Marine Fuels (Sulphur Content)

The Committee consisted of the following Members:

Chair: Mr James Gray 

Baker, Norman (Parliamentary Under-Secretary of State for Transport)  

Baker, Steve (Wycombe) (Con) 

Connarty, Michael (Linlithgow and East Falkirk) (Lab) 

Dakin, Nic (Scunthorpe) (Lab) 

Fitzpatrick, Jim (Poplar and Limehouse) (Lab) 

Metcalfe, Stephen (South Basildon and East Thurrock) (Con) 

Morgan, Nicky (Loughborough) (Con) 

Newton, Sarah (Truro and Falmouth) (Con) 

Paisley, Ian (North Antrim) (DUP) 

Rees-Mogg, Jacob (North East Somerset) (Con) 

Sheerman, Mr Barry (Huddersfield) (Lab/Co-op) 

Sturdy, Julian (York Outer) (Con) 

Wright, David (Telford) (Lab) 

Neil Caulfield, Richard Benwell, Committee Clerks

† attended the Committee

The following also attended, pursuant to Standing Order No. 119(6):

Vickers, Martin (Cleethorpes) (Con) 

Column number: 3 

European Committee A 

Monday 15 October 2012  

[Mr James Gray in the Chair] 

Marine Fuels (Sulphur Content)

[Relevant document: “Sulphur emissions by ships” Select Committee on Transport, 16th Report of Session 2010-12, HC 1561.]  

4.30 pm 

The Chair:  It might be helpful to the Committee if I explain briefly the procedure we intend to follow this afternoon. In the absence of any member of the Scrutiny Committee who wants to make a statement, we will dispense with that formality and start off simply by having an introductory statement from the Minister for five to 10 minutes, during which no interventions are possible; we then have up to one hour, if necessary, for questions. Once they have concluded, we move on to a more formal debate. 

4.31 pm 

The Parliamentary Under-Secretary of State for Transport (Norman Baker):  I begin my remarks with a caveat: this is a complex subject and not one that falls or has ever fallen in my portfolio. The timing of the Committee coincides with both an important oral statement from the Secretary of State on rail franchising and a meeting of the Parliamentary Business and Legislation Committee to discuss the heavy goods vehicle road user charging levy, which the Minister in whose portfolio our issue lies is duty-bound to attend. It was not possible to rearrange this Committee, so I am representing the Department. I shall do my best to be helpful, but I say up front that there might well be detailed questions that I simply cannot answer. If so, I will arrange for my ministerial colleague to write to the Committee. 

Let me outline the Government’s position. As I said, the subject is complex, in terms of both technical content and the regulatory process, but it is also important, because the proposal has implications for the environment, for public health and for the maritime industries. 

Emissions from ships are regulated at the International Maritime Organisation, the IMO. The limits on sulphur are contained in annex VI to the international convention for the prevention of pollution from ships, commonly known as MARPOL. In 2008 amendments to annex VI were agreed that would further reduce the level of emissions from shipping. The new limits would gradually reduce the amount of sulphur in marine fuel, but also enable shipowners to install exhaust gas cleaning systems, known as scrubbers, or to use an alternative fuel to achieve the same goal. The new IMO limits were to be introduced on a phased basis. Under the global limit that applies to most of the world’s seas, the amount of sulphur in fuel would eventually reduce to 0.5% in January 2020 or in 2025, depending on the outcome of the IMO’s fuel availability review. The sulphur limit in the emission control areas designated by the IMO would eventually reduce to 0.1% in January 2015. 

Column number: 4 

As a signatory to annex VI, the UK has an international treaty obligation to implement the new limits in the MARPOL convention, irrespective of what is agreed in Europe. In July 2011 the European Commission published a proposal for a new draft directive on the sulphur content of marine fuels. The UK, with a significant number of other EU member states, has argued that the new directive should be closely aligned with the international standard in MARPOL annex VI. I am pleased to say that, on the whole, we have been successful. 

Earlier this year, a proposed compromise text was developed between the presidency and the European Parliament’s rapporteur. If formally agreed, it will secure all except one of our principal objectives. We consider it a good outcome for the UK. It includes a provision in MARPOL annex VI that allows a degree of flexibility when compliant fuel is genuinely unavailable. It removes a provision in the Commission’s proposal that would have placed a 0.1% sulphur limit on passenger vessels outside the emission control areas. Incidentally, those were the two key outcomes that the Select Committee on Transport, in its report of 9 March 2012, wanted the Government to secure. 

We compromised with the European Parliament on the implementation of the global 0.5% sulphur cap. Under MARPOL, its implementation is subject to a review by the IMO, and if the review concludes that there is not enough fuel, implementation of the limit can be delayed until 2025. Under the proposed compromise, the global 0.5% limit would be implemented in 2020, whatever the outcome of the IMO’s review. That means that ships using the Mediterranean, the Black sea and the north-east Atlantic would have to use 0.5% fuel, or some other equivalent means of compliance, from 2020 onwards. 

Our objective has always been to minimise the cost of the proposals without undermining the important health and environmental benefits that will accrue. The proposed compromise agreement will impose a cost on shipowners, albeit less than that of the Commission’s original proposal. The ferry operators and passenger cruise industry in the North sea, the English channel and the Baltic sea are concerned about the cost of compliant fuel and the reliability of scrubber systems. We have heard conflicting views about the reliability of scrubber systems, with equipment manufacturers claiming that their products are ready for installation. 

The Under-Secretary of State for Transport, my hon. Friend the Member for Wimbledon (Stephen Hammond), has convened a meeting with relevant industry stakeholder groups. This will not affect our support for the proposed compromise agreement in Europe, but it may have a bearing on any future discussions we have at the IMO and in Europe about ship emissions. 

