Topics in this section: IMO 2020 sulfur cap re-enforced at recent IMO meeting Environmental goals remain at the core Proposals include prevention and response Focus on carbon could derail adoption of LNG
This article is by contributing analyst Michael Filatov from Bloomberg Intelligence. It was first published on the Bloomberg Terminal.
IMO 2020 sulfur cap re-enforced at recent IMO meeting
Several proposals have been highlighted as ways to mitigate the effects of IMO 2020, such as the experienced-building phase or delayed implementation. The International Maritime Organization rejected these options, while proposing ways to enhance measurements confirming availability of compliant fuels under the IMO's Ship Fuel Oil Consumption Database reducing noncompliance.
The International Maritime Organization met to deliberate other points related to carbon and sulfur emissions within the shipping industry, confirming the new regulation's start date, but will discuss the data collected on fuel consumption at the May gathering to mitigate potential issues. IMO's Ship Fuel Oil Consumption Database was launched March 1 to collect information that is integrated with the Ship Energy Efficiency Management Plan and Global Integrated Shipping Information System. Member states will be able to see an anonymous breakdown of fuel consumption and identify on a greater scale efficiencies across the supply chain.
The data collection and uniformity will enable the digitalization and interpret the information to deploy efficient metrics ranging from delivery schedules to blockchain smart contracts.
The IMO regulation directs ships to burn compliant fuels, high-sulfur fuel oil (HSFO) with scrubbers or alternatives such as LNG. The focus is on enforcement and we believe the best action is to give port states authority to revoke insurance for violations. States can only report transgressions now, and enforcement by flag nations is lax. There's a chance large shippers such as LG and Samsung could pressure vessel owners to offer compliant ships and enforce the environmental, social and governance standard, which would be a strong incentive, but clear penalties and enforcement are crucial.
The Fuel Oil Non-Availability Report provides provides a statement of noncompliance if approved fuel isn't available at a port, which is a loophole that could be abused as penalties in that case are far less severe.
Loss of insurance by revoking or suspending the MARPOL certificate, deeming a vessel “unseaworthy”
Give port states the authority to enforce compliance (currently only flag states can enforce)
Prohibit the use or carriage of noncompliant fuel oil
Push compliance by having large receivers ship goods on only compliant vessels
The IMO wants to cut 50% of carbon emissions by 2050 vs. 2008 levels, and given the typical economic value of a ship is 25-30 years, this affects decisions on propulsion systems today. LNG-powered vessels easily meet the sulfur adjustments to .5%, but would fall short on carbon restrictions. It would be counterintuitive to restrict cleaner vessels because the IMO wants even cleaner propulsion. One compromise could be cutting emissions at the company level, instead of by ship, allowing vessels to burn LNG for long hauls while using electric or hybrid systems for short-haul or ferry operations.
The size of shipping containers and weight of a 1-megawatt hour battery (16 tons) limit adoption, while LNG can fit within current marine gas oil (MGO) systems, reducing the additional space needed for implementation.
