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Andre October
Webber Wentzel, Cape Town
andre.october@webberwentzel.com

Sharmila Naidoo
Webber Wentzel, Cape Town
sharmila.naidoo@webberwentzel.com

Lebogang Maragelo
Webber Wentzel, Cape Town
lebogang.maragelo@webberwentzel.com

Introduction

Since 1 January 2020, ships have had to operate outside designated emission control areas using fuels of 0.5 per cent m/m (mass by mass) sulphur oxide or less, and within emission control areas to 0.1 per cent m/m or less, in order to comply with the Regulations set out in Annex VI of the International Convention for the Prevention of Pollution from Ships (MARPOL).

The Regulations have come to be known as ‘IMO 2020’ and aim at reducing and limiting sulphur oxide and nitrogen oxide emissions from ship exhausts and prevent deliberate emissions of ozone depleting substances such as chlorofluorocarbons or CFCs.

The International Maritime Organization (IMO)’s Marine Environment Protection Committee has also approved a draft of new compulsory measures, which are referred to as ‘IMO 2030’. These require carbon dioxide emissions from the global shipping fleet to be reduced by at least 40 per cent from their 2008 levels by 2030 and by 70 per cent by 2050.

These regulations are primarily aimed at reducing air pollution, thereby protecting the human health and the environment.

This article will focus on how different geographical regions are responding to the implementation of IMO 2020 and IMO 2030, focusing specifically on Africa, Asia and the European Union. It will also consider the challenges each region faces, and how each region is fulfilling its obligations.

Africa

With most of the major global sea routes passing around Africa and more than 90 per cent of all imports and exports in Africa being facilitated by sea through ports along its coast, Africa’s maritime sector was bound to be affected by the IMO 2020 targets. One of the key concerns of African states was the availability, quality and supply of low sulphur fuel and whether refineries would be able to meet new demands.

Several African states, including Gabon, Lebanon, Liberia and South Africa, are signatories of MARPOL and have therefore been obliged to enforce the Regulations.

One of the challenges is that Africa’s maritime sector is still developing and will require resources and capacity-building to strengthen institutions which are responsible for incorporating international conventions into local law, implementing the legislation and policing the environmental legislation.

Some African states, such as Kenya, have demonstrated not only enthusiasm but commitment to leading efforts towards acting against climate change. Kenya hosts the Maritime Technology Cooperation Centre for Africa, which is a centre under the Global Maritime Network. It to ‘build capacity for mitigation of the effects of climate change for the shipping industry while simultaneously promoting the adoption of energy efficient technologies in the maritime sector.’

Sulphur oxide is considered one of the most harmful by-products of ship fuel combustion, and its eradication therefore requires a concerted global effort. Certain African countries are demonstrating that they too are committed to joining the efforts in responding to the challenges of climate change.

IMO 2020 and IMO 2030 are but some of the Regulations which reflect the decisive approach and interventions the IMO has taken as part of its vision of promoting clean shipping and reducing greenhouse gas (GHG) emissions from ships. The greatest challenge to the effective implementation of IMO 2020 and IMO 2030 will always be the issue of enforcement. Ensuring compliance with these Regulations falls not only to flag states, but to the respective governments and national authorities. The onus is therefore on each member state to ensure that it plays its part in the collective fight to save the planet from the devastating effects of climate change.

Asia

IMO 2020: are Asian refineries ready?

The change in global standards for marine fuels will transform oil product flows. Asia is well placed to capitalise on the shift, despite the challenges of rising costs and oil prices.

Asia is set to benefit from IMO 2020 more than most other regions due to its surplus of gasoil and its relatively high complexity of refineries. Asian refiners have continued to upgrade, allowing them to achieve greater yields of valuable lighter products and strip out sulphur. This will set them on a better footing to adjust for IMO 2020.

China and India are well-placed to take advantage of the bunker spec change with their high ratios of coking and hydrocracking versus crude distillation capacities. Japan, as the major low sulphur fuel oil (LSFO) producer, and South Korea, as a large gasoil exporting country, will also stand to benefit from high distillate cracks.

Singapore, as the world’s largest bunkering hub and which historically has imported huge volumes of HSFO, will have to make major changes. Its product demand composition will undergo a drastic change, with high sulphur fuel oil (HSFO) demand falling while demand for marine gasoil and low sulphur fuel oil will increase. Market participants are keeping an eye on how Singapore will gear up to meet its bunker demand.

In conclusion, the IMO bunker spec change in 2020 will be the most disruptive event to hit the refining sector in decades. Nevertheless, as Asian refiners have made concerted efforts to supply compliant fuels, its rising surplus of gasoil will help ease the region’s transition. IMO 2020 has driven up demand for gasoil and decreased demand for HSFO, increasing the price differential between the two.

