A strong turnout and lively debate at the recent BLUE – Norton Rose Fulbright panel discussion, ‘Perspectives On: The Risk and Reward of Regulatory Compliance’, left little doubt as to the significance and challenges of 2015 ECA compliance.
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A strong turnout and lively debate at the recent BLUE – Norton Rose Fulbright panel discussion, ‘Perspectives On: The Risk and Reward of Regulatory Compliance’, left little doubt as to the significance and challenges of 2015 ECA compliance. The event, held on 25th November, brought together leading industry figures from right across the shipping supply chain, offering views on conformity with a law of uncertain punitive consequences. The venue, global law firm Norton Rose Fulbright’s London office, proved an appropriate location as matters of law, shipping, commercial interest and punishment took centre stage against a backdrop of the City. Shipowners and operators, financiers, regulators, technology providers and others debated these issues with the panel, comprising Alisdair Pettigrew, Managing Director of BLUE who chaired the event, as well as Philip Roche, Partner at Norton Rose Fulbright LLP, Paul Davies, Partner in Corporate Finance at PwC, Niels Bjorn L. Mortensen, Director of Regulatory Affairs at Maersk Maritime Technology, and Luis Benito, Global Strategic Marketing Manager at Lloyd’s Register. Online participants also viewed and contributed to the debate through a live webinar, which was sponsored by Lloyds Register.
The implications of the ECA zones, which will impose a 0.1% sulphur cap on vessels transiting in the Baltic and North Seas, the North American and Canadian coastlines, as well as the US Caribbean Sea from January 1st 2015, are well documented. In order to be compliant this means adopting one of the following options: taking on the significant upfront costs of converting to Liquefied Natural Gas, installing exhaust gas cleaning systems (scrubbers), or using distillates, which even at the current depressed fuel prices, still carry a circa $300 premium above Heavy Fuel Oil.
Davies opened the debate by proposing that despite uncertainty, he feels that non-compliance is “not an option”, with regulators – particularly in the US – likely to make examples of offenders and increase fines until the desired deterrent function is achieved
Law breaking was lent a high-profile sound bite by Maersk’s Mortensen, whose assertion that “non-compliance can be rewarding if you are not caught” acknowledged the potential savings that unscrupulous players could benefit from if they continued to use Heavy Fuel Oil – particularly if fines fail to supply a sufficient disincentive to conform. Given the temptation to gain a competitive advantage on compliant shipowners and operators, Mortensen spoke on behalf of the Trident Alliance, a coalition of shipowners united in support of robust enforcement of the regulation amidst their concerns of the potential for a two tier market, where those that do comply lose out commercially.
Mortensen highlighted that the Trident Alliance was less concerned about ECA enforcement in the US, because the US, a single jurisdiction, can issue significant fines and threaten imprisonment of the implicated crew, vessel arrest and so forth if records were falsified. The EU, however, faces a more challenging proposition, with added jurisdictional uncertainty. There are doubts about sanctions – for example, if Danish port state control considered sanctioning a ship for non-compliance on a voyage spanning Danish and UK waters, some believe that only the Danish section of the journey is applicable for the purpose of sanctioning, Mortensen said. He added that the margin of appreciation in EU law dictates that Brussels has no authority to determine the administration or severity of fines for traffic violations in member states.
Moreover, Roche observed that while there is a precedent for major fines in the US, seen most recently in marine pollution cases involving infractions of environmental law with the use of ‘magic pipes’, this is not the tradition in the UK, who may take a more lenient approach to enforcement. Perhaps in light of these US cases, where brands were not left unblemished, BLUE’s Alisdair Pettigrew flagged the reputational impact on companies receiving sanctions for non-compliance.
On the issue of enforcement, the panel doubted that there were sufficiently robust policing and monitoring mechanisms in place. Mortensen and Roche noted the dependence on time-consuming fuel sampling and potentially unreliable bunker delivery notes. Pettigrew, however, highlighted the availability of continuous emissions monitoring systems, which can be fitted to the ship’s stack to offer real-time monitoring of emissions, potentially answering the Monitoring, Verification and Reporting (MRV) question facing the IMO.
Questions from the floor and the webinar raised some compelling points to add to the debate. This included a very real aspect of the ‘human’ element of regulatory compliance from Mark Cameron, COO, Ardmore shipping. His concerns over the safety implications of fuel switchovers – a problem taking its precedent from past incidents in the Californian ECA – highlighted the vulnerability of crew as well as the significant financial impact of unplanned downtime.
With less than a month left until the regulation enters into force, the strong sentiment in the room was that the industry still does not have all the answers but that apathy is not an option, especially in terms of policing ECAs to ensure that the benefits of the regulation are recognised and that those who fail to comply, do not inadvertently reap the rewards.