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Monday, March 25, 2024

Cleaner Ships May Mean More Expensive Holidays

If you think your New Year’s resolution to stop drinking what’s bad for you is impressive, try being one of the 60,000 oceangoing ships. As of January 1, all marine vessels must drastically cut how much sulfur they pump into the air. The new regulation marks one of the first truly global initiatives to clean up planet Earth, and it just might wreak a bit of havoc on the world’s economy along the way.

The rule, officially dubbed MARPOL Annex VI, regulation 14, comes from the International Maritime Organization (IMO), a United Nations agency. Better known as IMO 2020 and agreed to by every nation that plays a serious role in global shipping, it dictates that ships either install pollution-control equipment or use fuel whose sulfur content is no more than 0.5 percent by weight, down from the current 3.5 percent limit.

“This global switch is unprecedented,” says Iain Mowat, an analyst at Wood Mackenzie who forecasts petroleum demand.

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Where the Paris Agreement on greenhouse gases prods countries to promise to make changes, IMO 2020 is the rare global standard that everybody’s supposed to follow. And it’s set to have a major impact. By value, more than 70 percent of global trade makes part of its journey by ship. (By volume, it’s over 80 percent.) The world’s armada accounts for 4 percent of global oil demand, which may not seem like a lot if you don’t know that it represents 3.3 million daily barrels of a particularly gnarly oil product.

Most ships, especially the big ones that do the heavy hauling, burn what’s called high-sulfur fuel oil, or bunker fuel. Think of the oil that comes out of the ground like a steer: The nicest cuts are carved into filet mignon and ribeyes. The tougher parts become brisket and hamburgers. All the bits nobody would buy on their own are ground and mashed into hot dogs. When crude oil is distilled, the lightest parts to boil off are butane and propane, followed by gasoline. In the middle of the range, you get jet fuel and kerosene. Down at the bottom are the residual fuels—the stuff that sticks around after everything else has boiled off. That’s where you’ll find dark, viscous bunker fuel. The only things below it are carbon black—a common ingredient in tires—and asphalt.

Bunker fuel is also known as high-sulfur fuel oil because it contains up to 3,500 times as much sulfur as the diesel you put in your Volkswagen, according to researchers at Columbia University. And while sulfur’s not a greenhouse gas, it is quite horrible. It triggers acid rain, which contributes to ocean acidification. University of Washington researchers have found that ship exhaust intensifies thunderstorms, so shipping lanes get extra lightning. (That’s right, humans have invented yet another way to piss off Zeus.) Sulfur emissions cause respiratory problems and lung disease in humans, especially those who live near ports. It’s such a problem, the IMO estimates the new sulfur-curtailing rule will prevent more than 570,000 premature deaths in the next five years.

Somewhat remarkably for a United Nations initiative whose enforcement is left to individual nations, analysts predict that more than 90 percent of ships will comply. Shipping is global, but the industry’s decisionmaking power is concentrated among relatively few large shipping companies, oil refiners, and major ports. Those key players have all said they’ll follow the UN’s marching orders.

Beyond the good this rule should do for the health of people and their planet, the effects are hard to predict. One key variable is how ship owners will decide to comply. Based on numbers from Shell and Bloomberg, a tiny percentage of ships—about 2,000—are lined up to install an exhaust-gas cleaning system. Usually called scrubbers, these systems capture the exhaust produced by burning bunker fuel and remove the sulfur before releasing the clean(ish) remains into the air. They’re not a popular choice because, depending on the vessel, installation takes four to six weeks and costs $5 million to $10 million. The money matters, but so does that time in port: Getting a ship fitted with a scrubber before the January 1 deadline may mean taking it out of service during the holiday season, when demand peaks. Short-term capacity could drop as much as 4 to 5 percent according to Flexport, which helps businesses organize their shipping efforts.

Another issue with the scrubbers: what happens to the dirty stuff pulled out of the exhaust. “Closed-loop” systems will store it until it can be sent to a waste treatment facility. But cheaper “open-loop” setups will simply dump it into the ocean, which can make the water warmer and more acidic, German researchers have found. Ports in the US, the United Arab Emirates, and Ireland have said they won’t harbor ships with open-loop systems, but hybrid setups—still cheaper than closed loop—will let ships switch between the two modes: closed loop near shore, open loop on the open seas.

Ship owners who don’t want no scrubs will fill their tanks with cleaner fuel. “Now we need to add some filet mignon to the hot dogs,” says Jamie Webster, an oil analyst at the BCG Center for Energy Impact. Well, a lot of filet mignon. In 2015, the IMO restricted sulfur levels to 0.1 percent in coastal areas around the US, the Caribbean, and the Baltic and North Seas. That reduced demand for high-sulfur fuel by roughly 300,000 barrels a day. This new rule will likely affect 10 times that amount, according to Shell. The replacement low-sulfur fuel will be more expensive—to the tune of an extra $15 billion a year, per one estimate—and along with constrained capacity, could mean higher prices for imported products.

Because the rule shifts demand for oil products “within the barrel,” Webster says, it’s likely to affect industries that use higher-quality fuels. Refiners like Shell and BP have added capacity to handle the rule change, but Webster predicts diesel will get more expensive. The International Air Transport Association has warned that IMO 2020 could tighten supplies of jet fuel, which already accounts for 25 percent of airline operating costs. And in an ironic twist, this climate-minded rulemaking could make electric cars more expensive to build. The low-sulfur fuel oil poised to get more expensive is used to make something called needle coke, a key ingredient for both steelmaking and the anodes in lithium-ion batteries. “It’s amazing how uncertain this is,” Webster says.

One more potential curveball: The global regulators aren’t done with shipping, because ships emit compounds other than sulfur. The IMO has said it hopes to cut the industry’s carbon output by 50 percent by 2050 and eliminate it by 2075. That means more, and stricter, standards are likely to follow, which is troubling for shippers whose vessels spend decades in service. It could also increase the use of propulsion systems that are actually clean, not just cleaner than disgusting, like hydrogen fuel cells and liquified natural gas. The infrastructure for those remains too nascent to rely on today, and if it never makes it big, shippers could always take a page from the history book and return to the age of sails. Hey, it worked for Greta Thunberg.

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