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Change of Tack HK Shipowners Are At Forefront Of A Battle For Tighter Emissions Curbs

Sarah Monks, SCMP – Jun 19, 2008

In an unusual reversal of roles, a global industry – shipping – is pressing international regulators for tighter controls over its toxic emissions. And Hong Kong owners have been in the vanguard, campaigning for earlier use of cleaner fuels by the world’s 60,000 ocean-going merchant ships.

The International Maritime Organisation (IMO) stunned itself and the world in April when its normally fractious members agreed to tighten emission caps by 2020 for sulfur oxides (SOx), nitrogen oxides (NOx) and other pollutants. The revised caps, which the IMO is expected formally to adopt in October, would end shipping’s dependence on the dirtiest, cheapest fuel – residual oil, a tar-like refinery waste product.

“We are embarked on a very positive journey in the next 10 years that will see a massive decrease in toxic air emissions from ships,” said Arthur Bowring, managing director of the Hong Kong Shipowners Association (HKSOA), which has 160 members. “We have set ourselves an obligation. We now have to live up to that and meet that as an industry. If it hadn’t been for Hong Kong and Intertanko [the London- and Oslo-based International Association of Independent Tanker Owners] the IMO’s revisions would have been minor changes.”

The IMO’s intended new cap for sulfur content in fuel is 3.5 per cent (from the present 4.5 per cent) after January 1, 2012, falling steeply to 0.5 per cent from 2020. The limits in specified emission control areas would be 1 per cent in less than two years (from 1.5 per cent now) and fall to 0.1 per cent from 2015.

Thus, in a little over a decade, the world’s merchant ships are expected to have switched from the residual oil they have burned for nearly a century to a cleaner distillate, which is closer to truck diesel and jet fuel than it is to refinery waste.

“We dream of clean engine rooms and engineers in clean boiler suits,” said Mr Bowring. “We can’t wait to get to global distillate fuel grade so we can fill up our ships with a consistent quality fuel just like we fill up our cars.” He pointed to present difficulties for ships carrying multiple grades of fuel and aiming to meet different emissions regimes. Switching fuels at sea is a potentially dangerous procedure, with a risk of engines stalling in busy shipping lanes. Failure to use the right fuel could lead to costly sanctions such as ship detention.

Mr Bowring said the maritime industry, which accounts for about 90 per cent of world trade, realised some years ago that it must shift to a proactive mode in tackling public concerns about marine emissions.

Emissions have risen as seaborne trade has more than doubled in less than 20 years. Emissions have also been linked to deaths and heart diseases in places close to heavy marine traffic.

“You’ve got to be proactive. You can’t hide behind the regulations and the legislation and wait until you are forced,” said Mr Bowring. “And it’s very clear to us that our industry has to contribute to the reduction of pollution in the Pearl River Delta.

According to the Environmental Protection Department’s air pollutant inventory, marine emissions are the second-largest source (5 per cent) of sulfur dioxide in Hong Kong, after electricity generation (89 per cent). They are the third-largest source (18 per cent) of NOx, after electricity generation (44 per cent) and road transport (23 per cent).

Mr Bowring said self-interest had been a powerful reason for the industry’s change of tack as it was better for the industry to develop its own regulations via the IMO, a UN agency, than be vulnerable to a patchwork of conflicting local regulations that would make sea transport less efficient.

In 2005, the HKSOA stepped on to the international stage with aggressive proposals to switch to cleaner fuel. Mr Bowring said it was a natural role for Hong Kong, as the city was the world’s fourth-largest centre for owning, operating and managing ships.

“Asia is not known for being outspoken. Hong Kong is willing to be outspoken. That’s the nature of Hong Kong,” said Mr Bowring. “It gives us great leverage and we’ve used it for a number of maritime issues in addition to marine emissions, such as bulk carrier safety standards and fatigue at sea. We’re willing to go out on a limb over issues and go on the world stage and be seen as a voice for Asia.”

The HKSOA lobbied unsuccessfully at the IMO for even tighter caps and a faster switch to global distillate that would eliminate the need for special emissions control areas but the world’s maritime administrators, including Hong Kong’s Marine Department, preferred “a compromise solution”, said its deputy director, Patrick Chun Ping-fai.

