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Happy New Year: IMO 2020 is Here

IMO 2020

Happy New Year: IMO 2020 is Here

A new year is right around the corner, which means IMO 2020 is finally here. Effective January 1, 2020, Annex VI of MARPOL, which is the international treaty governing pollution on the high seas, will mandate a significant decrease in sulfur emissions from vessels—reducing the current permitted level of 35,000 ppm to 5,000 ppm. Compliance with this new standard will primarily be achieved through the burning of low-sulfur fuel, although compliance choices include other methods like the use of scrubbers and liquid natural gas (“LNG”) as fuel. Under this regime, the primary responsible party in the freight market will be the vessel owner or operator. 

It is estimated that 10-20 percent of vessels after January 1, 2020, simply will not comply with the new IMO 2020 sulfur standard. Furthermore, because there is no industry standard specification for bunker fuel, there is an increased risk of fuel quality issues that lead to suboptimal performance and engine damage, which may give rise to inadvertent non-compliance. As a result, the industry should expect significant enforcement efforts of this new standard. 

The IMO does not have a global enforcement body. Instead, IMO member states pass laws implementing the provisions of Annex VI, which are enforced by bodies analogous to the US Coast Guard and US Environmental Protection Agency (“EPA”). In particular, port states can enforce compliance within their coastal waters while flag states may enforce the standard on vessels flagged in their countries. Both port states and flag states have the authority to arrest vessels, and issue fines, penalties and prison sentences. 

Historically, the United States has been a lead enforcer of MARPOL, and the industry should expect robust enforcement in the United States regardless of whether the non-compliance occurs in US or non-US waters. It is likely that US authorities will seek to enforce IMO 2020 through whether the vessel is maintaining true and accurate records, specifically its bunker delivery notes (“BDNs”) and fuel changeover logbook. Any listing of noncompliant fuel or false or inaccurate statements in those records could result in the US Coast Guard detaining the vessel and prosecuting the vessel owner, operator, bunker fuel supplier or other responsible party. Although the likelihood of direct non-compliance in US waters is low, even indirect non-compliance can still be enforced if the vessel’s records are false or inaccurate. 

Prior enforcement of IMO treaties—which includes multimillion-dollar fines and criminal penalties for captains and vessels—further demonstrates the likelihood of a robust US response to non-compliance. Similarly, whistleblower provisions will likely also bolster US enforcement of IMO 2020. Under US law, whistleblowers who report non-compliance can receive up to 50% of the monetary penalties levied against the owner, operator or vessel. With penalties in these cases exceeding tens of millions of dollars, the whistleblower provisions provide crew with a significant incentive to report non-compliance to US authorities. 

While direct liability of the owner and operator of the vessel is a primary concern, there are also varieties of implications non-compliance may have on other parties involved in the freight industry. For example, the detention of vessels and its owners or operators for non-compliance can also lead to delays in the shipment of goods and present significant obstacles and other logistical issues in getting a vessel released from US authorities. Moreover, the reputational harm that comes with non-compliance may also have a lasting effect on a shipper’s business. 

With IMO 2020 just around the corner, it is essential that all parties seek to implement robust compliance plans and due diligence of their counterparties—including charterparties, fellow shippers, vessel owners and operator and bunker fuel sale counterparties.

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David McCullough is a partner in the Energy & Infrastructure practice group at the New York office of Eversheds Sutherland (US) LLP. Nicholas Hillman, with Eversheds Sutherland (US) LLP in Washington DC, is not yet admitted to practice.

How Clean Shipping Fuels Support Trillion-Dollar Investments

Implementing the use of clean fuels such as green ammonia creates the potential of trillion-dollar investment opportunities, specifically in developing countries, according to a report released by Ricardo Energy and Environment, commissioned by EDF. Identified by Sailing on Solar, the “green” alternative serves as an emissions-free substitute when used by shippers that produce it at-scale with untapped renewable energy resources. This approach ultimately eliminates fossil-fuel usage while offering a clean solution to modified shipping engines and hydrogen fuel cells.

Emissions-free shipping can be the engine that drives green development across the world,” Aoife O’Leary, senior legal manager at Environmental Defense Fund Europe, said. “The abundance and falling costs of untapped renewable resources like solar and wind energy in developing countries make the production of maritime fuels that emit no greenhouse gases a big potential investment opportunity where such production is undertaken by additional renewable capacity. And shippers can look forward to future running on the air, water, wind and sunlight that go into manufacturing new fuels like green ammonia.”

