Since 1 March 2020 all marine vessels have been subject to a ban from carrying on board high sulphur marine fuel oil (“HSFO”) with sulphur content greater than 0.50% unless they have a ‘scrubber’ fitted. The 0.50% sulphur cap on the use of HSFO has been in place since 1 January 2020 while the related carriage ban serves to strengthen the compliance and enforcement element of the ban. The ban on use continues to have far reaching implications for ship owners, operators and managers, as well as for ports, refiners and bunkering industries. The global outbreak of COVID-19 has exacerbated the disruption such that it is impacting the availability of low sulphur fuels (see below). Whilst robustness and frequency of physical inspections has been reduced the ban itself was never waived as such. COVID-19 specific guidance issued by the UK Maritime and Coastguard Agency stresses that “operators taking advantage of the MCA guidance should be aware that non-compliance with fundamental aspects of the relevant conventions may lead to control action being imposed by an attending Port State Control Officer”. This “control action” ranges from ship arrests, port detentions to delays and refusals of entry. Any such delays and detentions could have many consequences, least of all contractual and insurance, reputational damage and significant monetary fines for non-compliance. We consider the detail of the ban as it reaches its one year anniversary.
In October 2018, the Marine Environment Protection Committee (“MEPC73”) of the International Maritime Organization (the “IMO”) formally adopted a ban on the use of HSFO i.e. marine fuels with sulphur content above 0.50% (see our previous Law-Now on the scope and content of the ban). What this means is that now vessel operators will have three options to choose from in order to comply with the new sulphur rules: (1) use IMO compliant fuel oil (subject to availability); (2) continue to use HSFO if the vessel is equipped with an approved scrubber system; or (3) use LNG or methanol. Each option carries its own risks and its own benefits depending on ship type, low sulphur fuel availability in different ports and its affordability.
Open loop scrubber bans and restrictions
Due to concerns around potential harm to marine life from open loop scrubbers which discharge sulphur contaminated wash water into the sea, restrictions and bans on using open loop scrubbers have been reported by the International Bunker Industry Association in September 2020 in certain ports or territorial waters, including: China (territorial waters), Singapore (within port limits), Malaysia (territorial waters), Pakistan (within ports), UAE (Fujairah and Abu Dhabi port limits), Bahrain (within port limits), Egypt (Suez Canal), Gibraltar (local waters), Spain (port of Algeciras), Portugal (port waters), France (certain ports), Belgium (ports and inland waters), Ireland (port waters in Cork, Dublin and Waterford), Scotland (ports on the Forth and Tay), Norway (heritage fjords), Sweden (port of Brofjorden), Germany (seaports adjacent to inland waterways and inland waterways), Lithuania (port waters), Bermuda (territorial waters), Panama (the Panama Canal) and the USA (Connecticut port waters and Californian waters). The list is likely to widen as air pollution reduction regulations in and around ports become more stringent (see below).
In order to assist with compliance with the 2020 sulphur cap and carriage ban, the IMO has adopted a comprehensive package of guidance to inform ships on tank preparation and cleaning practices as well as on-board sampling procedures and the use of FONARs. Guidance is now available in relation to the following:
consistent implementation of the 0.50% sulphur limit;
development of a ship implementation plan;
Port State control and enforcement;
compliance in the case of failure of a single monitoring instrument;
Port State contingency measures where there is evidence of non-compliant fuel oil;
delivery and quality assurance of compliant fuel oil by suppliers; and
best practice for Member States/coastal States.
Some key aspects of the IMO guidance are explored below.
The 2019 guidelines for consistent implementation of the 0.50% sulphur limit under MARPOL Annex VI (the "Implementation Guidelines") are intended to be used by Flag and Port states, owners, shipbuilders and fuel suppliers. The Implementation Guidelines address:
Implementation planning: Flag States are advised to encourage each vessel that flies their flag to develop an implementation plan which addresses preparatory matters such as risk assessments, mitigation and changeover, fuel oil system modifications and tank cleaning, procurement of compliant fuel oil, and reporting. It is not a mandatory requirement, but authorities are entitled to take into account the implementation plan, or lack thereof, when considering the control measures that should be imposed in the case of non-compliance.
Impact on fuel and machinery systems: the Implementation Guidelines note that most marine diesel engines and boilers are currently optimised to operate on heavy fuel oil, and provide some technical guidance in relation to the likely potential issues and best practice to avoid or mitigate these issues.
