A question of value
1st November 2013 16:20 GMT

Few things in the marine fuels industry generate as much debate about value as emission control areas (ECAs).  With land-based sources of sulphur oxide and particulate matter emission sources being cleaned up, air pollution originating from shipping has become the most obvious target.  Improving air quality to protect human health is the main driver behind more stringent fuel sulphur limits for ships.

When the US and Canada put in a proposal to the International Maritime Organization (IMO) for setting up an ECA reaching 200 nautical miles off most of their shorelines, it was accompanied by impressive numbers to demonstrate how the economic benefit to society because of cleaner air would far outweigh the extra cost to shipping because of the higher price of low sulphur fuel.  One estimate from the US Environmental Protection Agency (EPA) put the overall cost of the North American ECA in 2020 at $3.2 billion, while the health-related benefits could be as much as $110 billion.  In Europe, the European Commission has presented similar figures, estimating that extra cost of the north European ECAs could be as high as €3.7 billion in 2015, and benefits as high as €16 billion.

So regulators decided it was time for shipping to bite the bullet and clean up its emissions. But some industry segments have been trying to dodge the bullet.

In Europe, there have been calls for changing the 2015 sulphur limit in ECAs to 0.50%, or to delay the 0.10% limit until 2020. The loudest protests have come from the short-sea shipping community, which fears losing significant freight volumes to trains land haulage. Shippers in Europe and industries in the Baltic region, who will see their transport costs rise, have also lobbied for a delay. Lobbyists have pointed to several studies suggesting the cost of 0.10% sulphur fuels will push more transport onto roads, with negative consequences for local air quality due to more pollution from trucks and cause an increase in carbon dioxide (CO2) emissions.  

For shipping and industries relying on ocean-freight, the anticipated huge increase cost is looming large, and must seem more compelling and real than the calculated benefits associated with cleaner air, which few understand.  With costs going up, there could be negative effects on society, such as loss of business leading to fewer jobs and less income for some societies within ECAs. 

This argument has also been heard in the US, where the cruise industry has pointed to Juneau, Alaska as an example where the local economy will suffer loss of income as passenger numbers fall due to higher cruise costs, while PM2.5 and SO2 measured there in 2000 and 2001 was "appreciably below the State and national air quality standards". 

Trade and industry have value too, supporting economic growth and welfare.

Whether the industry believes in the science supporting the ECA benefits or not is a moot point as long as public opinion and politicians in the countries that make the decisions buy into it.  This is where another value question comes into play: If ECAs were to be applied in the areas which sees the biggest populations exposures to harmful ship emissions, there should be ECAs along the coastal regions of many Asian countries including China, Japan, India and Indonesia, and arguably in large parts of the Mediterranean.  But while Japan and Hong Kong have been studying ECA options, there appears to be little appetite or political will to propose ECAs elsewhere.

Some observers have pointed out that human life and welfare has a high value in northern America and Europe, affecting the monetary value calculations of reduced ship emissions. These are also countries with some of the world's highest GDPs per capita.  According to World Bank figures for 2010, the figure was over $46,000 in the US and Canada, over $43,000 in Japan, and above $30,000 in most EU countries.  In China, Indonesia and India GDP per capita was below $5,000. 

It begs the question; are ECAs a privilege only the most affluent countries can afford?

In 2020, or 2025, even populations in poorer countries will benefit from a reduction in harmful shipping emissions, as the global sulphur limit drops to 0.50%.  But developing nations have fought hard to avoid an increase in the cost of trade because shipping's CO2 emissions are also being targeted on a global level.  That cost increase is likely to be dwarfed, however, compared to that associated with a global 0.50% limit, and will not spare developing countries.  Will they believe that the benefit of that will exceed the extra cost to the imports and exports they rely on for growth?

*This text first appeared as a Commentary in the September/October 2011 issue of the Bunker Bulletin , the bi-monthly Bunkerworld magazine.

Unni Einemo,
1st November 2013 16:20 GMT

Comments on this Blog
Stephen James Weedon
3rd February 2014
It is important to investigate that the move to low sulphur fuels does not unintentionally increase the global output of CO2. Not just from the possible increase in road traffic but also by the possible increase in CO2 emission on the refinery side in the extra energy required to make low sulphur marine fuels. Some analysis has shown that existing HFO coupled to an efficient scrubber system delivers total CO2 emissions lower than adopting low sulphur MGO.So the picture is not so clear

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