1. AIR EMISSIONS FROM SHIPPING Revision of MARPOL Annex VI: The Distillate Option Paris 24 May 2007 Peter M. Swift

2. Air Emissions from Ships Governing Regulations MARPOL Annex VI entered into effect in 2005 (Global Sulphur 4.5%, 1.5% in SECAs) Baltic Sea - SECA from May 2006 North Sea - SECA in November 2007 Europe Sulphur Directive (1999 & Rev) governs inter alia emissions in port (0.1% S at berth) California (CARB) new regulations which took effect Jan 2007 Various ports - local regulations on Ship Emissions, which are inhibiting future expansion/development - introducing differentiated port fees Of particular concern to tramp sectors, trading internationally, lifting bunkers in ports worldwide

3. Problem of air pollution from ships - Well Recognised in Europe European Parliament resolutions 2002 and 2006 set the direction : - tighter international standards for NOx emissions - designate Atlantic coast and Mediterranean as SECAs - reduce sulphur level in SECAs to 0.5% - introduce financial incentives for low emission operations - encourage use of shore-side electricity for ships in port - develop marine fuel quality standard(s) - Commission to encourage level playing field and action at IMO European Council adopted similar position

4. EU Thematic Strategy on Air Pollution EU Thematic Strategy on Air Pollution COM(2005) 446 & SEC(2005) 1132 and 1133 (Adopted Sept. 2005)& Role of Maritime Emissions DG Environment, European Commission

5. Impacts addressed by the Strategy Health: Fine Particles (PM 2.5 ) & Ozone (NOx and VOCs) –Range of problems from minor respiratory effects to premature death; also cardiovascular effects. No known thresholds for effects Acid rain (SO 2, NOx, NH 3 ) –Affects freshwaters and terrestrial ecosystems leads to loss of flora & fauna; reduced growth of forests, leaching of toxic metals into soil solution Eutrophication (NOx, NH 3 ) –Excess nutrient nitrogen causes species composition change & loss of biodiversity. Increases susceptibility to other stresses such as drought Ozone (non-health, NOx and VOCs) –Damages trees and plants including agricultural crops; damages buildings/materials

6. Fine particles PM 2.5 Life expectancy: 8.1 months in 2000, 5.5 months in 2020 Life years lost: 3.6M in 2000 2.5M in 2020 Premature deaths 350,000 in 2000 272,000 in 2020 1997 Met. year months

7. Problem of too much nitrogen deposited to ecosystems in 2020 Percentage of ecosystem area in each model grid cell with nitrogen deposition above “safe level” Total Ecosystem area exceeded from eutrophication 590 000 km 2 % 1997 met. year

8. Summary of “Business as Usual” (includes current ship measures) Emissions continue to decline But in 2020 –Premature deaths related to fine particulates still 270,000 –Loss of statistical average life still 5 months in the EU –Ozone premature mortality equal to 20,800 cases –119,000 km 2 of forest at risk from acid rain –590,000 km 2 of ecosystems at risk from nutrient Nitrogen –760,000 km 2 of forest at risk from ozone Cost-effective improvements are possible kT/annu m 20002020% SO 2 87362806-68% NOx11585889-49% VOCs10665918-44% PM 2.5 1749971-44% NH 3 38243686-4% Ships will represent 125% and 101% of land based SO 2 and NOx emissions in 2020. Emissions

9. Air Pollution from Ships Many measures taken on land based sources to reduce polluting emissions (Large Combustion Plant, road vehicles, fuels etc.) Community Marine Emissions Strategy of 2002 lead to the adoption of Directive 2005/33/EC on the sulphur content of marine fuels –SOx emission control areas – 1.5% S fuels –Marine gas oils used at berth from 2010 (0.1%) This has already been factored into Commission’s analyses for the Thematic Strategy

10. EU: Further information Ship emissions policy and technical studies http://ec.europa.eu/environment/air/transport.htm Thematic Strategy on air pollution & CAFE http://ec.europa.eu/environment/air/cafe/index.htm National emissions ceilings directive http:/ec.europa.eu/environment/air/ceilings.htm

11. EXISTING Sulphur Emission Control Areas (SECAs) NOV. 2007 MAY 2006 SOURCE: http://maps.google.com /

12. Global Concerns Widely Expressed (1) US Environmental Protection Agency: “..in last 15 years..little, if any, reduction in sulphur emissions” “..this fuel sulphur cap is set at a level 3,000 times higher than is commonly used now inland transportation” “..Ocean Going Vehicles (OGVs) are now one of the largest anthropogenic sources of air pollution… Recent estimates in the scientific community indicate OGVs represent approx.18-30% of the world’s NOx pollution & 9% of global SOx emissions.” “IMO Member States now hold a unique opportunity to revise the MARPOL Annex VI engine and fuel standards in a manner that will provide a long-term solution to the significant air emissions generated by ships.”

