AIR EMISSIONS REGULATIONS SOx, NOx, VOCs Greenhouse Gases (GHG) Monitoring, Reporting & Verification (MRV) Technical Seminar Busan 21 October 2013 Dragos Rauta INTERTANKO

1 Jan. 2015 0.10% IMO EU SULPHIR DIRECTIVE CARB APPLICATION DATES GLOBAL ECA Jan 2010 0.10% fuel “at berth” July 2010 1.00% Jan. 2012 3.50% Max. sulphur content 3.50% on supply (unless ships have scrubbers) Aug. 2010 NA ECA DMA max. 1.00% DMB max. 0.50% 1 Jan. 2014 0.10% DMA 1 Jan. 2015 0.10% 1 Jan. 2020(2025) 0.50% 1 Jan. 2020 no matter the result of the IMO Study

EMISSION CONTROL AREAS ECA Sulphur content: 1.00% before 2015 0.10% 2015 & after 14 months to the due date Decisions need to be made: MGO; EGCS; LNG? If EGCS (scrubbers), time left is short!

Guidance to INTERTANKO Members   Emission Control Area (ECA) SOx Requirements Guidance to INTERTANKO Members for the Selection of Compliance Alternatives July 2012 http://www.intertanko.com/Topics/Environment/ECA-Guidance--ECA-Calculator/

EXHAUST GAS CLEANING SYSTEMS (scrubbers) SOx EMISSIONS - COMPLIANCE OPTIONS FUEL LOW SULPHUR FUEL (0.10% S content MGO) Some challenges Expensive solution but a number of advantages Availability LIQUID NATURAL GAS (LNG) Not realistic for most of the existing ships New ships in the future (supply network needed) EXHAUST GAS CLEANING SYSTEMS (scrubbers) Performance (fit for purpose & reliability) Rule predictability (acceptance by port authorities) Cost – efficiency

FUEL CHANGE OVER CHALLENGES Safety aspects combustion characteristics heat transfer and circulation flash point Operational aspects fuel segregation/contamination incompatibility - fuel filter blockages low viscosity – leaks & loss in pressure low lubricity - pump seizure bio element HAZID to avoid mechanical failure & power loss

FUEL CHANGE OVER - HAZID ASSESSMENTS Capacity of Tanks Tank Location Mixing Tanks Piping Systems Trace Heating Pumps Burner Lance Atomising Boiler and Combustion Control Flame Detection Equipment Viscosity & Lubricity Management Flashpoint Sampling Procedures

NUMBER OF SCRUBBERS ONBOARD DIMENSIONS/VOLUME & SPACE REQUIRED EXHAUST GAS CLEANING SYSTEMS NUMBER OF SCRUBBERS ONBOARD DIMENSIONS/VOLUME & SPACE REQUIRED ADDITIONAL STORAGE (closed loop systems) NUMBER/SIZE OF PUMPS & HYDROCYCLONS SCR/EGCS COMPATIBILITY APPROVAL, SURVEY & CERTIFICATION OPERATIVE MAXIMUM SULPHUR CONTENT

EXHAUST GAS CLEANING SYSTEMS ENVIRONMENTAL PERFORMANCE wash-water acidity amount & toxicity of solid waste demister/removal of water droplets from the funnel gas stream measurement & recording SAFETY & OPERATIONS back-pressure & turbocharger efficiency weight, location & noise handling caustic soda handling toxic solid waste MAINTENANCE & OPEX

in use up to 5% fuel penalty COST- ASSESSMENT/ECA 2015 ALTERNATIVE CAPEX OPEX MGO low premium US$350/t up to 5% fuel saving SCRUBBER US$3 mil – US$8 mil in use up to 5% fuel penalty ~ US$ 50k to 100k/ year LNG US$10 - 20 mil 20% - 25% fuel cost saving Different calculations according to the trade new buildings versus existing ships ship’s age financing the CAPEX actual OPEX repair & maintenance to be accounted for