Additional findings from the research addressed the need for an established supply chain of green ammonia for the maritime sector, specifically calling out countries with renewable energy resources as a primary resource. While the IMO considers new policies to support the goal of cutting emissions in half, trillions of dollars in new investments are on the horizon if renewable energy alternatives are strategically implemented to alleviate financial strain for the production of sustainable alternative fuels.

“Countries must get serious about exploring international policies that can provide the incentive for alternative fuels like green ammonia and other sustainable shipping fuels to be adopted,” said O’Leary. “First movers will be able to benefit from investment in their economies towards additional renewable capacity whilst also gaining a competitive advantage as the shipping industry transitions to clean fuel. All that is needed to ensure this vision becomes reality is a sensible policy, including robust environmental safeguards, to allow the investment to flow.”

 

 

EDF Climate Fellow to Join APL Logistics Team

APL Logistics announced the latest addition to the company will further support the company’s vision to grow sustainable solutions by creating a Scope Three Greenhouse Gas Emissions Calculator. Environmental Defense Fund (EDF) Climate Corpsfellow, Sriram Rachamadugu, is the man behind Scope Three which will be available for customer use late 2019. This solution will model GHG Protocol greenhouse gas reduction scenarios aligned with the Global Logistics Emissions Council’s (GLEC) carbon accounting methodology.

“We are focused on innovative opportunities to serve our customers,” said William Villalon, President of APL Logistics. The ability to model value chain emissions is a critical first step to signal investors that we are considering the business risks of climate change. APL Logistics continues to prepare for shifts in public policy and consumer preference, as we make decisions that consider the needs of future generations.”

APL Logistics’ Visual Intelligence Team is the main source of data as the calculator gathers resources from EDF Supply Chain Solutions Center to create sustainable solutions.

“Organizations like the Climate Action 100, a cohort of 300+ institutional investors controlling $33+ trillion, believe disclosing the risks of climate change is their fiduciary responsibility,” added Jessica Balsam, Director of Sustainability for APL Logistics. “We are providing results aligned with the business goals of customers concerned with investor pressure and the proliferation of global greenhouse gas pricing schemes. Over time, APL Logistics is prepared to be an active voice in shaping these issues and identifying collaborative partnerships for systems-based solutions.”

“Sriram’s calculator will provide APL Logistics with the data needed to set specific and measurable climate goals, an important step in any organization’s sustainability journey, as well as establish the groundwork for which future sustainability projects can be carried out,” said Scott Wood, Director of EDF Climate Corps

Sea Explorer Supports Shippers and Emission Regulations

Container ship emissions and fuel regulations must also be considered when selecting the best option in digitization. Effective January 1, 2020, the International Maritime Organization (IMO) will require a 0.5 percent global Sulphur cap on fuel content. With less than a year to prepare, shippers and carriers are encouraged to consider options that integrate digitization and compliance support to avoid redundancies, financial waste and issues with compliance.

Kuehne + Nagel, a global leader in supply chain solutions,  announced the expansion of its ocean freight platform Sea Explorer, a digitally rooted service network that bridges the gap between more than 1,200 international ports using its advanced algorithm. Expansion efforts will come in the form of adding capabilities with service connections and transshipments. It was reported that more than 63,000 port pairs and key inland locations across the globe are connected to weekly services or transshipment options.

“This extension takes Sea Explorer to the next level and complements Kuehne and Nagel’s intelligent sea freight offering; it is the smart platform for all liner services in container shipping,” says Otto Schacht, member of the Managing Board of Kuehne + Nagel International AG. “With powerful features, like comparing realistic lead times for direct services and an intuitive navigation, customers will be able to unlock new opportunities for their day-to-day operations.”

“This marks the first time a platform provides full visibility on CO2 emissions across carrier and individual services”, according to Schacht.

“Also, in the light of the upcoming IMO 2020 regulations, this will enable shippers to contribute toward a green economy and sustainable global maritime transportation,” he adds. “Kuehne and Nagel leverages big data technology capabilities and information from the operational system to grant unique insights to sea transport options.”