Greek Shipping Summit 2007 Athens 8 November 2007 Peter M. Swift

AIR EMISSIONS THE DISTILLATE SOLUTION THE holistic solution for the revision of MARPOL Annex VI

INTERTANKO – Committed to meeting the POSEIDON CHALLENGE ! MISSION To provide leadership to the Tanker Industry in serving the world with safe, environmentally sound and efficient seaborne transportation of oil, gas and chemical products. VISION FOR THE TANKER INDUSTRY A responsible, sustainable, respected Tanker Industry, committed to continuous improvement and constructively influencing its future. THE POSEIDON CHALLENGE COMMITTMENT - to continuous improvement - to working with all partners - striving to achieve the goals of: Zero fatalities, Zero pollution, Zero detentions

“Proud of our Tankers, Proud of our People” Leading by example in safety and environmental management Delivering oil, oil products and chemicals to fuel the world’s industries, trade and development More than USD 500 billion invested since 2000 with the result that >85% of tanker fleet double hulled in 2010 Accidental oil spills at record lows More efficient ships and engines means cost effective and energy- efficient transportation One litre of fuel used to move one tonne of oil on a VLCC more than 2,500 kilometres.

MARPOL Annex VI Adopted September 1997 Entered in to Force May 2005 (US, Canada and others not yet parties) Revision initiated at MEPC July 2005 SECAs from May 2006 Target date for adoption of Revision 2008 Applies to ca. 60,000 ships (today)

Revision of Annex VI PROPOSALS FOR AMENDMENTS - Lower limits for SOx & NOx emissions - SECAs with lower S cap (1.0% or 0.5%) - NOx emission limitation on existing engines - NECAs – NOx controlled areas - Restrict Particulate Matters (PM) emissions - Further restrictions on VOC emissions from cargo oil tanks - Assessment of impact on CO 2 emissions Wide support for solutions to be found at IMO

AIR EMISSIONS IMO ANNEX VI REVISION TIMETABLE TO DATE MEPC 54 (March 2006) – Proposals for revision. The work is delegated to BLG Sub-Committee BLG 10 (April 2006) – Initial review of the proposals and documents (over 30 documents) Two correspondence groups (April – October 2006) Intersessional Meeting (November 2006) BLG 11 (April 2007) – consider draft proposals for revised Annex VI, the NOx Code and Guidelines MEPC 56 (July 2007) - IMO Sec Gen establishes government- industry group of experts to report by December 2007 Intersessional Meeting (October 2007)

Developments elsewhere California introduces state requirements US considers ratification of Annex VI Draft bill introduced in to US Senate for US waters plus Canada mulls own requirements SECA proposals under discussion for US coasts, Mediterranean, … EU bides times on revision of Sulphur Directive Ports under pressure to act unilaterally IMO has to deliver

The choices ! Solution 1.HFO with abatement technologies 2.Cleaner fuels – LSFO or Distillate Application 1.Globally 2.Locally/regionally

Exhaust Gas Scrubber Development Sources: Krystallon Ltd., Wärtsilä Corporation

Exhaust Gas Scrubber Development 1.Seawater scrubbers 2.Freshwater scrubbers Trials underway Application to existing ships complex Other outstanding issues include: - availability - costs - handling of waste streams and products (including acceptability in restricted waters & ports, human health, etc.) - compatibility with catalytic reducers A further burden for the crew !

SECAs, Mini-SECAs, NECAs, Regional Zones ? Potential for complications and confusion Sulphur Emission Control Areas, the Baltic and the North Sea Real potential for different: Regional requirements ? Implementation dates ? Multi-fuels (LSFO, Distillate, Gas Oil) ? Sulphur levels ? May 2006 IMO: Nov 2007 EU: Aug 2007 A burden for the operator A further burden for the crew !

Emissions Trading – an option for ALL emissions ? Emissions Trading Issues: - where, with whom ? - carbon only or all emissions ? - measurement, monitoring, verification requirements A burden for the operator A further burden for the crew !

The INTERTANKO proposal All ships to burn only distillate fuels, with a global sulphur content cap: o oTier I - a maximum sulphur content of 1.0%, and o oTier II - for new engines - a maximum [0.5%] sulphur content i.e. one Global Sulphur Emission Control Area One Single Fuel specification included in Annex VI Simplified checking and monitoring provisions

Distillates – The Benefits Applies to existing ships/engines, as well as new With no other measure, immediately reduces: - SOx emissions by 80 to 90 % - PM emissions by 90 % - NOx emissions by 10 to 15 % Facilitates further NOx reductions by in- engine modifications (for IMO’s Tier II & III) Facilitates further improvements in energy efficiency (and GHG reductions) Improves engine reliability Reduces onboard fuel generated waste Cleaner, Simpler and more Efficient ships

Distillates – The Benefits Reduces onboard plant and maintenance Provides safer working environment for ships’ staff and shore side workers Avoids carriage of multi-fuels and fuel blending/switching problems Reduces control and monitoring requirements Lessens harmful impact of bunker spills Lowers burden for crew Cleaner, Simpler and more Efficient ships

The CO 2 Equation CARBON NEGATIVE SOx deposits in Ocean due to Buffering effects Energy required to run scrubbers Sulphur deposits to Ocean in scrubber waste water due to Buffering Energy required to produce LSFO/Distillates CARBON POSITIVE Burning Distillate vs HFO Low sulphur – little or no buffering Higher calorific value No pre-treatment required for fuels No post-treatment required of fuel wastes

The Distillate Proposal Accepted by most as being THE ideal solution, but Issues: Availability of MDO: 2012, 2015, 2020, or later still ? (But will HFO be available in 2020?) Price: Oil company investment for distillate globally US$126 bn. - future fuel price for distillate 1/3 rd more than HFO ? or Investment in scrubbers: 60,000 ships x (say) US$3m per ship = US$180 bn. or Low Sulphur Fuel Oil globally at the same price as distillate Holistic approach: At least carbon neutral, probably carbon positive, i.e. net beneficial effect Leave open options for other solutions ? But will the shipowner have ANY option ?

Driving for Cleaner Air !!! Societal pressures for improvements in fuel quality EU and California set the pace Calls for international standards Refiners cite $bn investments needed and negative CO 2 implications – “all too difficult” Refiners claim time frames impossible and propose local solutions / other options - “prices will rise” Industry holds line for cleaner fuel Clean fuels mandated / cleaner air results √ √ √ √ √ √ ?

Decision Time ! IMO Group of Experts reports December 2007 BLG meets February 2008 MEPC 57 meets April 2008 MEPC 58 meets October 2008 ? 2008/2009 ? EU/US consider own legislation if IMO does not deliver, others follow ?

The Distillate Solution The distillate solution addresses the root cause of air pollution from ships. Cleaner fuel for cleaner air !

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