Ship owners face increased compliance costs with lowering of sulphur oxide limit for shipping fuels.

By Paul A. Davies and Michael D. Green

January 1, 2020 marked the implementation of the new sulphur oxide limit for shipping fuel imposed by the International Maritime Organisation under the MARPOL Convention, often referred to as IMO 2020. IMO 2020 intends to improve global air quality and protect the environment through these measures, but concerns have been raised regarding the increased expenses that the maritime sector will face in order to comply with the new standards. This blog post considers the requirements under IMO 2020, how they will be enforced, and the solutions companies may utilise to ensure compliance.

Complying with the lower IMO 2020 limit

IMO 2020 primarily lowers the limit of the amount of sulphur in fuel oil that can be used to power ships operating outside designated emissions control areas[1]. The new limit is 0.50% m/m (mass by mass), compared to the previous mark of 3.50% m/m. This significantly reduces the amount of sulphur oxides allowed to emanate from ships.

In order to meet the requirements of IMO 2020, ship owners have three options for their vessels. These are to use one of the following:

  • Fuel oils with sulphur content of 0.5% m/m or lower
  • An approved equivalent means of compliance such as scrubbers (otherwise known as Exhaust Gas Cleaning Systems[2])
  • Non-fuel oil alternatives, such as Liquefied Natural Gas

Most ships will likely opt to use fuel oils with lower sulphur content at first in order to be in compliance with their obligations.

Challenges to monitoring and enforcing IMO 2020 compliance

Monitoring ships’ compliance with IMO 2020, and acting to enforce such compliance, are the primary challenges to its effective implementation. “Port states” (those states whose territorial waters ships pass through) are obliged to monitor compliance by conducting initial inspections of ships based on documentation, as well as the use of remote devices. If such monitoring reveals “clear grounds” to conduct further investigation, then more detailed monitoring can take place, including taking samples from the ship. Guidelines, produced in 2019 (the 2019 Guidelines), state that all possible efforts should be made to avoid unduly delaying a ship for IMO 2020 monitoring. In practice, however, this will not always be possible, particularly in ports that lack the infrastructure to carry out the process efficiently.

If a port state finds a ship non-compliant with IMO 2020, the port state may prevent the ship from sailing until appropriate action is taken to rectify the non-compliance. This may also prove practically difficult and time consuming, and will therefore likely be a strong motivating factor for ships to comply with their obligations.

Such non-compliance must also be reported to the ship’s “flag state” (the state whose flag the ship flies under). The flag state and/or port state can then determine what sanction to place on the ship, taking into account all relevant circumstances and evidence. States are not required to take any punitive action at all, which they may choose to do if there is no compliant fuel available at the port at which the ship is docked. In such a case, a Fuel Oil Non-Availability Report (FONAR) must be sent by the ship to the port and flag state. The filing of a FONAR does not automatically make a ship compliant with IMO 2020, but will be taken into account as a factor when any penalties are decided.

Future impacts of the lower sulphur oxide limit

In the short term, the most significant impact of IMO 2020 is likely to be the cost imposed on ship owners, who must compliantly fuel their vessels. In the longer term, however, improved air quality and human health are the end goals. One study[3] on the impact of sulphur oxides from ships (under the pre-IMO 2020 limit) found that air pollution from the maritime sector could contribute to more than 570,000 additional premature deaths worldwide between 2020-2025.

The effectiveness of IMO 2020 may, however, depend on its implementation, as a number of countries have not ratified the Convention, including Argentina, Egypt, Mexico, and Venezuela. Others have ratified but are yet to introduce appropriate national legislation. The progress of such jurisdictions will be crucial to the success of IMO 2020, and will be important to follow over the course of 2020 and beyond.

Latham & Watkins will continue to monitor developments in this area.

This blog was prepared with the assistance of James Bee in the London office of Latham & Watkins.

[1] The limit within emissions control areas was already significantly lower (0.10% m/m) than the limit imposed by IMO 2020.

[2] Some jurisdictions have rejected the use of scrubbers within their territorial waters.

[3] Submitted to the IMO’s Maritime Environment Protection Committee by Finland in 2016.