A pragmatist’s guide to MEPC73

A pragmatist’s guide to MEPC73

The IMO’s 2020 sulphur cap is rapidly descending into a colossal regulatory fail, argues Jeffrey McGee from Makai Marine Advisors.

During this week’s 73rd session of the Marine Environment Protection Committee (MEPC73), the IMO can count on broad support from a variety of players, including the beautifully named Clean Shipping Alliance 2020 (CSA 2020). Its mission is “to provide information and research data to better inform” on the benefits of scrubbers, but in reality, the 25 founding members of this group are major shipowners and key charterers who have already secured scrubber installations predominantly in advance of 2020. Seeking to protect multi-million-dollar scrubber investments, CSA 2020 cites its commitment to the “implementation and effective enforcement” of IMO 2020. Their enthusiasm for enforcement is particularly fervent — since it would ensure high gasoil prices and wide spreads over HSFO, providing strong returns on their scrubbers, while inflicting financial damage on competitors without scrubbers.

Although most industry participants can recognise the hypocrisy of CSA 2020’s environmental posturing, several other key players stand to benefit massively from a chaotic IMO 2020 implementation, and are skewing the narrative. In addition to shipowners who have already secured scrubbers — oil producers, large oil traders, sophisticated refiners and any refiner building a coker or resid cracker at the moment all have an economic incentive to insist on robust IMO 2020 enforcement. In doing so, these players will all cite ‘fairness’ and ‘level playing fields’.

With committed environmentalists like these behind the scenes, the IMO should emerge from MEPC73 claiming unqualified success, and full industry support for IMO 2020 timing and its tough enforcement, including the March 2020 non-compliant fuel carriage ban. The agency will also signal only limited industry pushback. After all, the four major flag states and three ownership groups that submitted a paper to the IMO calling for a “pragmatic enforcement approach” and an “experience building phase” did a dramatic volte-face, and pledged unwavering loyalty to IMO 2020 timing and strict enforcement, including promises of “concentrated inspection campaigns” by port states.

Meanwhile, the IMO has developed a FONAR (fuel oil non-availability report) form to be submitted by vessels to their flag states and various port states. Although this framework might work within the IMO’s vision of only spotty compliant fuel non-availability, it would represent another regulatory misstep in an environment of widespread non-compliance, as seen by the IEA, OPEC and several major oil consultancies. If their forecasts are correct, hundreds — if not thousands — of FONARs would flow daily into the collective inboxes of the flag and coastal states. It remains unclear how they would judge between ‘good’ FONARs and ‘bad’ FONARs, but the point is probably moot. The IMO has threatened bombastically that if vessels submit more than two or three FONARs, ‘there’s going to be problems’.

Ultimately, within the next year, leadership in the shipping industry will need to recognise IMO 2020 for what it is — a colossal regulatory fail — and to be willing to act. As expected, the Trump administration indicated its desire for a gradual IMO 2020 phase-in, given concerns about an oil price spike and recessionary risks. In response, the media and analysts have been dismissive of the US position, arguing that the 22-month IMO process to amend MARPOL and resistance from key IMO members would thwart any US attempt to delay implementation. This is absolutely true, but these commentators are missing the point and are not thinking outside of the IMO box.

To the extent that oil prices spike during a 2H19 switch to MGO and onshore/on-vessel inventory builds, thus posing broad macro risks, the required postponement of IMO 2020 would not occur within the IMO framework — but outside of it. Although this outcome is beyond the imaginary realm of most MEPC participants, other, more credible national and supranational bodies have also recognised the threat that IMO 2020 poses to the global economy, and may be questioning the IMO’s regulatory competence at this point. Given the farce that ballast water management has become, and the worrying trajectory that the sulphur cap is taking, the IMO has displayed a chronic inability to balance its environmental protection responsibilities with commercial and economic pragmatism.

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3 Comments

  1. Avatar
    Alan Knight
    October 24, 2018 at 12:25 am

    “I wonder if the I.M.O. would consider granting a one-year extension on compliance?” he said, with a wink.

  2. Avatar
    Alistair J Chaplin
    October 24, 2018 at 7:14 am

    If only the industry had been given 10 or 12 years notice of the impending change, oh wait….

  3. Avatar
    Kapil Kekre
    October 24, 2018 at 4:11 pm

    Well done Jefferey. Very good commentary. “Leadership at IMO”, a very important point. No member country conducted itself to claim this position ever since IMO lost it’s way and forgot the purpose of it’s existence . An organization formed for improving Safety of Life at Sea ( damage to environment, pollution etc came later) turned in to a business development centre. May God save Seafarers and Shipping from IMO.