ECA CALCULATOR Cost (USD) 5,840,000 Depreciation (%) 9% ROI (Return of Investment)/Payback time (years)   Share of days in sea in ECA 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 75% 100% Premium MGO vs HFO (USD per tonne) 50 0.0 100 120.6 25.2 150 624.0 90.4 48.7 17.1 9.5 200 135.5 50.0 30.6 22.1 17.3 9.2 5.8 250 2146.6 61.5 31.2 20.9 15.7 12.6 10.5 6.3 4.2 300 53.1 26.5 17.6 13.2 10.6 8.8 7.5 4.8 3.3 350 66.6 26.9 16.9 12.3 9.7 8.0 6.8 5.9 3.9 2.7 400 204.9 33.1 18.0 12.4 9.4 7.6 6.4 5.5 3.2 2.3 450 59.2 22.0 13.5 9.8 5.3 4.6 4.1 2.8 2.0 500 34.6 16.5 10.8 8.1 4.0 3.5 2.4 1.8 550 164.8 24.5 9.0 6.9 3.1 2.2 1.6 Cost (USD) 5,840,000 Depreciation (%) 9% Daily consumption (t) 22.8 Days at sea/year 335 Voyages/year 30 Fuel/discharge (t) 10 HFO cost 650 A simple example to assess MGO vs. EGCS OPEX, maintenance and repairs costs not included

ECA CALCULATOR Cost (USD) 4,000,000 Depreciation (%) 9% ROI (Return of Investment)/Payback time (years)   Share of days in sea in ECA 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 75% 100% Premium MGO vs HFO (USD per tonne) 50 0.0 317.2 100 131.5 59.6 18.7 10.1 150 432.9 62.0 33.4 22.9 17.4 14.0 7.9 5.1 200 65.4 29.6 19.2 14.2 11.2 9.3 5.0 3.4 250 52.6 23.8 15.3 11.3 9.0 7.4 6.4 5.5 3.7 2.6 300 74.3 24.3 14.5 10.4 8.0 6.6 5.6 4.8 4.3 2.9 2.1 350 32.3 15.8 10.5 7.8 6.2 5.2 4.4 3.9 3.5 2.4 1.7 400 86.5 20.6 11.7 8.2 6.3 3.3 2.0 1.5 450 40.9 15.1 6.7 3.6 3.2 2.8 2.5 1.8 1.3 500 26.8 12.0 7.7 5.7 4.5 2.2 1.6 1.2 550 19.9 9.9 4.9 1.4 1.0 Cost (USD) 4,000,000 Depreciation (%) 9% Daily consumption (t) 22.8 Days at sea/year 335 Voyages/year 30 Fuel/discharge (t) 10 HFO cost 650 A simple example to assess MGO vs. EGCS OPEX, maintenance and repairs costs not included

NOx Tier III EMISSIONS - IMO Initially applying to ships built from 1 Jan. 2016 but . . Study first to consider availability of technology IMO Study recommended maintaining 1 Jan. 2016 Russian Federation, supported by majority disagreed Amendment to delay the enforcement to 1 Jan. 2021 and a new study prior to the new date Parties to MARPOL Annex VI will consider adoption of the amendment at MEPC 66 (April 2014)

NOx Tier III EMISSIONS - Regional NOx Tier III Application in North American NECA? EU Commission proposed a Decision establishing an EU wide position on the Baltic Sea NECA EU Council / Member States rejected the proposal EU has not gained “competence” on NOx emissions (ref. declaring Baltic Sea and North Sea as NECAs) HELCOM may however declare the Baltic Sea as NECA North Sea?

