Stricter Marine Fuel Sulphur (SOx) Content Limit Kicks In – 5 FAQs

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Stricter Marine Fuel Sulphur (SOx) Content Limit Kicks In – 5 FAQs

January 29, 2015

By Daniel Watt, at McInnes Cooper

On January 1, 2015, new – and 90% lower – limits on sulphur (SOx) content in marine fuel in Canada kicked in. The new limits apply to almost all types of vessels (including offshore drilling, production and storage vessels) in a defined area. The penalties for non-compliance can be significant – and Transport Canada warns it will be increasing its compliance enforcement efforts to coincide with the stricter limits. And this means an increased risk of fines – and delays – resulting from non-compliance for vessel and cargo owners, and increased risk of related third party claims for their insurers.

The new SOx limits came into effect by way of changes to the Vessel Pollution and Dangerous Chemicals Regulations, which are under the Canada Shipping Act, 2001. They implement Canada’s international obligations under Annex VI of the International Convention for the Prevention of Pollution from Ships (MARPOL) which seeks to reduce airborne emissions from ships.

To find out what vessels the new marine fuel SOx limits apply to and how, here are the top five frequently asked questions about the new limits.

What vessels do the stricter SOx limits apply to? The stricter limits apply to almost all Canadian-flagged vessels everywhere, and to foreign-flagged vessels operating in Canadian waters or within the Canadian portion of the North American Emission Control Area under MARPOL, with only a few exceptions, and include most types of vessels including offshore drilling, production or storage vessels such as floating production, storage and offloading platforms (FPSOs), fishing vessels, and even pleasure craft.
What are the new SOx limits? SOx limits in marine fuels vary based on the location. The new stricter limits reduce the SOx content limit for vessels in Canadian waters south of 60°N and within the North American Emission Control Area by 90% – from 1% to 0.10% of mass. Outside these geographic areas, the current SOx limit of 3.50% is unchanged – but on January 1, 2020 it will be cut to 0.50%.
What fuels do the new SOx limits capture? All of them. The new SOx limits apply to any marine fuel oil used aboard a vessel, regardless of how the fuel is used (for example, in combustion engines, boilers or otherwise).
Are there alternatives to switching to low-sulphur/reduced SOx content fuel? Yes. Vessels can use exhaust gas cleaning systems, or scrubbers, intended to reduce SOx emissions as long as the technology complies with the International Maritime Organization (IMO) Guidelines for Exhaust Gas Cleaning Systems and the resulting emissions are no worse than those that would have resulted from burning fuel that complies with the SOx limits. Transport Canada can also consider and approve other alternative compliance proposals, which may include technologies, alternative fuels, or regional fuel averaging regimes – subject to a Marine Technical Review Board decision for Canadian vessels, or an approval by a foreign vessel’s administration.
What are the risks of non-compliance – and of compliance – with the new SOx limits? They can be significant: fines of up to $1M, or imprisonment for up to 18 months, or both. Transport Canada can also detain a vessel – and Transport Canada says it intends to increase its efforts to enforce the new SOx limits and will introduce further enforcement measures in 2015.

But this could result in a competitive advantage for non-compliant vessels in less rigorous countries. The Emission Control Area system is enforced by the member countries – so it’s susceptible to inconsistent levels of enforcement. Vessels in less rigorous countries could choose to save the costs of complying with the stricter limits with minimal risk of getting caught and being penalized for it. To make non-compliance less attractive, some jurisdictions (including the US) created SOx-specific penalty regimes. Transport Canada has indicated it intends to coordinate with its US and European counterparts, but it will enforce the Regulations – and the new SOx limits – in accordance with Transport Canada’s existing Policy on Compliance and Enforcement of the Canada Shipping Act.

The increased focus on compliance affects the insurers, particularly protection and indemnity clubs, of owners or charterers of the affected vessel and any cargo. These insurers are at risk of an increase in third party liability claims arising from delays associated with detention, fines and charges for non-compliance with the new limits.

There are also risks associated with complying with the new SOx limits: switching to low-sulphur fuels can lead to logistical and technical problems, such as incompatibility between fuel types, impact on machinery operations, difficulties securing supply, and other issues – and ultimately delay and more risk.

Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Maritime Law Team to discuss this topic or any other legal issue.

McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.

© McInnes Cooper, 2015. All rights reserved. McInnes Cooper owns the copyright in this document. You may reproduce and distribute this document in its entirety as long as you do not alter the form or the content and you give McInnes Cooper credit for it. You must obtain McInnes Cooper’s consent for any other form of reproduction or distribution. Email us at publications@mcinnescooper.com to request our consent.

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