23-10-2018

Trump administration may struggle to obstruct IMO 2020

The International Maritime Organization is much like the large commercial ships it regulates in one respect: while slow to get moving in the first place, it can be difficult to stop once its inertia has been overcome.

This is the problem the US delegation at the UN body may face at a key meeting being held October 22-26, if it seeks to put obstacles in the way of tighter marine fuel sulfur emission limits.

The IMO’s global sulfur cap is due to drop from 3.5% to 0.5% at the start of 2020, with wide-ranging consequences for the shipping and oil industries, and late on Thursday the Wall Street Journal quoted a White House source as saying the US would seek to “mitigate the impact of precipitous fuel-cost increases on consumers.”

The tighter sulfur cap is being forecast to add several dollars to the oil price from 2020 as refiners increase crude runs to maximize middle distillate output and meet the new marine demand for cleaner fuels. The US may be baulking at the prospect of that crude increase, particularly as it could come in the middle of its next presidential election campaign.

The oil market appears to be reacting as if the Trump administration were opposing the lower sulfur cap outright: the 2020 hi-low fuel oil swap narrowed significantly on Friday morning, showing reduced expectations of a large-scale shift in marine demand that year. This would seem to be an overreaction, given the reality of the situation at the IMO.

For a start, it’s not clear that the US is putting up that kind of opposition, and the WSJ’s White House source denied it was trying to delay the implementation.

Any such delay would be next to impossible at this late stage. At the meeting of the IMO’s Marine Environment Protection Committee (MEPC) next week – the committee that originally decided on the 2020 implementation date two years ago – the earliest that any proposal under discussion could become effective would be March 2020.

If the US — or any other country — were to seek to overturn the new 0.5% sulfur limit, it would need to find a majority of the signatories to Marpol Annex VI, the IMO’s convention on pollution from ships, who were willing to amend it. None of the European Union’s member states would be likely to support such a move, and a coalition would be difficult to form without them.

In any case, a change of this kind could not be adopted before the January 1, 2020 deadline.

What seems more likely is that the US is set to lend its support to a proposal for a so-called “experience building phase” for the IMO’s ban on the carriage of non-compliant fuels, currently expected to come into force in March 2020. This ban is a supplementary measure designed to help the enforcement of the sulfur cap, and the experience building phase — first proposed by the Bahamas, Liberia, the Marshall Islands, Panama and various shipping associations, and up for discussion at the upcoming MEPC meeting — would allow for more relaxed implementation of that ban for an initial period, although it is unclear exactly how that would work.

Whether a majority can be found for this proposal remains to be seen – while US support would be significant, many delegations are still reluctant to support any measure that could be interpreted as watering down the sulfur cap. The IMO took a long time to start regulating shipping’s emissions, and it would take a great force to stop it now.
Source: Platts

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