Australia: Fuelling the Future: the dilemma for the wider shipping industry

Shipping newsletter - Legalseas

In the film Pretty Woman, the character played by Richard Gere asks Vivien (Julia Roberts) why she guessed he was a lawyer. Her reply is "You've got that, um... sharp, useless look about you". Whilst most of us in the profession would hope to be seen as sharp but not useless (please refrain from commenting on twitter), the latter adjective is probably more accurate when describing lawyers' input into the ways in which the shipping industry will cope with the change in the sulphur emission regulations. Lawyers can advise on the regulations themselves but, how to comply with them is a subject for serious technical and commercial experts.

Understanding our limitations in this respect, Norton Rose is pleased to be hosting the next annual meeting of Shipping Emissions Abatement and Trading (SEAaT) on Thursday 18 April 2013. SEAaT is an industry group, formed in 2002, to raise awareness and acceptance of solutions for emissions reductions that are sustainable, cost effective and achievable. The conference will bring together key stakeholders in the shipping and oil industries, including government ministers, industry regulators, ship owners and operators from many sectors - ports, fuel suppliers, manufacturers of scrubbers and other equipment and software, fuel producers and suppliers and financiers - who will debate the issues and the possible solutions. Norton Rose understands the importance of such issues to its clients and has been a supporter and associate member of SEAaT for some years.

The conference will provide some much needed comment on an issue that throws up many opinions and "facts", be they scientific, commercial, or technical, as to the best way for the industry to deal with these challenges. There have been many articles on the "next big thing" in marine fuels - is it LNG, methanol (DME) sourced from LNG or bio methanol sourced from wood? As for technical solutions, are scrubbers the way forward which will allow, albeit with significant upfront costs, the use of cheaper higher sulphur distillates, or are they not yet reliable enough for all ships in all sectors?

These questions are not ones which a law firm is qualified to answer. What we can talk about with confidence are the regulations themselves and the important deadlines coming up. Ship owners and operators now face a stark choice when planning their operations beyond 2015. Careful forward planning is required to ensure that the operations of existing and newbuilding vessels are not only compliant with the post-2015 requirements but the measures taken are economical and practical.

In 2015, new international ship emission rules, introduced as a revision of Annex VI to the International Marine Pollution Prevention (MARPOL) Convention, will come into force. These new requirements will reduce the maximum allowable sulphur content in marine fuels to 0.1 per cent when vessels are sailing in the designated emission control areas (ECAs). Currently, ECAs cover the Baltic and North Sea, including the English Channel as far west as Falmouth. The North American ECA has been in force since 2012 and the US Caribbean ECA will enter into force next year around Puerto Rico and the US Virgin Islands.

Most merchant ships will operate in an ECA at some point during their lifetimes and many, including ferries, offshore support vessels and shortsea/coastal vessels, will spend their whole trading time within an ECA. Additionally, state parties to the MARPOL Convention can establish new ECAs and these are expected to be declared in the Mediterranean, Australia and the Far East in the years ahead. In addition, a global requirement of a 0.5 per cent maximum sulphur content will be applied to all marine fuels in all areas outside the ECAs from either 2020 or 2025.

The regulations have been strongly and vociferously resisted by many in the European shipping industry since they were introduced, but such complaints have come to nothing. The regulations will come into force as planned despite sympathy for the dilemma in which some ship operators, such as ferry and shortsea operators, now find themselves.

By way of example, one suggested solution, the installation of exhaust gas scrubbers, requires considerable capital expenditure and modification to the ship. Concerns have been voiced in some quarters that these devices are not yet sufficiently reliable for continuous use. Such is the concern that the UK Government has agreed to work with the shipping industry, classification societies and producers of abatement equipment to consider the legislative and enforcement issues in relation to exhaust gas cleaning systems. The issues include clarification of the 'temporary breakdown' exemption under Annex VI and a new EU regulation, which will set out the actions to be taken by a shipowner/operator in order to avoid any prosecution by national authorities for inadvertent breach of MARPOL requirements.

Alternative fuels are another option but this potential solution brings its own problems; for instance, LNG is suggested as a realistic, economically sensible, low emission alternative to the scrubbing of funnel gas. But decisions to build the infrastructure to supply LNG bunkers have yet to be taken in most ports; there is currently no distribution network for relatively small quantities of LNG to bunker suppliers in even the major ports; ships' bunker tanks will have to be converted and for almost all ships this solution is still some way off being a practical one. That is not to say that no progress is being made; but simply that this will not be a widely available solution in 2015.

Whichever solutions are put into place, compliance with the provisions of these new regulations will be achieved through periodic inspections and surveys by both Flag State administrations and Port State controls. These regulations will provide a challenge for regulators: currently a Port State control officer, armed with a clip board, can determine whether a ship is in compliance with the key safety conventions subject to Port State control. Emissions and ballast water regulations will require a more scientific approach, with expensive testing of samples of fuel and ballast water from ships, in order to determine compliance and detect deliberate non-compliance with the regulations. Commentators have considered that the use of "sniffer" drones might be one way to check on the air emissions from ships passing through territorial waters of states in the ECA, to determine whether low sulphur fuel or scrubbers are being used and are effective. This is an expensive solution and one which constrained national enforcement budgets might struggle to meet.

With these pressing issues in mind, the forthcoming SEAaT conference is welcome for both its timing and content. The list of speakers is comprehensive and authoritative and Norton Rose looks forward to welcoming the speakers and delegates to what will be an interesting and important discussion on regulations, which will affect many of those involved in this important industry.

For further details of the Fuelling the Future conference, please see the SEAaT website.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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