Getting the timing right

Malcolm Latarche
Malcolm Latarche

27 January 2017

Last October, MEPC 70 determined that 2020 would be when the final reduction in the global sulphur cap came into effect. The decision was not without controversy but was made nevertheless. At the time the IMO said that ‘Further work to ensure effective implementation of the 2020 global sulphur cap will continue in the Sub-Committee on Pollution Prevention and Response (PPR)’. PPR 4 took place last week and the report of the meeting does not offer much in the way of clearing up questions about the wisdom of settling on 2020. Just as with the drop to 0.1% in ECAs in 2015, there have been fears (since proved to be mostly unfounded) that some owners would flout the rules and PPR has been tasked with finding ways to ensure this does not happen. The IMO’s report of PPR 4 states that the Sub-Committee began work to ensure the consistent and effective implementation of the 2020 0.50% m/m sulphur limit which would not be unexpected but while emphasising that aspect of the new sulphur cap, the report also listed several other points that could be proposed to be completed during PPR sessions in 2018 and 2019. There were some inclusions in the list that would seem to suggest that the misgivings of many apparently dismissed at MEPC70 are being given some consideration. As an example these include:
  • Considering the preparatory and transitional issues that may arise with a shift from the 3.50% m/m sulphur limit to the new 0.50% m/m limit;
  • Considering the impact on fuel and machinery systems that may result from the use of fuel oils with a 0.50% m/m sulphur limit;
  • In considering what additional measures may be developed to ensure consistent implementation of the 0.50% sulphur limit, the justification notes that implementation of the 0.50% sulphur limit in 2020 will significantly reduce SOx emissions to the atmosphere from the world's fleet, but this new international regulatory standard will also introduce a significant change in the daily operating cost of ships operating outside ECAs. Those additional costs are of a magnitude that could cause serious commercial distortion if there is uneven implementation of the 0.50% sulphur limit.
  • Products emerging to meet the 0.50% sulphur limit are expected to cost less than traditional marine distillates, but a substantial price differential is nevertheless anticipated with various forecasts suggesting a wide range. Therefore, without consistent implementation to all ships, it is impossible to ensure a level playing field for use of the 0.50% sulphur limit fuel oil, with the result that the expected improvement of the environment and human health could not be achieved.
  • Concerns on fuel oil quality and ships' safety were also noted.
Unlike the ballast water system issue, for which owners seem to have found a workable method for extending the compliance date, the global sulphur cap is a fixed point in time after which every ship must comply. Leaving issues to be resolved through to PPR 6 2019 does not seem to give owners much time to prepare thereafter. With regard to the commercial distortion that could arise due to uneven implementation, it is understandable that ships which have complied may face unfair competition from those that have not, but what thought has been given to the costs faced by cargo interests? If the world fleet is suddenly reduced by even a small percentage, the supply and demand for shipping space could alter dramatically forcing freight rates and consequently commodity and goods prices up to levels that will have a depressing effect on world trade.