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Interview: IMO sees 'by far' majority of ships complying with 2020 sulfur cap

London — The International Maritime Organization (IMO) is expecting "by far" the majority of the world's fleet to comply with its tighter sulfur emission standards in 2020, according to the UN body's head of air pollution and energy efficiency.

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The IMO's global sulfur limit for marine fuels is set to drop from 3.5% to 0.5% at the start of 2020, forcing most shipowners to switch from burning high sulfur fuel oil to cleaner, more expensive alternatives. While some have raised the concern that some shipping companies may flout the new rules in the hope that their enforcement will be lax, the inconvenience of doing so may prevent this from being widespread, the IMO's Edmund Hughes told S&P Global Platts in an interview Tuesday.

"The expectation is that by far the majority will be using compliant fuel," he said. "If you're not doing that, you're creating bureaucratic barriers for yourself."

Hughes noted out that 96% of the global fleet by tonnage is registered to a flag state that has signed up to MARPOL Annex VI -- the IMO document setting out its rules on air pollution from shipping -- and said ships failing to comply could lose their international certification, preventing them from operating as a commercial trading vessel.

And next month, a key committee of the IMO is expected to adopt a ban on the carriage of non-compliant fuels from March 2020, empowering port states, as well as the flag state where a vessel is registered, to help with the effort of investigating whether ships are burning compliant fuel in international waters.

Hughes is due to deliver a presentation on 2020 and the IMO's perspective at the Platts Asia-Pacific Petroleum Conference in Singapore September 25.

The availability worldwide of sufficient 0.5% sulfur fuels to cover the shipping industry's demand in 2020 remains in doubt, and this in itself may prompt a degree of non-compliance. A system of fuel oil non-availability reports (FONAR) -- a document filed to environmental authorities to notify them that a ship was unable to buy compliant fuel -- may be used worldwide in 2020.

The use of the FONAR system could allow the shipping industry an easier path into the new era after 2020 by effectively allowing some initial non-compliance under certain circumstances, while the availability of 0.5% sulfur fuels is tight, but some have suggested it could lead to lax enforcement of the rules in some regions.

Hughes said he expects initial use of FONARs to be widespread, but that their repeated use is not likely to be tolerated by port states for long. "It's not a get-out-of-jail-free card, the FONAR," he said. "If a ship uses it once, twice, maybe three times, it should be fine, but after that there's going to be problems."

"It's there as an exception, not the rule," he added. "For an easy life, ship operators should be looking at compliance."

He noted that ship operators filing a FONAR to the relevant authority will need to document why they were unable to bunker compliant fuels, and that the report will only be taken into consideration, not automatically taken as a legitimate excuse.

The IMO has been relatively unknown in the wider oil industry and among the general public in the past, but now faces unprecedented public attention as its emissions regulations are likely to have a big impact on other industries.

"Public scrutiny is to be welcomed," Hughes said. "The delegations of member states coming to IMO are nominated by those states to represent their governments, who in turn represent the populations of their countries."

Several economists have raised the possibility of the 0.5% sulfur cap in 2020 spurring increased refinery runs, adding a few dollars per barrel to the price of oil and adding to pressures on the global economy. But any politician wanting the IMO to change course under those circumstances would face a difficult path, according to Hughes, as a majority of the parties to MARPOL Annex VI would need to agree to alter it.

"They're going to have to explain to their constituents why shipping should be able to continue with its current emission levels," he said.

He also noted that the original reason for the restrictions on sulfur emissions -- lessening the incidence of respiratory illnesses caused by these emissions, particularly in coastal communities -- is often lost in the debate over the impact the regulation will have.

"There are economic consequences, of course, but there are economic consequences of air pollution as well," he said.

--Jack Jordan, jack.jordan@spglobal.com

--Surabhi Sahu, surabhi.sahu@spglobal.com

--Edited by James Leech, james.leech@spglobal.com