Lack of harmonization with Canada puzzles some
By JULIE GEDEON
July 5, 2010
The (U.S.) Environmental Protection Agency’s final ruling for reducing ship emissions within the Great Lakes and St. Lawrence Seaway has drawn some consternation from the shipping and petroleum industries in Canada.
On April 30, the EPA finalized its emission standards for Category 3 marine diesel engines (with per-cylinder displacement at or exceeding 30 litres). The new standards equal those adopted in recent amendments to the International Convention for the Prevention of Pollution of Ships (MARPOL Annex VI). They will apply to newly built engines starting in 2011, with all Category 3 engines having to emit 80 per cent less nitrogen oxides by 2016.
The Canadian Shipowners Association still hopes for revisions. “The U.S. Congress stipulated that an impact study had to be done for the Great Lakes region,” CSA president Bruce Bowie told Canadian Sailings. “We’re presuming if it’s realized that some impacts will be different from what the EPA initially anticipated then changes will be made.”
Congress gave the EPA the summer to complete its report. On June 10, the EPA held a one-day workshop at its National Vehicle and Fuel Emissions Laboratory in Ann Arbor, Mich., to discuss the proposed methodology for studying the economic impacts.
Different scenarios
The CSA faults the EPA’s original conclusions for relying too heavily on a California emissions assessment rather than looking specifically at the environmental and economic dynamics within the Great Lakes region.
Mr. Bowie said that while the high volume of international shipping off the California and Florida coasts made a switch to lower sulphur fuels imperative for healthier air quality, Environment Canada’s research doesn’t indicate a major impact from ship emissions around the Great Lakes.
“We’re looking at 20 times the cost in fuel with probably a health benefit of less than one per cent,” he said. “So all we’re saying is the U.S. and Canada should look at the Great Lakes situation before deciding whether to apply the coastal norms.”
Seemingly caught off guard by the EPA proceeding without first attempting to harmonize legislation with Canada, Transport Canada has since come out with three possible responses for discussion. The first would be to mirror the U.S. approach.
Always preferring global standards over regional legislation, the Shipping Federation of Canada appreciates the EPA attempting to follow the International Maritime Organization’s template for setting up Emission Control Areas (ECAs), but is concerned about the exceptions being made.
Chart shows a possible scenario associated with a switch to diesel fuel for one of the Canadian Shipowners Association’s carriers. The increased cost of diesel fuel compared to intermediate fuel oil will add $28.8 million annually to the fuel bill, which will eventually be passed on to customers, the CSA said. A 25-per-cent increase in the ship’s operating cost will undoubtedly result in some modal shift, the shipowners group said. In this example, the CSA assumed only a 10-per-cent modal shift. It also assumed that 90 per cent of the lost market would go to rail and 10 per cent to trucks. “Under this scenario, sulphur decreases by 1,759 tonnes, which is a drop in the bucket compared to the industrial emissions of land-based industrial facilities, atmospheric pollutants increase by 40,989 tonnes, and customer costs increase by $28.8 million, which in itself could significantly impact their global competitiveness,” the CSA said. (Source: Canadian Shipowners Association)
Steamship impact
The most prominent exemption is for U.S. steamships currently operating within the Great Lakes. The steamships have been deemed too old and unwieldy to safely modernize. “The exemption gives these domestic vessels an unfair advantage,” said Caroline Gravel, the Federation’s director of environmental affairs.
Although Canadian domestic steamships would also likely be exempt, the CSA had hoped its members would replace their 16 steamships as soon as possible. “They burn the most and the dirtiest fuel but Congress eliminated the incentive to get rid of them,” Mr. Bowie said. “It’s very hard for our members to go to their board of directors now and say they want to phase out the vessels providing the most competitive advantage because of this exemption.”
Fleet averaging
The CSA views replenishing the aging Canadian fleet (now averaging 35 to 40 years) with new ships equipped with the latest environmental technology as the most economically savvy approach to minimizing emissions and other ecological concerns. For that reason, it favours Transport Canada’s second option of fleet averaging. The proposed averaging would start with 1.5-per-cent sulphur fuel content in 2012 and gradually decrease annually to 0.1 per cent by 2020.
“Fleet averaging would essentially allow us to achieve the same environmental results by starting sooner in some cases but completing the changes over a slightly longer, more reasonable time frame as it makes sense to replace equipment or an entire vessel rather than dealing with the shock of all vessels needing to be compliant within a specific year,” Mr. Bowie said.
“The way the legislation currently stands, the manufacturing community doesn’t even have the time to develop a scrubber technology that can be proven to work effectively within the freshwater conditions of the Great Lakes,” he added.
While the Shipping Federation doesn’t oppose fleet averaging, it would like the phase-out period to be consistent with global norms. “The proposal is for domestic vessels to reduce fuel sulphur content to 0.1 per cent by 2020 when our international vessels must reach that level by 2015,” Ms. Gravel said. “That’s a significant difference we’d rather not see.”
New fuel rule
The EPA is also changing what legally constitutes U.S. diesel fuel. The final ruling allows for the production and sale of marine fuel with 1,000 parts per million of sulphur. Burning fuel with higher sulphur content will only be permitted if alternative procedures or devices, such as smokestack scrubbers, achieve an equivalent reduction in emissions.