“Although I think people might appreciate their [HKSOA’s] argument … it appeared to us that their proposal would not be feasible or viable after taking into account various considerations, in particular the impact on the shipping community and also the ability of the oil refineries industry to provide a very-low-sulfur-content fuel to ships all over the world,” Mr Chun said.

The eventual April amendment to the IMO convention, known as MARPOL Annex VI, has a compromise clause to review the fuel supply situation in 2018, with an option to postpone the adoption of global distillate until 2025.

“We’ve dug a hole for ourselves here,” said Mr Bowring. “The burden is on us to find a solution with the refineries. They will have to switch from supplying about 380 million tonnes of residual oil to supplying the same amount of distillate. They will probably need new refineries and to upgrade existing refineries to create the capacity.”

He predicted that distillate would be twice as expensive as residual oil, though the impact on transport costs would be marginal as fuel was a relatively small factor in the end consumer price.

The IMO’s intended final sulfur-content levels were “a leap rather than a step”, said Douglas Rait of specialist maritime firm Lloyd’s Register. “It remains to be seen exactly how the fuel oil supply industry will react, what type and composition of fuel oils will be produced to meet the requirement, and what means will be necessary to assess their key characteristics on delivery,” added Mr Rait, global manager of the firm’s fuel-oil-bunker analysis and advisory service.

A spokeswoman for ExxonMobil Hong Kong, a major fuel supplier, said the company would be ready for the global changeover to 0.5 per cent distillate by 2020 and supplies would be ensured. A Shell Hong Kong spokeswoman said the IMO proposals provided flexibility for reaching the revised emission reduction levels.

Demand for cleaner marine fuel needs to rise sharply by 2020 to spur refineries to invest in its production, said Mr Bowring. A key HKSOA strategy was to press for an emissions control area for Hong Kong and Pearl River Delta waters, with cleaner fuel a requirement for entry.

“If we have a PRD emissions control area at 0.1 per cent it will instantly reduce the SOx and particulate matter from all ships going into one of the world’s largest shipping areas. It will also guarantee refineries a distillate market by ramping up demand,” he said.

Various port authorities would need to work together to create a regional emissions control area. But the Environmental Protection Department says they “have different priorities and considerations in terms of the implications that such a move may have on their port activities and businesses”.

Another hurdle to justifying an IMO-approved emissions control area is the prior need to show that equivalent efforts are being made to reduce pollution from factories and other land-based sources.

“The Guangdong authorities have already put a lot of effort into reducing air pollution,” said the Marine Department’s Mr Chun. “It will be very difficult to convince industry in the area to put in even more efforts to reduce air pollution if they want to make this a sulfur emissions control area.”

He noted, too, the challenges in convincing local fishermen, barge operators and related interest groups about the need for measures that imply higher fuel costs or require them to upgrade their engines. They had already been given an extended grace period to comply with IMO emissions caps that took effect in Hong Kong this month.

The Environmental Protection Department believes there are options other than an emissions control area for reducing pollution from ships. “For instance, we have set up an interdepartmental working group to examine the feasibility of local ferries using ultra-low-sulfur diesel, including conducting a trial,” it said in a statement. It was also in talks with its Guangdong counterparts.

For the co-founder and chief executive officer of policy think-tank Civic Exchange, Christine Loh Kung-wai, reducing marine and port emissions is “low hanging fruit” for the government. “You have the shipping companies and even the terminal operators ready to change, and some of the local craft operators also want to do something.

“The shipowners operate global businesses and are keenly aware of reforms taking place at other ports. They know their ships have to operate at higher environmental levels at ports in Europe and North America, and they can do the same in Hong Kong. They want to do it, which is driving them to ask for a level playing field so laggards do not benefit.”

Civic Exchange this week released a report, titled Green Harbours, which recommends reducing emissions from the marine and port sectors in Hong Kong and Shenzhen. It notes that governments and industry players in Hong Kong and the Pearl River Delta have taken steps such as encouraging the use of low-sulfur fuels, using electricity to power port machinery and reducing fuel consumption.

Ms Loh said the government had to play a “convening role” for the industry as a whole. “Something like requiring ships to slow down within Hong Kong waters is doable tomorrow – it will save fuel and reduce emissions,” she said.

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