers have ordered new vessels or are retrofitting existing vessels with LNG propulsion systems, which would not produce any sulfur.
   Emission compliance is garnering more attention in the maritime industry because in January 2015 the allowable sulfur level for fuel burned in the ECAs will drop to 1,000 ppm, or 0.1 percent.
   Those fuel-quality levels can only be achieved by using pure distillate fuels such as marine diesel oil, which are about $300 to $350 per metric ton more expensive than heavy bunker fuel burned during deep-sea travel,  Wood-Thomas, a former U.S. Environmental Protection Agency official and U.S. lead negotiator on the MARPOL treaty, said.
   Today, marine fuel and blends are only about $60 per ton more than heavy fuel.
   “So when you consider how many tons of fuel vessels burn in a given day, the operating cost differential is extremely significant,” he said. 
     
Wide-Spread Cheating. The Trident coalition is concerned that national regulators, especially in Europe, are not conducting enough inspections or the best methods to catch violators, which organizers say will unfairly distort competition.
   Currently, European port state authorities test about one in 250 to one in 1,000 vessels, or about 0.2 percent of all large commercial traffic, traveling within the ECA. Of those tested, about half are found to be in violation of sulfur limits and the penalties are too light, Anna Larsson, a spokeswoman for Wallenius Wilhelmsen Logistics, said in an e-mail.
   “Unless regulations are enforced, the competitiveness of responsible industry will be under threat, as will the health of the world’s oceans,” she said.
   Penalties have to be meaningful, Wood-Thomas, agreed because otherwise companies will just calculate the remote chance of getting caught and a penalty equivalent to one day of operating cost if they are, and take the risk as the cost of doing business.
   And the ripple effect of poor enforcement further escalates in the future.
   The global sulfur cap is set to reach 5,000 ppm, or 0.50 percent, by 2020, subject to a feasibility review to be completed no later than 2018. If the review is negative, the requirement will default to 2025. Europe also is scheduled to require 0.50 percent sulfur content in fuel outside the existing Baltic and North Sea ECAs, essentially creating a quasi-ECA further along the European coast, although exactly what area it will cover is still unclear.
   “And if Europe is not enforcing well, imagine what the situation in Africa, Asia and other parts of the world is like,” Wood-Thomas said. 
   Compliant carriers have a major incentive to ensure their rivals don’t get a leg up by avoiding massive operating costs associated with the new rules.
   Assuming current consumption levels, the maritime industry in 2020 is likely to pay $75 billion to $100 billion more each year if the .50 cap is implemented, Wood-Thomas said.
   That’s on top of the roughly $650 a metric ton carriers pay for bunker fuel today, depending on the time and location. Switching to marine diesel oil would cost $950 a metric ton. 
    And, Wood-Thomas noted, the price of marine diesel oil could rise further as demand for the fuel increases.
   “So what we’re really seeing is a major quantum change in the consequences of regulatory compliance in the marine sector. The overwhelming majority of rules that apply to shipping today usually require you to have particular equipment on board with a crew that knows how to operate it, to meet a variety of standards.  A lot of the cost associated with those rules are often capital costs that done in new building stage or at dry dock,” he explained.
   “With these new rules, although there are other options, much of the fleet is going to comply by the fuel they use. The cost associated to be in compliance with the rule you can measure on a daily operating basis in thousands of dollars. And people in the industry are just scratching at the surface and starting to realize the implications,” he said.
   The issue is particularly relevant in the liner business because carriers pay for their own fuel, unlike the bulk or tanker trades in which the charterer owns the cargo and normally assumes the cost for fuel.
   At its annual meeting in Cyprus in mid-June, the International Chamber of Shipping also raised concern that many governments are not ready to implement the ECA requirements in a uniform manner to prevent market distortion.
   In a statement, ICS urged the Paris MOU on Port State Control (27 maritime administrations covering waters of European coastal states and the North Atlantic from Canada to Europe)—in cooperation with the European Commission and the United States—to develop consistent procedures before the rule goes into effect. Members also agreed that port states need to resolve implementation questions on the use of exhaust gas cleaning systems and other alternatives for those companies that have chosen to invest in them.
  “The shipping industry is investing billions of dollars in order to ensure compliance. The huge costs involved could have a profound impact on the future structure of the entire shipping industry and the movement of international trade,” ICS Chairman Masamichi Morooka said.
   “It is therefore incumbent on governments to get the details of implementation right as we enter this brave new world in which fuel costs for many ships will increase overnight by 50 percent or more. We only have six months to go and we think it vital that governments clarify all of the details of ECA implementation as soon as possible,” Morooka added.
   Trident Alliance representatives are now seeking executive-level commitments within their companies to participate in the coalition and hope to formally organize within the coming weeks. Maersk Line and vehicle carrier Wallenius Wilhelmsen Logistics are among those pushing the initiative.
   In a statement, the Trident Alliance said it would partner with other groups interested in supporting robust enforcement of the international emissions rules.
   No specific strategy to achieve that goal has yet been determined, but potential options include raising awareness about the issue with regulators and law enforcement authorities, researching and documenting enforcement and compliance, and fostering development of innovative technologies to help monitor vessels and detect violations, Larsson said.
   There are some signs that ICS and Trident Alliance messages are getting across. The EU Commissioner for Climate Action and the governments of Denmark and the Netherlands have begun to pay attention to the need to enforce the IMO air quality rules, according to maritime industry officials.
   Meanwhile, there is a push at the European Union to introduce rules for enhanced reporting and verification of carbon dioxide emissions, although it likely will not be implemented until at least 2018, Larsson said. Some officials are trying to add language that would include SOx and NOx reporting.

