University of Turku

CENTRE FOR MARITIME STUDIES1

SNOOP Policy Forum12.4.2013, Tallinn

Economical effects of environmental regulation in maritime traffic

CENTRE FOR MARITIME STUDIESSari Repka

University of Turku

CENTRE FOR MARITIME STUDIES

IMO regulates maritime transport

• The International Maritime Organization, agency of the UN

• Aims to improve safety and prevent pollution from ships

• 170 member states + 3 associate members• A convention comes into effect when it has been

ratified by a certain number of member states and tonnage

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University of Turku

CENTRE FOR MARITIME STUDIES

Relationship between IMO and other actors

• IMO’s regulations are legally binding for all shipping companies

• EU introduces IMO regulations as part of EU law• EU legal acts include regulations which are

legally binding and directives which must be included in national laws

• HELCOM recommendations are binding for its member countries

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University of Turku

CENTRE FOR MARITIME STUDIES

Forthcoming environmental regulation in the Baltic Sea

• Sulphur emission (SECA)• Nitrogen emission (NECA)

• CO2

• Ballast water management (global)• Sewage treatment, Baltic• Revised MARPOL Annex V and regulation

related to dry bulk cargo (special areas including Baltic)

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University of Turku

CENTRE FOR MARITIME STUDIES

Non-global regulation

• Costs and problems to some parties and possibilities for others

• Why non-global regulation?– Somebody has to start…– Particularly Sensitive Sea Area

status (PSSA) of some areas- Baltic Sea from April 2004- North Sea not, only Wadden Sea

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Sulphur Emission Control Area

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SULPHUR CONTENT LIMITS IN SHIP FUEL

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Costs of SECA

•Compliance options– Fuel switch (HFO MGO), scrubbers, LNG, biofuels

•According to Kalli (2012) costs for Finland 600 milj. € annually by fuel switch•For total SECA 3.6 bln € (BSR Innoship) •+ 20-40 % of freight rates

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University of Turku

CENTRE FOR MARITIME STUDIES

Feasibility of scrubbers

• Several types of Exhaust Gas Cleaning systems– Dry and wet scrubbers

• Seawater (open loop), freshwater (closed loop), hybrid

• Technical maturity? Brackish water large volumes of washing water

• Only the costs of closed loop scrubbers considered here

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University of Turku

CENTRE FOR MARITIME STUDIES

Economic feasibility

• Depends heavily on the amount of fuel spent in SECA (> 4000 tn)1 and price difference between MGO and HFO

• Pay Back Time with big price difference could be a couple of years

• Expected lifetime of a ship also relevant (net present value)

• 4-5 % ships potential21Reynolds 20112Innoship

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University of Turku

CENTRE FOR MARITIME STUDIES

Nitrogen Emission Control Area

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2000-2010

2011

NECA 2016

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Costs of NECA

• Tier III compliance– Selective catalytic reaction (SCR)– LNG– Exhaust Gas Recirculation

• Increase in freight rates, up to 4%• Minor compared to SECA

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CENTRE FOR MARITIME STUDIES

Consequences?

• Modal shift? – According to SWECO in Sweden demand for maritime

transport will decrease by 21%

• May influence location of industry: copper smelting around northern Baltic Sea?

• Hits most the ships that use a lot of fuel, “roros, ropax” + cargo which value is defined in global markets (paper, metal products)

• Slow steaming• Shortage of compliant fuels, cascading to road traffic

(Sweco)?

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CENTRE FOR MARITIME STUDIES

Specialized vessels in SECA?

• Vessels that only occasionally visit SECA probably will not invest in scrubbers

• Fuel switch generally also need investments in ships

• Example: Dry bulk carriers of different sizes are important for customers in the Bothnian Bay

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Photo by Pekka Sundberg

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CENTRE FOR MARITIME STUDIES

Specialized vessels in SECA?

• Costs for technique to allow fuel switch may be over 100 000 € /vessel

• Are ship owners willing to make changes in all the suitable sizes of vessels to enable longer trips (a couple of days) in the SECA?

• Specialized ships that are technically modified to operate in SECA and NECA area less competition higher prices?

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CENTRE FOR MARITIME STUDIES

Uneven competition within SECA for ports

• Competitive situation within ports in SECA may change, and far away from the border of the SECA (e.g. Bothnian Bay) will suffer, either due to more expensive fleet or mandatory reloading

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CENTRE FOR MARITIME STUDIES

Innovations and business opportunities

• Environmental regulation fosters innovations that otherwise…

• Equipment manufactures• Slow steaming, ports may need to change their

operations• More opportunities around ports, e.g.

manufacturing fuels while waiting vessels?• Biofuels (e.g. wood, fish), local businesses• Symbioses of industry and maritime traffic, LNG

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CENTRE FOR MARITIME STUDIES17

LNG and Satakunta – preliminary study

Three main targets

1.To survey the current and future global and domestic market of natural gas and LNG

2.To find out the amount of potential consumption of LNG (both land-based and maritime demand)

3.To find out the business opportunities of liquefied natural gas in Satakunta

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CENTRE FOR MARITIME STUDIES18

LNG and Satakunta – preliminary studyConclusions

1.The importance of LNG is increasing rapidly in the global market

- Consumption of natural gas in Europe is 22% and in Finland 10% (from the total energy consumption)

2.Significant business opportunities, although totally affected by the development of the LNG market

3.Potential consumption of LNG is significant in Satakunta– Land-based demand 165 000 tonnes– Maritime demand 20 000 tonnes by the year 2020– The amount is high enough -> a construction of a LNG terminal

is reasonable

University of Turku

CENTRE FOR MARITIME STUDIES19

More information

http://mkk.utu.fi

Thank you for your attention!