Verification issues and control mechanisms: at the survey stage, the Flag State is expected to verify the vessel’s compliance with the sulphur cap based on documentation on board or fuel oil samples. Port inspectors will first inspect any documentation kept on board and if that raises any questions and there are ‘clear grounds’ for concern, then samples of fuel oil stored on the ship will be taken. It is therefore crucially important to keep all records up to date and updated. A more detailed inspection may include fuel oil sample analysis. We note that any sampling not undertaken in accordance with prescribed procedures (see below) runs the risk of being unreliable and potentially inadmissible in any court proceedings.
Fuel oil non-availability reports: a shipowner or operator is required to provide a fuel oil non-availability report (“FONAR”) to the Flag State and relevant port authority of the ship’s destination Port State as soon as it becomes apparent that, despite its best efforts, it will not be able to obtain compliant fuel oil. The Implementation Guidelines include a template FONAR. These are not intended to be used as a mechanism to avoid compliance but as a notification of non-compliance. The enforcement authorities will decide whether the non-compliance merits a penalty or whether in particular circumstances a penalty can be waived and a warning given instead. In some exceptional cases the disruption of COVID-19 may lead to the exercise of leniency but this has not been in any way pronounced as the new norm. Where companies are unsure about the use of a FONAR and potential consequences in a particular port legal advice should be sought.
Possible safety implications: importantly, the Implementation Guidelines identify a list of the potential safety implications resulting from the sulphur cap and provide a technical review.
Sampling and verification
The 2019 guidelines for on board sampling and verification (the "Sampling Guidelines") establish an agreed method for sampling. They set out a number of conditions which fuel oil sampling points should meet and prescribe methods of sample handling, including timing, containers, and labelling. Any deviation from prescribed sampling methods could not only undermine the integrity of any samples but also undercut any weight it would carry in potential regulatory investigations and/or court proceedings unless a ship operator is able to demonstrate that, for example, crew safety (i.e. in light of COVID-19) had to be prioritised in a given scenario and the Sampling Guidelines could not be followed for that reason.
Enforcement and non-compliance
Whilst the 2020 sulphur cap and carriage ban applies globally through the International Convention for the Prevention of Pollution from Ships (“MARPOL”), responsibility for monitoring and enforcement is within the remit of the relevant authority of each individual MARPOL party. In the UK, for example, such responsibility falls on the Maritime and Coastguard Agency (the “MCA”). Effective enforcement is extremely important given disincentives for compliance, such as the higher cost and potentially limited supply of IMO-compliant fuel oil.
It had been unclear, at the start of the pandemic, whether the MCA will be sampling ship fuel to gauge sulphur content while the UK tackles the COVID crisis. The COVID specific guidance referred to above indicates that the MCA ‘will be resuming survey, audit and inspection activity, following a risk-based approach, on 20th July 2020’, noting that ‘not all activities will recommence on this date’. However, a spokesperson for the MCA confirmed on 30 September 2020 that the MCA had recommenced sulphur sampling as of 28 September 2020.
Since the introduction of the sulphur cap on 1 January 2020, some breaches have already been reported. The first breaches appear to have occurred in Chinese waters, having been reported by the Chinese Maritime Safety Administration. One breach was identified when a ship undergoing a port state control inspection in Qingdao port was found to have been using fuel oil with a sulphur content of 0.68%. The other breach was confirmed following a ship’s change to compliant fuel oil while berthed in Xiamen port, and may have been due to HSFO residue remaining in its fuel system. The consequences for the ships have not yet been made clear by the Chinese authorities.
There have also been instances of non-compliance with the ban introduced on 1 March 2020. The MSC Joanna, sailing under the flag of Panama, became the first major ocean carrier to breach the IMO’s ban on carrying non-compliant fuel and has consequently been prohibited from operation in UAE waters for one year. Its master has been banned from operating in UAE waters indefinitely and is facing legal action from the country’s Federal Transport Authority.
Port State Enforcement Guidance
The IMO guidance package advises of certain actions and mechanisms that should be employed by Port and Flag States to ensure compliance, some of which are set out above under the Implementation Guidelines. Further guidelines on the conduct of Port State inspections have also been adopted (available here). These are intended to ensure consistency in the conduct of inspections, the recognition of deficiencies and the application of control procedures. The guidelines list the documents that should be inspected, the conditions that would justify a more detailed inspection, deficiencies for which a vessel may be detained and the procedure to follow where a FONAR has been presented.
