A few dollars more – for good or ill?

Malcolm Latarche

Malcolm Latarche · 20 December 2019

ShipInsight


On the face of it there is a lot to commend the idea of a $5Bn decarbonisation research fund initiated by the shipping industry and very little reason to question it. However, there will almost certainly be a huge amount of opposition to it and from a wide variety of different interests.

The full proposal that has been presented to the IMO by a consortium of shipping bodies including ICS, WSC, Intertanko, Intercargo, CLIA and Interferry are in a document that runs to around 30 pages. In essence it proposes a $2 per tonne levy on all fuel supplies to ships which would be used to fund a body which would dispense grants to organisations researching and developing new fuels and technologies intended to aid meeting the IMO’s decarbonisation emissions.

The proposal emphasises that a mandatory contribution system for shipping companies, established via amendments to MARPOL or another appropriate mechanism, will be vital for this concept to work. This is to ensure a level playing field and the maintenance of the necessary funding for the research body and its programmes. Without a mandatory mechanism, there would be no guarantee that every shipping company worldwide would contribute on a fair and equal basis.

Having read the document it does seem that there is some ambiguity as which vessels would be involved in contributing to the fund. There are many references in the document to the commercial maritime sector but MARPOL Annex VI (and in fact most of the rest of MARPOL) applies to all ship types not just those on international voyages as SOLAS does.

Exactly what is defined as a commercial ship will vary depending upon flag state and local laws. In some jurisdictions and also in the minds of many industry professionals this might be restricted to cargo or passenger vessels but in others it would include workboats, tugs, fishing vessels and other ship types.

At one point, (Para 40 page 10) when discussing how fuel consumption should be verified the proposal mentions that for vessels above 5,000gt the verified reports required for IMO and EU rules could be used but for smaller vessels it says an alternative method would be needed to be devised. However, in an annex to the report covering the impact assessment of the proposal it twice says that the proposal would apply to ‘All ships subject to MARPOL Annex VI (at least 5,000GT and above)’.

The point is made that $2 per tonne is well within the daily fluctuation range of bunker fuels and that is quite true. Nevertheless, it is an additional expense that for some owners will mean less money to spend on safety or other vital outlays. More importantly, some will see acceptance of the proposal as opening up more levies on bunker fuels which the industry has fought against for years. This latter aspect will also be a point of contention about the $2 per tonne fuel levy.

Operators of older ships tend to do so because the cargo they carry attracts less freight, so their ships are rarely in competition with the newer vessels of richer owners. The point is they just cannot afford them, but they do allow the richer owners to make new investments as they are there to buy the ten to fifteen year old cast offs of the wealthier owners. If there are carbon taxes on oiil-fuelled ships, the poorer owners will have contributed in an equal way to the new technology which allows the wealthier owners of zero emission vessels to avoid such levies but will have to wait for a decade or more to enjoy any fruit from that investment by which time the burden of carbon levies may have forced them to go under. Perhaps a fairer way way would be to look for an average of $2 per tonne for the R&D fund but make a sliding scale that recognises the expected working life of teh evssel remaining. That way teh wealthier owners who will benefit most when new technology becomes available will have paid more towards it.

The proposal does recognise that some owners have already taken action and are operating on alternative fuels. On this it says ‘As a matter of principle, a lower R&D contribution per tonne would be set for alternative low-carbon fuels and energy sources, or those with lower GHG emissions than conventional fuel oil.

Here again the proposal might find objections on how GHG emissions are calculated. For example, some flag states consider that biofuels are carbon neutral but this is not universally accepted wisdom. Even some environmentalist bodies consider that biofuels have a higher carbon footprint than oil fuels. Some are of the opinion that even hydrogen is not the clean fuel that many say it is.

There may well be IMO member states that want the full well to wake carbon footprint of alternative fuels to be considered. Achieving consensus on that could be problematical as the power needed to produce hydrogen by any of the current possibilities will come from different means depending upon the country of production and therefore give different carbon footprints.

Whether or not the proposal garners the support of IMO member states remains to be seen. Even if it doesn’t the fact that it has been made will demonstrate that the shipping industry – or a significant part of it – is not the uncaring and polluting enemy of the environment as some like to portray it.

Of course in the long run, any increase in shipping costs will at some point end up being paid for by the world population and it is their reactions that may influence member states positions on the proposal.

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