IMO 2030

Shipping companies in Asia are forging ahead with efforts to curb their carbon footprint as the pathway to decarbonisation gains momentum after a fairly smooth transition to the IMO’s global low sulphur mandate for marine fuels. In April 2018, the IMO laid out its strategy on GHG emissions, aiming to reduce the shipping industry’s total emissions by at least 70 per cent from 2008 levels, by 2050, and to reduce CO2 emissions per TEU/km by at least 40 per cent by 2030.

As an example, Japan’s Kawasaki Kisen Kaisha, Ltd, or ‘K’ Line, announced it had formulated the revised edition of its ‘K’ Line Environmental Vision 2050-Blue Seas for the Future, rearranging its targets into ‘decarbonisation’, ‘aim for no environmental impact’, as well as settings new goals for 2030.

Taiwan’s Yang Ming Marine, for its part, has met its IMO 2030 target roughly a decade earlier than required. According to a recent company statement, in 2019, its fleet’s average carbon intensity – CO2 emissions per TEU/km – fell by a significant 51 per cent compared to its 2008 level, from 99.4 g/TEU-km to 48.1 g/TEU-km.

Ports to play a crucial role

Decarbonisation continues to be a high priority on Maritime Singapore’s agenda. Supported by the Maritime and Port Authority of Singapore, the Singapore Maritime Foundation has established an International Advisory Panel on Maritime Decarbonisation to develop a strategy to support the industry in achieving these goals.

Meanwhile, Singapore has also launched a Maritime Green Future Fund to create ecosystems for trials of low-carbon technologies.

Singapore and some ports in Japan, China, and South Korea are also promoting LNG bunkering.

Concerted and coordinated industry efforts, as well as continued research and development in energy efficiency improvements, will accelerate the pace cuts to GHG emissions.

The European Union

IMO 2020

There have also been major market disruptions in Europe as a result of the implementation of IMO 2020. These have included supply and demand imbalances, a rise in European bunker premiums, and economic problems faced by refineries.

A low sulphur fuel oil (0.5 per cent) as marine fuel, has been a preference at various European ports since November 2019, causing an imbalance in the supply and demand. This was unexpected, as many preliminary reports in anticipation of the regulations had indicated that many ship operators would prefer Marine Gas Oil as a marine fuel, as opposed to low sulphur fuel oil, or had installed exhaust gas cleaning systems (or ‘scrubbers’) and were therefore still reliant on a ready availability of high sulphur fuels.

As a result of the high demand for IMO compliant 0.5 per cent bunker fuel, the availability of such bunker fuel was constrained for weeks, causing the European Bunker premiums to increase. Many refineries experienced several setbacks and economic problems while preparing for IMO 2020 and the effects of the current Covid-19 pandemic on the global economy made matters even worse.

IMO 2030

The aim of IMO 2030 is to apply a global standard for ship energy efficiency by way of decarbonisation. This will apply to old and new vessels. The IMO 2030 framework includes technical solutions for existing vessels, operational mandates and strict enforcement provisions. A feature of IMO 2030 is that it makes provision for a review and consideration of further enforcement provisions that will be required at the time to ensure implementation.

The European Union (EU) has been in discussions with the IMO regarding the achievable outcome of IMO 2030 and IMO 2050. Unfortunately, due to the Covid-19 pandemic, finalisation of these discussions has been further delayed. The EU will be leading the international negotiations, with the aim of motivating the other major emitters to come into line. These discussions stem from ambitious strategies and policies, set in motion in 2015 and as formulated in the European Green Deal, the EU MRV Regulation, and the Paris Agreement for shipping.

The European Green Deal is a set of policy initiatives created by the EU’s European Commission with the overall aim of making the EU climate neutral and EU’s economy sustainable by 2050. Some of these policies include carbon pricing further to the EU Emissions Trading System, alternative fuels, research and innovation and a recovery funding. The Paris Agreement for Shipping is an agreement within the United Nations Framework Convention on Climate Change, dealing with GHG emissions mitigation, adaptation, and finance and was signed in 2016.

The EU MRV Regulation (EU) 2015/757entered into force in 2015. It sets out regulations relating to the ‘monitoring, reporting and verificationof carbon dioxide emissions from maritime transport’. It applies to ships greater than 5,000 gross tonnage, irrespective of their flag undertaking voyages within the EU.

These policies and regulations are indicative of the efforts the EU has been taking in anticipation of the global move towards decarbonisation and the reduction of GHG emissions in general.

While the EU faced various problems and complications with the effects of IMO 2020, they seem to be prepared and quite ambitious with their IMO 2030 vision. Even though it seems promising, there are gaps with regards to the final deadlines and anticipated reduction in carbon emissions. Further discussions between IMO and the EU are essential to address these issues.

Conclusion

Whilst proactive steps are being taken to implement IMO 2020 and IMO 2030, there are obvious challenges faced by various regions. The greatest challenge, however, may well be enforcement. It is therefore the responsibility of every government to formulate bespoke ways to ensure compliance with these regulations.

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