NOx Tier III EMISSIONS Issues presented by Russian Federation: SCRs (selective catalytic reducers) - ammonia slip - use of urea generates as much CO2 (t) as NOx (t) reduction - do not fit with scrubbers ammonia/urea supply and costs used catalyst disposal - CAPEX: €6 mill for a 20k DWT ship (return 8 - 10 years) EGR (exhaust gas recirculation) – IMO study not conclusive on EGR reliability LNG not a viable solution yet

GREENHOUS GAS EMISSIONS EEDI SEEMP/EEOI – INTERTANKO Guide Market Based Measures (MBMs) Monitoring, Reporting and Verification (MRV) VOC

EEDI – Already in force – More efficient new buildings STATUS ON GHG EMISSIONS REDUCTION REGULATIONS EEDI – Already in force – More efficient new buildings SEEMP is successfully implemented Major activity: saving fuel! - Monitoring - Physical improvements to ships - Operational improvements - Speed management EEOI could be improved further by maximising cargo volume utilisation and by better logistics Market Based Measures – side tracked at IMO INTERTANKO position: MBMs are not justified at this time

% Difference (2007 base year) RESULTS YEAR EEOI (MT) % Difference (2007 base year) Count of Fixtures Average Cargo Carried Average dwt Available Average Miles Miles pr MT IFO 2007 19,034   462 31.544 38.775 2.131 5,18 2008 17,431 8,42% 631 33.274 40.859 2.190 5,29 2009 15,503 18,55% 554 33.805 42.167 2.602 5,72 2010 16,976 10,81% 581 32.510 40.939 2.201 5,86 2011 16,502 13,30% 647 31.950 42.156 2.111 6,07

RESULTS Yearly improvement (Index 2007) 9.86% 15.50% 11.40% 19.80%

Data on 2010; 2011; 2012 from: VLCCs 31 Suezmaxes 36 Aframaxes 43 LRs 4 Product 22 Chemical 11

OPERATIONAL EFFICIENCY New initiative – Operational Efficiency (ships in operation) Promoters: USA, Japan, EU and Germany Data collection to determine the baseline Fuel consumption Cargo mass Voyage info, i.e. distance, sea state, weather, etc. Trial period to establish practical rating system Establish, verify and adjust baseline Required operational efficiency scheme Mandated through amendments to MARPOL Annex VI

OPERATIONAL EFFICIENCY EUROPEAN COMMISSION has put forward a legislative proposal to establish an EU system for: Accurate Monitoring, Reporting and Verifying (MRV) of CO2 emissions from large ships calling in EU ports The reduction of CO2 emissions from maritime transportation in a cost effective manner It is the first step “of a staged approach” to include maritime transport emissions in the EU GHG reduction commitment Proposed to enter into force in July 2015 and to apply to shipping activities carried out from 1 January 2018

All ships > 5,000 GRT calling to EU ports EU PROPOSED REGULATION on MRV Applicability All ships > 5,000 GRT calling to EU ports The reporting is mandated for CO2 emissions when ships travel: between EU ports, an incoming voyage from an non-EU to an EU port an outgoing voyage from an EU port to a non-EU port

EU PROPOSED REGULATION on MRV The data reported should assist to monitor the ship’s average energy efficiency at least with the following four criteria: Fuel consumption/distance = total annual fuel consumption/total distance travelled Fuel consumption/transport work = total annual fuel consumption/total transport work (transport work = distance x cargo) CO2 emission/distance = total annual CO2 emissions / total distance travelled CO2 emissions/ transport work = total annual CO2 emissions / total transport work  

EU PROPOSED REGULATION on MRV Every Ship should have a Monitoring Plan approved by an accredited “Verifier” The Reporting is on annual basis (calendar year). Verifiers should check the reporting is in conformity with the Monitoring Plan Verifiers should check “credibility” of the reported data The reporting should be done by ‘companies’, i.e. the DOC holder, who must provide an emissions report for the previous calendar year’s activity

EU PROPOSED REGULATION on MRV Options to calculate the fuel consumption: use of BDN and periodic stock takes of fuel tanks; onboard monitoring of bunker tanks, flow meters for applicable combustion processes and direct emissions measurement The proposed rule has provisions with obligations for “verifiers” and it requests EU Member States to consider penalties for ships which do not comply with the reporting, including “expulsion”. If verification is successful, the verifier will then issue a Document of Compliance to the Company.

