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2020 Shipping Regulatory Mandates And CY Shipping Innovation at Work

2020 Shipping Regulatory Mandates And CY Shipping Innovation at Work

The International Maritime Organization (IMO), the UN agency responsible for international shipping regulations, set a global Sulphur cap of 0.50% (mass/mass) that took effect as of Jan. 1, 2020. This is a significant change from the previous global limit of 3.50%, which was confirmed in October 2016. The regulation is in place in order to control harmful emissions, including Sulphur oxides (SOX) and Nitrous oxides (NOX).

The near-term need to comply with new fuel emission standards puts additional strain on an already stressed industry which is also grappling with a sluggish recovery after a prolonged downturn. Although shipping companies have options to comply, they all come with significant costs that will weigh heavily on credit quality.

 

There are currently two main ways to comply:

1. Companies can purchase more expensive, cleaner fuel that complies with the emissions standards, or

2. Install costly exhaust gas cleaning systems, known as scrubbers

 

Cost & Affordability

Switching to compliant fuels could add $5 - $30 billion of annual cost just to the container shipping segment, and even though scrubbers keep fuel costs lower, the require high upfront capital costs and may need to be replaced frequently. Depending on the size of each vessel, scrubber installations, ranging from $2 million to $10 million per vessel.  Another key issue is that scrubbers do not address carbon dioxide or nitrogen oxide emissions. Nevertheless, the demand for scrubber installations has increased in the period leading up to IMO 2020 and will continue to rise, but given some of the constraints, only a small fraction of a global fleet of about 50,000 vessels will be outfitted.

 

Cyprus’ Role and the “Alternatives” Landscape 

Since the establishment of the Shipping Deputy Ministry (SDM) in 2018, Cyprus’ role in this space has expanded noticeably – the mission of SDM is to grow the Cyprus maritime cluster in order to benefit both the economy and the community’s maritime identity, know-how and contribution to innovation. More relevant to the issues stated above and perhaps the most significant development, is that the SDM has recently secured funding of almost €50 million in grants from Europe, the Cyprus Government and the private sector to develop its center of excellence in maritime-innovation. There is innovation and technology being developed right now in Cyprus by our own entrepreneurs that could potentially provide environmentally friendly and cost-efficient solutions to the IMO 2020 regulation.

Hydrogen Energy Systems (HES) is an example of one such company and happens to be a KV partner company (www.hydrogen-es.com). HES has developed a co-combustion solution that leverages an existing asset’s energy source by injecting it with hydrogen, ultimately lowering the engine’s fuel costs, GHG emissions and maintenance costs, whilst also raising the engine’s efficiency levels. The design is simple and safe and cost attractive due to the short payback profile realized from the substantial fuel savings. Several tests have been done successfully on various engines and the performance measurements revealed a significant reduction of the fossil fuel consumption of approximately 20%, as well as a reduction of greenhouse gas emissions (CO2, CO, SO2). Moreover, Particulate Matter (PM) and Volatile Organic Compounds (VOCs), emitted by all engines was reduced by 100%.

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