Shipping emission regulations cause price hike concerns

EU Directive requiring low sulphur dioxide content in shipping fuels to tackle maritime air pollution comes into force in January 2015

Concerns have been raised in the House of Lords that the costs of ferry operators complying with forthcoming EU regulations to reduce air pollution from shipping will be passed down to customers, resulting in a hike in ticket and transport prices.

However, the government has said that while it recognises there could be some increases in industry costs, it supports the introduction of the EU Sulphur Directive to tackle sulphur dioxide emissions and that some of the cost increases will be offset by falling oil prices.

P&O Ferries says its ticket prices will be affected by the forthcoming EU Sulphur Directive

The EU Sulphur Directive (2012/33/EU) comes into effect from January 1^st 2015 and requires ferry operators to reduce sulphur dioxide emissions from their vessels.

It comes amid recent estimates that, as it stands, global air pollution emissions from shipping are likely to quadruple from current levels by 2050 (see airqualitynews.com story).

As a result of the Directive, shipping operators need to either switch to lower emission fuels, such as liquefied petroleum gas (LPG), or install filter ‘scrubbers’ to reduce emissions. However, both compliance methods come at a high cost, which many passenger and industry ship operators are seeking to regain by levying an additional surcharge on their customers.

And, in view of ferry operator P&O Ferries’ reported intention to put up its Dover-Calais fares in the new year from £160 to £210 for a family of four as a direct result of the Directive, Lord Stoddart of Swindon last week (December 16) asked the government whether it supported the forthcoming regulations.

Responding in the House of Lords, transport minister Baroness Kramer said that the UK supported the development of the standards as part of the International Maritime Organisation’s (IMO) MARPOL Convention treaty and that the shipping industry has known it would need to comply with stricter regulations since they were adopted in October 2008.

Baroness Kramer said: “The government’s aim is to implement the sulphur limits in a way that minimises the economic impact on the industry. We have not made a detailed assessment of the costs to P&O Ferries which have been reported in the media. We recognise that ticket prices may have to increase to cover the cost of low sulphur fuel, but falling oil prices should offset at least some of this increase.”

In addition, she said: “We are looking at ways of helping industry meet the new regulatory requirements. We have already been successful in 2014 in supporting shipowners and ports who applied for EU assistance under the Trans-European Transport Network (TEN-T) programme to help purchase innovative technologies. We propose to take matters further and identify additional options for financial assistance to affected parts of the UK shipping and ports industries.”

P&O Ferries

A spokesman for P&O said the company had been working up to the changes since October 2008 when the regulations were first announced and that it was supportive of the introduction of low sulphur standards.

In order to comply, the company is switching from using heavy fuel oil (HFO) to marine gas (MGO) for ships operating in the English Channel and North Sea, meaning that its fuel oil tanks have been cleaned, and fuel systems and engine components modified “over the past few months” in preparation.

However, the P&O spokesman explained that MGO comes at a “substantial premium to HFO” as it is currently around 70% more expensive, and that the firm’s “only source of revenue” is its customers.

The spokesman said: “As the shipping industry makes a big switch to MGO, putting pressure on demand, we remain on tenterhooks about where that price differential will settle. On the plus side, at least for the moment, is the substantial fall in the base price of oil in recent months.

The spokesman added: “We use fares to get customers onto our ships where we have revenue streams such as retailing (we’re one of the largest offshore retailers in the world) bars and restaurants, forex, gaming, upgrades to club class and so on. So we have to take an overall view of our trading opportunities, keep a tight rein on our own costs, be ruthless about fuel efficiency measures, and be careful not to leave ourselves at a disadvantage to our competitors as we price in our higher fuel costs in future.

“Our challenge is to meet the new standards at the lowest cost to our customers and with minimum disruption to service during the transition period.”

Aside from the forthcoming directive, sulphur dioxide emissions from shipping are currently regulated in four maritime sulphur emission control areas (SECAs) around the globe — in the Baltic Sea, the North Sea, along most of the US and Canadian coast and in the US/Caribbean area — which set air quality shipping limits for sulphur dioxide, nitrogen oxides and particulate matter.