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Clean Up Effort for Hong Kong Port Hits Rocks

26 March 2012

In 2010, Hong Kong’s government—long criticized by activists for failing to clean up the city’s iconic Victoria Harbor—was handed an extraordinary corporate gift. A group of 17 cruise and shipping lines volunteered to begin burning more environmentally friendly fuel when berthed in Hong Kong’s waterways, at no small expense to their shareholders.

Now, though, as the shipping industry reels from billion-dollar losses, the future of that agreement is on the rocks. The so-called “Fair Winds Charter” is slated to expire in December, and without more government support, say companies, prospects for its revival look murky.

This month, Hong Kong’s largest container ship operator, Orient Overseas International Limited, announced that its profits slid by 90% in 2011. Likewise, Maersk Line—the world’s biggest container shipping company—has announced that its profits have taken a hit, dropping by a third last year as well. Both companies are signatories to the Fair Winds Charter. The container shipping industry has been badly battered by high spikes in fuel prices and slowing trade volumes and is still struggling to recover from a $19 billion industry-wide loss in 2009.

Last month, in a bid to support the Fair Winds Charter, Hong Kong’s government announced that it would begin reducing port dues for shipping companies who make the switch to low-sulfur fuel at berth. Shipping companies, though, say that this subsidy would only offset about 40% of the costs involved in using the cleaner fuel.

Teddy Fung, managing director of Orient Overseas Container Line’s Hong Kong branch, said that the company will “certainly” continue its practice of burning cleaner fuel at berth after December. However, no other companies have publicly committed to doing the same.

When asked about whether Maersk would continue burning low-sulfur fuel after the Fair Winds Charter expires, Tim Smith, chief executive for North Asia at Maersk, said the company had not yet decided. He noted that last year alone, participation in the Fair Winds Charter cost Maersk over $1.7 million.

Similarly, Mr. Fung said that burning cleaner fuel cost OOCL about $1.5 million per year, or about $1,800 for every port call.

So far, what the Hong Kong government has offered isn’t enough to assure Mr. Smith that industry will stay on board when the charter runs out at the end of December.

“We’re worried that some carriers currently signed up [with the Fair Winds Charter] may say, well, ‘That’s not good enough,’” he said. “And they’ll pull out.”

Traditionally, ships at berth in Hong Kong have burned bunker fuel: the inky, viscous sludge left over from the crude oil refining process, which produces far more pollution when burned than fuels such as diesel. Though burning cleaner fuel may be more expensive, environmentalists say such costs are a bargain compared to the environmental toll of burning bunker fuel in proximity to Hong Kong’s densely populated shores. According to a 2007 study by University of Delaware professor James Corbett, pollution caused by the shipping industry kills an estimated 60,000 people a year globally. In the Pearl River Delta, home to the busy shipping lanes of Hong Kong, Shenzhen and Guangzhou, such figures are especially worrisome.

After all, Hong Kong is the third-busiest port in the world, with some 425,000 vessels streaming into the city’s waterways in 2010 alone. “There are no other areas that have this density of traffic, population, and weak regulation,” says Veronica Booth, senior project manager at local think tank Civic Exchange.

A University of Hong Kong study released in January (pdf) estimated that every year, some 3,200 people are killed by Hong Kong’s air pollution. When it comes to nitrogen dioxide pollution levels, among China’s 32 largest cities, Hong Kong’s are the country’s second-highest. Even limited exposure to heavy air pollution can trigger strokes, arrhythmia and heart failure.

Given the impact of shipping pollution, in recent years, governments in Europe and North America have begun requiring ships to burn cleaner fuels when entering their waters. Asia, though, remains a regulatory no-man’s land.

Though it might not be customary for industry to lead the fight for more government regulation, Mr. Smith says that in this case, it’s natural. “In the long run, industry knows that we have to switch to cleaner fuels,” he says. However, if the entire shipping industry was to stop using bunker fuels overnight, he says, the costs would run into the “billions” of dollars. “That’s why we’ve been asking the Hong Kong government for help. We’re looking for a road map,” he says. Specifically, Mr. Smith says he would like to see Hong Kong’s government introduce regulations that would require all industry players to switch to cleaner fuels – not just those currently signed onto the charter. “It’s not a level playing field at the moment,” he says.

Currently, even with the Fair Winds Charter in place, Hong Kong University of Science and Technology’s Dr. Simon Ng — who closely monitors shipping pollution — notes that only 10% of ships making port calls in Hong Kong are currently switching to cleaner fuels while at berth. Larger entities that aren’t presently participating in the Fair Winds Charter include companies such as the Mediterranean Shipping Company, “K” Line Logistics and China Shipping.

“It’s going to take one step at a time,” says Dr. Ng. “The shipping industry’s been badly hit by the economy. And for them to switch [fuels] is going to cost a lot.”

– Te-Ping Chen. Follow her on Twitter @tepingchen

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