IBIA investigates: Brexit and Sulphur Regulations – what now?

The prospect of the United Kingdom leaving the European Union – nicknamed ‘Brexit’ – has raised a number of questions regarding the status, now and in the future, of sulphur regulations in the UK. In response to some of the questions raised, IBIA has investigated the short term reality and future scenarios.

The EU’s sulphur regulations contained in Directive 1999/32/EC and subsequent amendments – the EU Sulphur Directive – go beyond the minimum requirements of the International Maritime Organization’s MARPOL Annex VI.

The EU and IMO regulations are aligned regarding the 0.10% fuel sulphur limit for ships operating within an emission control areas (ECAs), but the EU Sulphur Directive has three key extra requirements.

Firstly, it sets a 0.10% fuel sulphur limit for ships berth in any EU port. Secondly, outside ECAs, there is a 1.50% sulphur limit for passenger ships on regular service between EU ports until 2020. Thirdly, the EU has decided that a 0.50% will apply within EU waters from 2020 regardless of the timing of the IMO’s global 0.50% sulphur cap. EU waters are defined as the Economic Exclusive Zone (EEZ) which stretches 200 nautical miles from shore of its member states, except where that encroaches on the EZZ of non-EU countries.

What happens now?
Until the UK’s divorce from the EU is complete, EU regulations will continue to apply. How long that will take is difficult to say with any accuracy. In theory, the divorce proceedings will only begin when the UK officially triggers Article 50, after which there are supposed to be maximum two years of negotiations about the terms of the UK’s withdrawal from the EU.

We are in untested territory because Article 50 has never been invoked before, but officials IBIA has spoken to expect that EU sulphur regulations will continue to apply in the UK during those negotiations. The exit negotiations could, theoretically, take less than two years but many believe it could take longer.

David Cameron, the current British prime minister, will not trigger Article 50 and has resigned; meaning the earliest it can happen is when his replacement is in place. That is meant to happen by October this year, but even then, it is not certain when the new prime minster will make that move, and it may require an act of Parliament to do so.

In conclusion, it looks like the UK could be out of the EU by October 2018 at the earliest, but it depends on when Article 50 is triggered and whether the ‘divorce’ negotiations are concluded within the allotted 2-year period.

Status quo on ECA
One thing that is unaffected by the Brexit is the situation along most of the UK’s eastern seaboard, from Falmouth in the south to the northern tip of Scotland, which falls inside the North Sea and English Channel ECA. This has been designated by the IMO under MARPOL Annex VI, not the EU.

The UK, as a party to Annex VI, would have to call for an amendment to the geographical reach of the ECA if it wanted to allow ships to use fuel above 0.10% sulphur along its eastern seaboard. This is not considered a likely scenario.

Post-Brexit scenarios

The UK could, if it wants to, decide to replace the EU sulphur regulations and go for different requirements, either more or less stringent.

In theory, the UK could allow vessels to use fuels with up to 3.50% sulphur while at berth in the ports that are not inside an ECA, as well as in UK waters, until the global 0.50% sulphur cap takes effect.

If the UK puts new laws in place prior to 2020, it could put an end to the 1.50% sulphur limit for passenger vessels operating between ports along the UK’s west coast and Northern Ireland, for example between Belfast and Liverpool. The 1.50% sulphur limit would still, however, apply to passenger vessels operating between the Republic of Ireland – which is an EU member state – and ports on the UK mainland or Northern Ireland.

The picture could become even more complex if the global 0.50% sulphur cap is postponed until 2025, the UK/EU divorce is complete by 2020 and the UK decides that it won’t apply the EU Sulphur Directive calling for a 0.50% sulphur limit in its EEZ.

A map of the British isles shows the complications in delineating the EU 0.50% sulphur zones to the west of the British mainland because of the EEZ around the Republic of Ireland. (see map below for current UK EZZ) There is also a question as to what the Isle of Man – situated between the UK mainland and Northern Ireland, would do. At present it has the same sulphur regulations as the UK.

Gibraltar, a major bunkering hub in the Mediterranean, is also a British dependant  territory that could theoretically change the sulphur regulations at berth and within the territorial limits and EEZ in the small enclave of British Gibraltar Territorial waters around it. This body of water is bordered by Spain, (and hence EU waters), plus Moroccan waters with a designated international seaway passing through all three. (see map below for current Gibraltar EZZ)

Some have speculated that the UK may go for the Norwegian model when it separates from the EU and join the European Economic Area (EEA) to keep access to EU single markets and hence freedom of goods, persons, services and capital.

The latest amendment of the EU Sulphur Directive, Directive 2012/33/EU, is fully incorporated into the EEA-agreement, meaning EEA members Norway and Iceland have the same obligations. This includes the 0.50% sulphur limit in their EEZs from 2020, unless the European Commission were to harmonize the 0.50% limit with IMO requirements in the event of a later implementation date under MARPOL Annex VI.

Another scenario to consider is that Scotland could decide to seek independence from England in a bid to keep Scotland a part of the EU, which would further alter the EEZ along the UK’s west coast.

Opportunities and uncertainties
Should the UK decide to ease sulphur restrictions compared to the EU Sulphur Directive, there may be a potential for the UK’s west coast to attract more shipping and boost activity in ports like Liverpool and Bristol, which could develop existing container and breakbulk hubs.  Gibraltar could also continue to build on its unique position in fuel supply.

It would depend, however, on the UK government having a vision and strategy for the role of international shipping and UK port facilities and infrastructure in promoting an active part for the UK in international trade.

Leaving the EU means the UK has to review a vast amount of regulations and decide on what changes to make. It could take a while before that process gets round to considering whether to retain existing regulations based on the EU Sulphur Directive or whether it might serve the UK’s interests to change the sulphur requirements.

Any potential economic benefit from easing sulphur restrictions in UK waters compared to the EU would be short-lived as it would at most apply only to the 2020 to 2025 period. If the global 0.50% sulphur cap comes into force in 2020, it would be a moot point.

Until we know the timing of the global cap and UK policy decisions, however, shipping companies whose operations fall mainly within UK west coast waters continue to face uncertainty about whether they should install scrubbers in time for 2020, or if the UK will allow them to use higher sulphur fuels in UK waters until 2025.