13. Source: MEPC 56/4 – IMO Secretariat

14. Global Concerns Widely Expressed (2) Japanese Ministry of Land, Infrastructure & Transport: - declared intention to propose stricter sulphur regulations and that “NOx emissions from ships should be reduced as much as possible” State of California – setting the pace, by: - mandating the use of distillates in auxiliary engines from 2007 and targeting emissions of particulate matter, nitrogen oxides, and sulphur oxides from ship main engines by 2010

15. Air Emissions from Ships Covered by Annex VI –Oxides of Nitrogen (NOx) – create Ozone –Sulphur Oxides (SOx) – create acidification –Hydrocarbons (HC) – gas, soot and some particulates –Volatile Organic Compounds (VOC) –Refrigerant Gases Not covered (currently) by Annex VI –Carbon Dioxide (CO 2 ) –Carbon Monoxide (CO) Engine exhaust gases are dependent upon engine type, engine settings and fuel type

16. New Parameter for Air Pollution Control ? Particulate Matter Emission control What are these Particulates? –Sulphates from SOx –Nitrates from NOx –VOC from uncombusted hydrocarbons –Heavy Metals e.g. Vanadium, Nickel, Aluminium, Sodium, Calcium, Zinc; from Heavy Fuel oil and Lube Oil –Soot – from the aromatics in heavy fuel oil

17. Tanker Owners Committed to Reduce Pollution (of Oceans and Atmosphere) INTERTANKO members are committed to continuous improvement in environmental performance. Pollution of oceans – three straight years of record low quantity of oil spilled, and “striving for zero” Pollution of atmosphere: Similarly committed to achieving a dramatic reduction in harmful air emissions

18. INTERTANKO Approach Principles behind the INTERTANKO position: –ensure a solid platform of requirements –be realistic and feasible –seek a long term and positive reduction of air emissions from ships, and –contribute to a long term and a predictable regulatory regime –a global standard for at sea, coastal and at berth operations (no SECAs)

19. The Distillate Option INTERTANKO has proposed: 1.Use of distillate fuel (i.e. MDO), with: sulphur content of 1.0% from [2010] sulphur content of 0.5% from [2015] for newer engines 2.Worldwide application, thus effectively a global SECA 3.Establishment of an international specification standard for distillate fuel

20. The Rationale for Distillate Option The use of distillate would achieve: 1. Reductions of: SOx by up to 80%, Particulate Matter by 80-90%, NOx by approx. 15% (initially) 2. Reduction in fuel consumption on ships and thus reduction in CO 2 3. Facilitates further reductions in NOx Applicable to virtually ALL existing ships and engines, with only minor modifications and costs

21. Distillate/MDO : ADDITIONAL BENEFITS ENVIRONMENTAL: –Reduces onboard fuel generated waste –No fuel heating/pre-treatment or waste incineration = energy saving –ALL ships become “greener” –“Cleaner” waste & free of hazardous elements contained in residual fuels –Avoids use of abatement technologies = no further additional waste & no need of further waste disposal –[Any bunker spill significantly less harmful] SAFETY: –Less incidents with engine breakdowns caused by poorer quality fuels / lower maintenance load –No need of complex fuel change-over operations –No risk of incompatibility of blended fuels –Safer working environment for crews

22. Implications & Implementation Cleaner fuels, such as distillates or lower sulphur residual, will be more expensive than high sulphur residuals – costs will be passed through to the shipowner The costs of manufacturing, fitting and running of abatement systems will similarly be borne by the shipowner In the case of the former the responsibility for the supply of the clean fuel lies with the refiner, in the latter case the responsibility for clean exhaust gas AND the disposal of the scrubbed waste products lies with the shipowner.