EU PROPOSED REGULATION on MRV  Dates for implementation: 1st July 2015 – enter into force 31st August 2017 – companies should prepare and submit to “verifiers” Monitoring Plan (monitoring plans for ships coming in operations after 1 January 2018 should be provided not later than 2 months after first call to an EU port) 1st January 2018 – starts first annual reporting period 2019 and after – by 30th April each year, companies shall submit a verified emissions report to the EU Commission and to the Flag State 30th June each year - the EU Commission will make the emissions reported by ships publicly available

INTERTANKO COUNCIL DECISION INTERTANKO supports the concept of MRV of the CO2 emissions of ships in operations. In addition, INTERTANKO will continue investigations and assessments on the best model of a MRV concept adapted to the specific operations of oil and chemical tankers according to the following principles: 1. Ship’s efficiency - best method to measure performance improvement with the fuel consumption being the critical parameter. (“ship’s efficiency” should, in a broader sense be weighted and clarified versus the term of “transportation efficiency”) 2. For internal use only, initiate data collection from all members on the annual fuel consumption data (years 2010, 2011 and 2012) using the cumulative data on BDNs

DATA COLLECTION FOR INTERNAL USE Vessel # (for confidentiality, ship’s name or IMO # not required) DWT (max. summer draught) Type tankers (oil, product, chemical/product, chemical) Total time on laden voyages (hours) / reporting period (one year)* Total distance in laden voyages (nm) / reporting period (one year)* Total number of voyages / reporting period (one year)* Total cargo onboard (tonnes) / reporting period (one year)* Total time on ballast voyages (hours) / reporting period (one year)* Total time at berth (hours) / reporting period (one year)* – Total fuel consumption at berth / reporting period (one year)* Total fuel consumption (tonnes) / reporting period (one year)* (HFO- LSHFO- MGO) Σ tonne-miles for all voyages / reporting period (one year)* * reporting period (one year) – INTERTANKO proposed definition: “All completed voyages in one calendar year during which emissions have to be monitored and reported”

EEOI

INTERTANKO JOINT WORKING GROUP ACTIVITY Provide comments to the EU proposed MRV regulation & Develop a Monitoring Plan for tankers Promote these with the EU Commission, Parliament and Council Continue to collect data from Members & find best approach to assess tankers’ fuel efficiency Propose how to distinguish or remove from the assessment the involvement / influence of other stakeholders (importers, charterers, cargo owners, etc.) Attempt to develop an INTERTANKO model to take into account the above

INTERTANKO possible model General guideline for setting up a MRV system: the model should be simple (protect its credibility through its simplicity), easy to verify, use data already mandated through existing regulations Monitoring by using the BDN data together with periodical sounding of bunker tanks. BDN data is an “over reporting” of fuel consumption (HFO) – ask DNVPS for statistics to determine a correction facto (e.g. 1.5% or 2%) Other uncertainties ref. fuel delivered: delivery shortage HFO calorific values (38 to 41 MJ/kg or some 7% difference) fuel density temperature correction factor Ask DNVPS to check deviation of fuels calorific values versus the value for which the CF values are calculated

INTERTANKO possible model Assessment of the tanker fuel efficiency - A two-tier approach may be considered. For example: - The “overall indicator” reflecting the transportation performance in operation (defining the “transportation efficiency”; e.g. a sort of EEOI ) An additional Energy Efficiency Tanker Indicator (EETI) indicating the ship’s technical efficiency considering only parameters under the ship owners’ control If tanker is not compliant with the mandated “transportation efficiency” baseline, EETI could indicate whether tanker is still in compliance by its own performance not taking into account factors outside the tanker operator’s control

INTERTANKO possible model WG considered two options on how to approach a definition of EETI:   Option 1 – Direct assessed ship technical indicator (i.e. S-P curves) Option 2 – Normalising the EEOI versus the commercial criteria The discussions led towards a hybrid of the two options above on which EETI should be an indicator that can be derived from EEOI and which represents the carbon intensity of a ship in a reference condition The EETI might enable a transparent performance benchmarking The EEOI formula can be mathematically expressed and split into : - a technical factor and - a logistics factor