Is The U.S. Better? The perception among carriers is that the United States has a more effective enforcement program, Wood-Thomas said.
   The U.S. Coast Guard and Environmental Protection Agency share responsibility for enforcing international marine pollution laws. The Coast Guard, as part of its regular protocol for monitoring foreign and domestic vessels for safety, security and environmental compliance, requires vessels to document and record how and when they switch over to the cleaner fuels, their fuel purchases and quantities consumed, Charles Fluke, who heads the vessel inspection program, said. Inspections are conducted of vessels calling at U.S. ports at least once a year, unless there is a random exam or information, such as from a whistleblower, that triggers further reviews.
   Vessels must carry an International Air Pollution Prevention Certificate which tells Coast Guard officers who board how the vessel plans to comply with the IMO rules. The certificate, for example, typically states that the ship will utilize a low-sulfur fuel to meet the emission standard. A second required document is the bunker delivery note, which includes information such as refueling port, name of fuel supplier, product name, and quantity, density, and sulfur content of the fuel. Engineers must also take a fuel sample at fill up in case a Coast Guard officer wants to test the fuel quality or type, Fluke said.
   During routine engine room checks, Coast Guard officers will check whether written changeover procedures are on file, examine the engineer’s log book to see when the fuel changeover occurred, take soundings of the fuel tank, obtain fuel samples from the engine, and inquire into how much fuel the vessel burns each day and how much low-sulfur fuel was consumed from the secondary tank, according to Fluke. The engineers are also questioned about their familiarity with the rules and steps for switching from heavy fuel to low-sulfur fuel.
   The engine fuel samples are compared with the sample of bunker fuel collected at delivery, he said.
   Suspected violations are referred to EPA to investigate.
   There also is a mechanism for crews to report to U.S. and Canadian authorities if they were unable to obtain a compliant fuel prior to arrival in the North American ECA. Vessel operators submit the Fuel Non-Availability Report, along with corroborating evidence, to explain that the ship not in compliance because low-sulfur fuel was not available at recent ports of call. Fluke said his teams will try to verify those claims during inspection visits.
   In determining whether to issue any penalties, EPA and Coast Guard will compare claims that fuel could not be obtained with the voyage plan and known locations of local suppliers, as well as whether the vessel plans to load its auxiliary fuel tank with low-sulfur fuel while at a U.S. port so that it is in compliance upon departure, Fluke said.
   A vessel that repeatedly claims it could not secure fuel might receive heightened scrutiny when it returns to U.S. waters, he said.
   In some cases, scrubber technology that cleans the exhaust is used as an alternative compliance method. The sulfur content requirements for fuel have an emission equivalent that can be checked. Fluke said the exhaust gas treatment systems have built-in sensors that electronically monitor and record air samples, which inspectors can review and compare to previous recordings outside the ECA. The stack discharge readings are also compared with temperature readings from the crankcase and engine, which can vary with the fuel used.
   Another potential enforcement tool is monitoring of emissions by aircraft. Fluke said EPA recently conducted a trial overflight over vessels transiting the Upper Chesapeake Bay near the Port of Baltimore and took air samples of stack emissions to see if they could determine compliance. The agencies are discussing the possibility of a second round of tests, he added.
   Under U.S. law, violations of the IMO air pollution rules are subject to a fine of up to $25,000 for each day operating within the North American ECA. Wood-Thomas said EPA is in the process of drafting a rulemaking, possibly within the next year, which could raise the penalties to $37,500 per day per violation.

This article was published in the July 2014 issue of American Shipper.