In a series of articles, Beth Bradley and Chris Moxon examine the legal issues arising from the modern drive for environmentally aware shipping, following the entry into force on 1 January 2015 of the requirement for 0.1% sulphur in fuel oil within designated Emission Control Areas (ECAs). 

Issue 4: The future

The previous articles in this series looked at how the industry is responding to increased regulation post January 2015. In this article, the future will be considered.

The ECAs in the Baltic Sea, the North Sea, the English Channel and the waters within 200nm of the coast of the US and Canada presently have a sulphur limit of 0.1% and discussions are underway to significantly reduce sulphur emissions within all EU waters by 2020. It is also possible that new ECAs will be added to the existing ones and that globally there will be a further move towards lowering sulphur emissions with a worldwide cap of 0.5% sulphur by 2020.

To date the emphasis of regulation has been on NOx, SOx and particulate matter, but a new IMO Ballast Water Convention is on the horizon. As more and more regulation will be implemented over the coming decade, balancing the need to comply with regulation and the cost of investing in future proof technology in tough economic conditions is a key challenge facing the industry.

Increased scrutiny on the use of fossil fuel in shipping into 2020 and beyond will, as earlier articles have touched on, require ship owners to consider whether to switch to more environmentally friendly sources of energy (such as LNG) or whether to invest in fuel switching technology or scrubbers. Predicting the focus of future regulation is also a real concern; a cap on particulate emissions would, for example, have serious repercussions for owners who have invested heavily in scrubbers, as such devices typically reduce only sulphur emissions, not particulate matter.

The viability of fuel switching or alternative fuels is heavily dependent on the cost of different fuels, often driven by the price of oil, and how those markets are likely to develop over the short to medium term. The relatively low oil price that has endured from the entry into force of the 0.1% cap on sulphur emissions to date is unlikely to last for years. We are yet to see, therefore, whether a high oil price will have little effect on the current high levels of compliance with the regulations, or whether certain owners, perhaps under financial pressure, choose to take their chances and risk the penalties that come with non-compliance.

Enforcement of the regulations is likely to remain a significant issue. When the global cap on sulphur emissions comes into force, for example, how will enforcement of the regulations take place in the middle of the Pacific Ocean?

All of the above issues are set against an uncertain economic environment with which the fortune of the shipping industry is inextricably linked. A return to growth on a global scale will increase the demand for sea transport and ease the investment decisions highlighted above. Conversely, continued low growth will not. While it is impossible to predict the future, it is clear that environmental regulation of shipping is here to stay.