INTERTANKO possible model The technical factor relates the fuel consumption ( as reported in the calculation of the EEOI) with the ship’s design parameters, i.e. full load (dwt) and the designed speed (Vdes) The logistics factor can be analysed into three elements: the “cargo utilisation” (actual cargo/over maximum cargo capacity mL/dwt), the “distance utilisation”(distance covered in laden condition versus the total distance [dL/(dL + dB)] the “speed utilisation” (actual average speed for the period used to calculate the EEOI/ design speed or Vop/Vdes) For the calculation of the EETI it is necessary to apply a correction for the fuel consumption, which has to be related to the design speed. Therefore a fuel consumption correction factor “fss” is used (which can be derived from S-P curves) but for most ships is adequate to assume: fss =(Vdes/ Vop)^3 By applying all above factors to the EEOI, then the EETI is calculated as a “normalized” figure of the EEOI, somehow “neutralizing” the influence of commercial parameters in the logistics factor

INTERTANKO possible model CALCULATED EETI ( DERIVED FROM OPERATIONAL DATA USED FOR EEOI) FOR SAME SHIP IN DIFFERENT CARGO LOADING AND SPEED CONDITIONS   Baseline Low Utilisation High Uitilisation Speed Cons. dL/(dL+dB) 0.5 0.7 DWT(t) Vdes (kn) Vop (kn) FC (ton/d)  mL/dwt 0.9 300,000 15 100 EEOI 6.38 8.20 4.56 EETI 2.87 Slow Steaming 14 80 5.47 7.03 3.91 2.82 Hull Fouled 120 7.65 9.84 3.44

INTERTANKO possible model

INITIAL EEOI DIFFERENCE OF 9 SISTER SHIPS DATA COLLECTION: JANUARY 2010 – DECEMBER 2011

COMBINED UTILISATION & LADEN FACTOR UTILISATION = ACTUAL CARGO WEIGHT (LADEN) / DWT LADEN FACTOR = LADEN DISTANCE / TOTAL DISTANCE

BALLAST VOYAGES

INTERTANKO possible model FURTHER ISSUES TO ADDRESS:   How to determine the “base line” from which a target mandatory value can be established (e.g. could EEOI calculated for the operational condition at designed speed and fully loaded be the base line?) if so, the “target EEOI/EEI” mandatory curve could probably be decided by imposing a reduction from the base line by a certain percentage; such a percentage may be assessed by using the data collected under MRV if ship is not compliant with the “target EEI”, how should EETI value be used as a secondary compliance indicator, etc.? There were other various suggestions such as trying to limit the ship’s cargo capacity utilisation by using ship’s displacement. There also questions whether data collected would indicate that ships are properly used and using EEOI only would be a simpler approach

thank you www.intertanko.com dragos.rauta@intertanko.com

AVERAGE SPEED VARIATION

DIFFERENT FUEL CONSUMPTIONS

INTERTANKO possible model SHIP TECHNICAL STATUS REFERENCE OPERATIONAL STATUS (NEW & EXISTING) NEW SHIP EXISTING SHIP TECHNICAL EFFICIENCY TRANSPORTATION EFFICIENCY EEDI EEI EETI EEOI (or equivalent) ONE-OFF INDEX determined upon vessel’s delivery ONE-OFF INDEX OR Speed-Power Curve Reference to the “as built” condition Indicating the status at any given time during ship’s life and the deviation from the reference values (EEI or S-P CURVE) Measure of transportation efficiency over a period of time ESTABLISHED TO BE DEVELOPPED (IMO definition) Reference to a ship but also used to create reference line(s) for tanker types: e.g. chemical/oil; parcel; oil) Indicator for the ship’s energy efficiency not influenced by commercial parameters (cargo utilization, speed) (IMO definition used in SEEMP)

SOx EMISSIONS - COMPLIANCE OPTIONS FUEL LOW SULPHUR FUEL (0.10% MGO) Some challenges Expensive solution but a number of advantages Availability LIQUID NATURAL GAS (LNG) Not realistic for most of the existing ships New ships in the future (supply network needed) EXHAUST GAS CLEANING SYSTEMS (scrubbers) Performance (fit for purpose & reliability) Rule predictability (acceptance by port authorities) Cost – efficiency – ECA Calculator