Where an inspection (or other event) results in evidence of non-compliance, the Implementation Guidelines advise that the Port State should report to the vessel’s Flag State and may prevent the vessel from sailing until suitable compliance measures are carried out. Additional guidance for Port State control on contingency measures (available on request) lists the various different factors and possible contingency measures that should be considered by a Port State in the process of agreeing a solution to non-compliance. These include environmental, safety, and logistical implications, the actions predetermined in the ship implementation plan (if available), potential discharge to another ship and cleaning of residues following discharge. Flag and Port States may permit a single voyage for the purpose of bunkering compliant fuel.
Submission of a FONAR to the Flag State and the competent authority in the Port State is a requirement where a ship is using non-compliant fuel oil. It is an offence to fail to present a FONAR, or to present an inaccurate FONAR, but there is no guarantee that submission of a FONAR will result in the ship avoiding sanctions. This exception was introduced by the IMO in recognition of the uncertainty surrounding economic availability and supply of low sulphur fuel. However, the IMO was keen to discourage over-reliance on the FONAR scheme as a waiver or a ‘get out of jail free card’, especially given the significant price differential between HSFO and IMO compliant fuel oil. It is simply a record of the actions taken by a ship in its attempt to meet the IMO requirements and therefore a key document for the relevant authorities in assessing whether there are mitigating circumstances which would justify the ship’s use of HSFO. What remains unclear however is the number of attempts a ship should make to source compliant fuel and how many fuel suppliers should be contacted before a decision is taken that all possible options have been exhausted. GISIS MARPOL Annex VI IMO database contains numerous examples of FONARs already submitted to the IMO (around 280) and it is noteworthy that the number of fuel suppliers contacted for compliant fuel on each occasion varies as supporting emails accompanying FONARs seem to suggest.
What’s next on the maritime emissions reduction agenda?
The IMO is in the process of introducing an additional set of measures aimed at reducing air-polluting emissions which were proposed at the MEPC 75 meeting in November 2020 and which are to be adopted at the next MEPC 76 meeting in June 2021. These include, among others, draft amendments for tightening requirements on energy efficiency for existing ships from 2023 and carbon intensity targets from 2026. In terms of the European regulatory landscape, on 9 December 2020, as part of the European (EU) Green Deal, the European Commission presented its ‘Sustainable and Smart Mobility Strategy' together with an Action Plan of 82 initiatives that are to be introduced in the next four years. Included amongst these initiatives are plans to:
Review the EU Ship Recycling Regulation (the UK has published its own list of UK approved ship recycling facilities).
Include shipping emissions in the EU Emission Trading System (EU ETS) from 2022.
Launch the FuelEU Maritime initiative in order to boost the production and uptake of sustainable maritime fuels.
Establish a Renewable and Low-Carbon Fuels Value Chain Alliance.
Establish clean ports and “Emission Control Areas” in all EU waters aiming at zero pollution to air and water from shipping
Put forward the NAIADES III programme to tackle key challenges such as the need to complete links with the rail network, ensure climate resilient infrastructure, renew barge fleets and improve access to financing.
The Sustainable and Smart Mobility Strategy lays the foundation for how the EU transport system can achieve its green and digital transformation and become more resilient to future crises. As outlined in the EGD, the aim is to achieve a 90% cut in related emissions by 2050. One of the key milestones is for zero-emission ocean-going vessels to become market-ready by 2030. For this a ‘basket of measures’ will be needed to decarbonise maritime transport and many a barrier will need to be surmounted, least of all the current lack of market-ready zero-emission technologies, long development and life cycles of vessels, the required significant investments in refuelling equipment and infrastructure such that low sulphur fuels can be easily sourced and international competition in the sector bolstered.
Industry has an extensive package of guidance in relation to the sulphur cap and carriage ban. Judging by the number of FONARs submitted to the IMO it is clear that the new sulphur restriction is making it challenging in certain parts of the world to source compliant fuel. On the other hand there are reports that the shipping industry is experiencing an unprecedented upward trend in the recycling of old vessels as many shipowners are opting for scrappage rather than retrofits or expenditure on the more expensive compliant fuels. The important and ambitious ‘basket of measures’ that are to be rolled out at EU level in the next four years are set to play a pivotal role in reducing emissions from ships.
Article co-authored by Sam Porter.
Some ports have banned open-loop scrubbers, for example, and ship operators would be well advised to consult a Scrubbers Regulation Map when planning their route.