In the midst of a lingering recession affecting world wide trade, the shipping industry faces up to rising environmental demands from around the globe. Various regulatory changes and market pressures are being applied to the industry and the industry needs to plan for their impact.
Among the measures being implemented, IMO have introduced the Energy Efficiency Design Index (EEDI) to measure the design efficiency of all new builds of over 400 gross tons from 2013, which it believes will cover 72% of emissions from new ships. Older vessels will be subject to the Ship Energy Efficiency Management Plan (SEEMP), pushing operators to improve the energy efficiency of their fleet.
Regulators and regional legislators such as the EU have also been making noises about regional emissions reduction plans, Emissions Trading Systems (ETS) and other market based measures.
Later this year North America will be the latest region to implement and enforce an Emission Control Area (ECA) similar to those already in place in the North Sea and the Baltic. The aim for the North American ECA is to reduce sulphur emissions by vessels to 1% from 1 August 2012 and then to 0.1% by January 2015, in line with the European ECA timetable and the levels written into the pollution rules of the IMO.
The big question facing shipowners is how they attain these massive reductions – LNG conversion? Scrubbers? Distillate Fuels?
An option that has gained widespread publicity and support to date has been the conversion to LNG powered vessels, which would eradicate SOx emissions and reduce NOx to Tier III levels, but would be a huge financial and operational burden on already hard pressed shipowners. Despite this, the conversion and order of LNG fuelled vessels has already begun, with shipowners having already taken the plunge for new orders to be delivered over the coming years. When these vessels come into service, they come with their own challenges and regulatory requirements – compliance with the IMO Interim Guideline MSC 285(86) and Code that will be incorporated into the 2014 revision of SOLAS. Owners will need to re-train crew, have experienced managers in place and ensure that the global supply of LNG is capable of meeting their operational needs. Given the interest in LNG at the moment, it is a reasonable (but by no means certain) prospect that worldwide supply will be met and cost will decrease as it becomes a widely used product.
Whether the conversion of the global fleet to LNG is a realistic prospect for the industry remains to be seen; but it will require a decision by owners as to whether the cost of converting vessels and supplying LNG, coupled with the availability of supply, render it a viable option to meet their obligations and future business needs.
Support for scrubber technology has also steadily increased over recent years. Following advancement in technology, some owners are looking at installing sulphur reducing technology to its engines for vessels operating regularly in ECAs. Scrubber technology is fairly nascent and has a long way to go before it will be widely deployed, but it is likely that some sectors are more likely than others to deploy it. Recent operators installing scrubbers include Dutch shipowner, Spliethoff, who have reportedly ordered a 28 MW scrubber system for one of its vessels; and DFDS, who deployed a 21 MW on the Tor Ficaria.
As shown by the above orders, the ro-ro sector in ECAs such as the North Sea has been tipped as one of these, as the investment required to purchase and install the technology will be offset by the fuel savings compared to low sulphur distillate fuel over the number of years the vessels will be operational in an ECA. Obviously, no solution is a one size fits all and each solution will have its own particular problems for each owner, depending on the type of vessel, area of operation and circumstances of the owner. Given the current economic pressure the industry is under, many owners may choose to save on up front capital outlay and switch to distillate fuels in ECAs to reduce their SOx and Green House Gas (GHG) emissions. As distillate fuel is priced at a premium, their initial saving will be balanced against increased future expense.
Whilst owners have decisions to make about how to reduce their SOx, NOx and GHG emissions, there are numerous options under consideration by the industry. Owners’ decisions are likely to be based on the requirements of their fleet, the cost implications and when owners wish to finance the outlay – with immediate capital, or with longer term expense.
However, the fact that shipping is a market driven industry, responsive to international trade and the global economy, must be taken into account. As mentioned above, the EU is also moving towards including shipping in a market based measure for reduction of GHG emissions in a similar way that it did to the aviation industry. This has caused considerable consternation from shipping interests, who claim that the law makers do not understand the pressure this will put on them.
There are many arguments for and against the ETS and market based measures, which are currently under consultation by the EU. Regardless of which measures are introduced and in what form, what is clear is that shipping needs a global solution to emissions and not a regional one if modal shifts in international transport are not to occur. The danger is that shipping becomes a political instrument, with some regions willing to offer reduced emissions regulations in an attempt to gain a competitive advantage. IMO are acting, but perhaps ship owners need to take the initiative and drive change to benefit the environment in a way that works for the industry.
Investment in technology and clean vessels is a large burden, but the reputation benefit and potential emissions trading benefits would suggest that owners who move quickly can propel themselves into the forefront of green shipping. For the flexible owner who has the ability to manoeuvre and invest in its fleet, there are opportunities for investment in new trade routes with less stringent regimes and for trading emissions from their allowance as a virtue of having an efficient, clean fleet.
Like it or loathe it, green shipping is on the political agenda and it here to stay. There is a lot of uncertainty as to what the future will look like, but what is certain is that owners need to plan for the change now in a way that will benefit their operation.