“Right now, it’s legally impossible to produce, sell or buy that fuel in Canada where the limit under the Environmental Protection Act is only 15 ppm,” noted Gilles Morel, fuels director at the Canadian Petroleum Products Institute. “With such integrated shipping traffic, it would make more sense to harmonize a standard.”
Obtaining either of the lower sulphur fuels might be more of an issue within the Seaway and Great Lakes than along coastal regions, he added. “With the Seaway closed for the winter, there’s less flexibility to import the large shipments needed from Africa, Europe or Mexico to do the blending required at least initially because there are no domestic processing facilities.”
The EPA ruling allows ships operating solely within the Great Lakes and St. Lawrence Seaway (understood to be defined as up to and including Anticosti Island) to buy the lowest sulphur marine residual fuel available if the fuel that meets the near-term required 1.0-per-cent sulphur standard can’t be obtained. The intention is to enable internally bound ships to continue to operate even if they can’t find the necessary fuel, but the exemption doesn’t sit well with the Shipping Federation.
“If the required low-sulphur fuel isn’t available for ships trading between the Great Lakes and Anticosti, it won’t magically appear for international vessels,” Ms. Gravel said. “Fuel compliance will be expensive, and granting an exemption to one category of ships creates a competitive disadvantage for others.”
The CSA also opposes the geographic limitation. “Most of the U.S. fleet is lake-bound – unable to fit through the Seaway locks – but more than half our fleet occasionally goes beyond Anticosti to Gaspé, Halifax or St. John’s,” Mr. Bowie said. “It makes no sense that our vessels would be ineligible for the exemption when they operate 90 per cent of the time within the Great Lakes.”
Mr. Bowie said it was also important to consider that while international vessels will only have to switch to lower sulphur fuel when operating within the 200-nautical-mile ECA and designated internal waters, domestic fleets will be obliged to use it constantly, making their fuel costs possibly 20 times higher. “It could very well be that our customers will switch to other transportation modes that are less environmentally friendly,” he warned.
The Canadian Shipowners Association says domestic marine carriers have significantly reduced greenhouse gas emissions since 1990. This chart for the CSL fleet indicates that GHG intensity (measured in terms of grams per tonne-mile) has decreased by almost 24 per cent since 1990. In fact, total GHG emissions for this carrier’s fleet have decreased by more than 40 per cent. “And the downward trend is continuing through various technology improvements and operational efficiencies,” the CSA said. (Source: Canadian Shipowners Association)
Hardship waiver
The EPA ruling includes a hardship waiver that would enable shipowners to apply for an exemption if they can prove the regulations would create significant trade disruptions or undue economic difficulties for their specific clientele.
“I suppose that makes sense in the U.S. where laker traffic is very much a back-and-forth proposition for a single customer or traffic and it’s relatively easy for a U.S. shipowner to ask a customer with a signed business contract to put together a case showing how that business could be put at risk if shipping costs double,” Mr. Bowie said. “But this will never work for the Canadian fleet’s multipurpose, multi-customer vessels.
“Over a five-year period, any of our vessels could have 20 different customers and five different commodities. We don’t know who our customers will be later this season, let alone have five-year contracts signed. We just know that we’ll be fore-hauling grain and backhauling gravel or aggregates, but if our prices double or triple, we’ll lose all that business to trucks having a greater environmental impact.”
No one within the shipping industry is resisting the need to make their vessels more environmentally friendly, Mr. Bowie added. “We’re just asking for a bit more flexibility in terms of timelines and options,” he said.
Engine age
Transport Canada’s third possible option is to schedule a phased-in obligation for lower sulphur limits based on the age of a vessel’s engine. If, for example, an engine was installed before 1970, its owner would have until 2012 to comply with the 1.5-per-cent sulphur limit, and then 0.1 per cent by 2020.
“We should have several options available to us, but especially a longer time frame so we don’t lose all our business to other modes,” Mr. Bowie said.
“The EPA gave the trucking industry 12 years to meet its fuel-efficiency reduction targets and trucks are replaced every seven to eight years,” he added. “We’re being told to take a vessel that has a 40-year lifespan and change everything within two years.”
Ms. Gravel also emphasized the need to deal with changes properly. “If air emissions pose an environmental issue, we should deal with them using environmental measures,” she said. “If there’s an economic issue, we should employ economic tools, such as removing the 25-per-cent tariff on renewing the domestic fleet.”
Last October, the Harper government announced its intention to remove the existing duty on foreign-built vessels, but no clear date has been set. “The sooner this happens, the better,” Mr. Bowie said. “Shipyards are looking for work. Prices have dropped in shipyards overseas. The Canadian dollar is strong. So the window of opportunity is now but the more this get delayed, the greater likelihood that window will shut.”
If the duty is lifted soon, Mr. Bowie is confident some ships could be built by 2015. “A lot of work has been done over the last couple of years to prepare for a major purchase,” he said. “And some CSA members are poised to move quickly once the remaining hurdles are removed.”