Impact of SECA regulations on clean shipping in the BSR

Eunice Olaniyi,
PhD, Research Fellow,
Centre for Maritime Studies, University of Turku,
Finland

Establishing the Sulphur emission control (SECA) areas was a good step undertaken by the International Maritime Organisation (IMO) to reducing sulphur emissions from shipping. The current 2020 global sulphur shows that the energy transition outlook in the maritime sector is spreading across the globe – there is no going back.

Since SECA, ship-owners in the BSR explored economically viable options for the SECA and the global sulphur law post-2020. So far, compliance measurement of air emission on the Baltic waters has had an impressive record of 95% and 85% around its borders. Ship-owners adopted a different strategy for compliance. Some went for the strategy of a specific compliance method, others adopted a hybrid strategy that combines two or more of the compliance methods. The favourite choice for most ship-owners is switching to the low sulphur fuel because it only slightly increases the cost of operations for a voyage, and the ship-owners do not necessarily have to make any investment decisions or risk undertakings. Other hybrids of low sulphur fuel are growing in demand because they are less expensive than traditional distillates.

There are both public and private costs of environmental governance in the maritime sector, and the orchestration of green shipping initiatives to activate regulatory policies reveals some gaps in the development of such regulation compliance. A pertinent question is what are the expected hurdles of a complete transition to a clean maritime transport industry? Can the world achieve total integration of this policy to contribute to environmental protection?

There is no doubt that the implementation of the SECA regulations has been successful. The general economic effects are negligible for most ship-owners due to the significant reduction in fuel price since 2014. So far, the SECA regulation impact on costs, pricing, FDI, cargo flows and modal splits were low while innovation and the branding of the BSR were positively impacted by SECA.

However, it was also revealed that regulatory compliance can be costly and risky not just for the ship owners but for small and medium fuel-producers who must make heavy investments in their production plants to produce compliant fuel. Besides, because there are different fragments of tasks to fulfil, it is hard to notice the administrative burden of SECA – except for the maintenance – because each of these tasks take only a little time on a normal operation but in sum could be time-consuming.

The total annual cost of administrative burden for ship-owners in the BSR is around 2.7 million €. However, if the annual administrative burden per ship is calculated, the resulting costs would be less than 2000€ per ship every year, which can be considered as a negligible cost-block compared to other cost categories in the shipping sector.  The total SECA-related administrative burden annually for all EU maritime authorities which mostly include compliance checks of ships in national ports is 260 000€. By adding up both administrative activities we have approximately 2.96 million € as the annual total cost of administrative burden in the BSR.

The total additional costs for SECA compliance from consumed fuel in BSR in 2015, 2016, 2017 and 2018 were 615.616, 500.641, 502.608 and 563.940 respectively. Considering the median value between 2015 and 2018, the average cost is about 550 million € for the BSR.

It is important to note that these findings are lower than the pre-SECA report on the ex-ante expectations of SECA impact on maritime business, which implies that the numbers were overestimated when compared to the trifling effects noticed after 2015.

The introduction of sulphur regulations in the BSR was seen to have influenced the maritime companies established after 2010 in the BSR. Aside from maritime and offshore sectors, many of the new entrants offer ranges of emissions reduction technologies for both power plants and maritime engines. Although some of these companies have about 10 staff or less, they can serve global markets.

So far, the world have witnessed how the BSR and North Channel became successful test labs for the world since 2015 January. Now, the world must look into what was done, how they were done to enable and trigger a sustainable future for the sulphur law and clean shipping in general globally. We were expecting that bunker fuel supply and availability will change after the 2020 global sulphur cap and that this change will spur demand for drastic and cost-efficient technological solutions. However, the advent of the COVID-19 pandemic seems to have put a slight delay.

The design features of the SECA rules in combination with other current and upcoming environmental rules may not be enough to make the shipping industry shift entirely to clean shipping technology. A radical or systemic innovation would require a different set of regulatory requirements that is efficient and sustainable. There is still a lot of room for improvement, policymakers must seek to integrate and adopt a potentially high-cost effective compliance option/approach for all actors and stakeholders.

Email: eoolan@utu.fi

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