23. Shifting the burden ! Scrubbers place the burden of handling and disposal of the waste by-products (solid and liquid) on the shipowner ! What we must avoid is another “oily water separator” issue, where the shipowner has to process the “waste”, and where the equipment is often unreliable, suitable reception facilities are not available, and the on-board processing is very burdensome. *Photo courtesy of Krystallon website

24. Estimating some of the costs Additional SECAs requiring large quantities of LSFO (low sulphur residual fuel) According to CONCAWE study LSFO will be more expensive than adopting distillate Global distillate option According to Europia 200 mtpa of distillate required instead of residual fuel oil, refinery investment : USD 38 bn → USD 50 bn → USD 100 bn (varies at presentation) SAY USD 100 bn for 200 mtpa capacity spread over say 10 years: Additional cost USD 50 / tonne Scrubbers Unit cost ca. USD 1 million + docking, fitting, etc. Up to 5 required per ship, but SAY total cost ca. USD 4 million per ship Fitted to SAY 40,000 of world’s ocean going fleet Total Cost ca USD 160 bn

25. Implications & Implementation The manufacture & operation of abatement systems both produce CO 2 The desulphurisisation of residual fuel to produce low sulphur residual requires significant energy and thus creates additional CO 2 The production of additional distillates will similarly increase refinery CO 2 emissions However the use of distillates reduces ship’s total fuel consumption, makes redundant onboard fuel pre-treatment systems and reduces to a minimum energy for onboard waste treatment, all leading to lower CO 2 emissions. Further improvements in engine efficiency are also possible with distillates and thus additional reductions in CO 2 production. When considering the overall benefits from a Green House Gases standpoint (CO 2 and NOx), the switch to Distillates is a very attractive option. At worst, the switch to distillates appears to be “CO 2 neutral”, while other options will produce additional CO 2.

26. IF ONLY WE HAD A MAGIC BIN THAT WE COULD THROW STUFF IN AND MAKE IT DISAPPEAR FOREVER. WHAT WE CAN DO IS FIND CREATIVE WAYS TO RECYCLE. GREENHOUSES USE OUR WASTE CO 2 TO GROW FLOWERS AND OUR WASTE SULPHUR TO MAKE SUPER STRONG CONCRETE. REAL ENERGY SOLUTIONS FOR THE REAL WORLD

27. The Distillate Option The Distillate Option is straightforward and simple to implement for virtually all existing ships and engines, with strong environmental benefits and effectively no other investment than a higher price for the bunker fuel.

28. The Distillate Option New refinery/expansion projects indicate increasing capacity to produce additional MDO Not easy, nor cheap but realistic & feasible Appears cost-effective versus alternatives Better to clean fuels onboard > 40,000 ships or to produce clean fuels in ca. 700 refineries? Overall the distillate option provides a viable solution for significant emission reductions from ships in both near and long term

29. The Options (Currently !) A. Status Quo – No change – the Reference Option B. Global and Local (SECA) options: i) A global sulphur cap (unchanged or lower value) and SECA sulphur cap lowered in two tiers: 1.0% in [2010] and 0.5% in [2015]; ii) BIMCO proposal: lower global cap to 3% and use of Marine Diesel Oil (MDO) in SECAs but also allow for scrubbers in SECAs; iii) U.S. proposal: no change to global sulphur cap, but propose SECAs up to 200 nm off the coast where fuel to have sulphur content of 0.1% or for ships with scrubbers to have same SOx emission reduction. C. Global Sulphur cap options: i) Change to distillate fuels (MDO) (no SECA); ii) As i) but allows use of residual fuel + scrubbers.

30. What next? MEPC 56: 9-13 July 2007 IMO SG’s Expert Group: July-Dec 2007 BLG Intersessional Meeting: 29 Oct-2 Nov 2007 BLG: 4-8 Feb 2008 MEPC 57: March/April2008 EU Commission to take stock of progress –Review of Sulphur Directive – 2008 –Scope for Community measures to reduce ship emissions pursuant to Council’s conclusions – 2008 US considers own legislation if IMO does not deliver - ?

31. Volatile Organic Compounds (VOC) Emissions & their Control VOCs generated both during loading and on passage Background: Vapour return lines used in some ports INTERTANKO developed VOC control procedure (VOCON) with potential to reduce by more than 70% VOC emissions on passage System further enhanced by adoption of the Pres-Vac VOCON P/V valve Further industry development with KVOC loading system Ongoing work by INTERTANKO on VOC operational controls related to cargo Reed Vapour pressure Annex VI Norway advocated incorporation of VOC Management Plan in to Annex VI – industry generally supportive, subject some revisions Some concerns that ships will be forced to have Vapour Return but not ports

32. THANK YOU / MERCI For more information, please visit: www.intertanko.com www.shippingfacts.com www.maritimefoundation.com