Therefore, the Department was pleased to learn that the European Scrutiny Committee did not want the Government to jeopardise the hard-won compromise, which we consider acceptable from a UK point of view. The European Parliament has now accepted the text of the proposed compromise and we expect the Council to accept it later this month. In that case, the directive will be adopted before the end of the year and member states will have 18 months to transpose its provisions into national legislation. 

Column number: 5 

The Chair:  We now have until 5.30 to ask the Minister questions or, indeed, until a gruelling 6 o’clock, if necessary. I remind hon. Members that they may ask, at my discretion, supplementary questions if they wish to—a series of questions on the same subject—but the questions must be brief and to the point. They must be “à point”. 

Jim Fitzpatrick (Poplar and Limehouse) (Lab):  It is a pleasure to see you in the Chair this afternoon, Mr Gray. 

I immediately say to the Minister that it is not my intention to embarrass him in any way, shape or form, because I know the subject is complex. I am grateful that he has been able to be here today to ensure that the debate takes place. Therefore, if I ask questions that he is not able to answer, I would be very happy to receive a written response in due course; that will not be a problem. 

I am also grateful to the Minister for the outline that he has given in respect of the measure. However, it was not entirely clear to me in reading the documents whether the Government’s position is to try to block the EU regulations and to support the stronger regulations proposed by the IMO, or the other way round. Given that the Minister is saying that he is confident the outcome will be successful, does that mean the Chamber of Shipping and the maritime unions—Nautilus UK, for example—are supportive of the Government’s position? 

Norman Baker:  It is not our intention to block anything. What we have been engaged in—the Under-Secretary of State for Transport, the hon. Member for Wimbledon, but mostly his predecessor, who is now at the Northern Ireland Office—is to try to ensure that we balance the environmental health and economic consequences of any change, recognising that sulphur levels from shipping are probably out of line with those of other transport modes, whose sulphur levels have been reduced. It is necessary to rein in the sulphur levels from shipping. We sought, as far as possible, to align the forthcoming EU directive on changes to EU regulation with what the IMO itself has been proposing, so that we do not have two parallel systems that are inconsistent. 

We have been trying to do those things, and we think that we have made achievements on both grounds. I am sure that there are areas where the maritime industry, or indeed the shipping unions, will feel that particular aspects are not quite right, but on balance I hope they will recognise that we have a good result for the UK, the economy and the environment. 

Jim Fitzpatrick:  I am grateful to the Minister for that response. He made some comments at the end of his opening remarks about dates. Can he clarify exactly when he expects change to be introduced, and can he say what levels he anticipates will be introduced and whether they will be introduced by the EU or the IMO? I will come back to the consistency of European legislation in due course, because various policy options are outlined in the main document, from pages 81 to 88, and the response of the former Minister with responsibility for shipping, set out on page 158 and again on pages 161 and 162, is not quite clear about what the options are. Can the Minister just tell us the time frame in which he thinks we will reach a conclusion? 

Column number: 6 

Norman Baker:  I will deal first with the emission control areas. As the hon. Gentleman will know, a 1% limit on sulphur was introduced in 2010, and it will reduce to 0.1% in 2015. That reflects MARPOL and it is also mirrored by what is in the EU’s proposals, so there is no difference between MARPOL and the EU in that respect. 

Regarding the non-ECA limits, the present arrangement is 3.5% from January 2012 for sulphur in fuel. Under the EU proposals, which we have accepted, that will reduce to 0.5% by January 2020. It will either reduce to the same level within the IMO’s MARPOL arrangements on the same date, or possibly—depending on the review outcome—up to five years later, in January 2025. The only real difference is between those two figures. As I said in respect of when the measure becomes live, we are of course subject to international treaty requirements now. We have not sought to legislate domestically for the IMO treaty requirements because it honestly seemed pointless to do so ahead of the EU directive, when we could look at the two together. As I mentioned at the end of my statement, we anticipate that the EU matter will be tightened up shortly. We will adopt the directive and within 18 months transpose the provisions into national legislation. 

Jim Fitzpatrick:  The Minister referred to the fact that organisations such as the Chamber of Shipping have expressed concern about the viability of certain routes and the consequent impact on UK ports, businesses and jobs. From what he said, the Minister clearly shares that concern. Paragraph 3.6.3, on page 75 of the bundle, notes that there were studies into the possible modal shift outcomes listed in annex I, but I cannot see what those outcomes were. I would be grateful if the Minister’s colleague could send them to me. 

Can the Minister tell us whether the vote of the European Parliament on 11 September that passed the regulations so emphatically—by 606 votes to 55—affects the Government’s thinking, or whether this is just a negotiation and does not affect the Government’s confidence in securing the compromise that the Minister has already outlined? 

Norman Baker:  There was an issue on modal shift. Concern was expressed about reverse modal shift in terms of the impact that might apply when moving to land-based transport. I think I am right in saying that my officials felt that it was largely unfounded. If that is not the case, I will ask my colleague to write to the hon. Gentleman. It is certainly not a huge issue. From the evidence I have seen, the changes that have taken place so far, albeit over a limited period, would not suggest that the restrictions applied to date have led to any serious consequences to the maritime industry and the ability to meet the targets. 

The European Parliament did largely as we expected. There has been a great deal of discussion of the matter. It is a sensible compromise. People across the political spectrum broadly believe it is a sensible compromise; therefore, we did not anticipate problems with the European Parliament, nor do we anticipate problems as the measure completes its progress through the European Union. 

Jacob Rees-Mogg (North East Somerset) (Con):  It is undoubtedly a pleasure to serve under your chairmanship once again, Mr Gray. I want to ask the Minister about

Column number: 7 
the cost-benefit analysis by the European Commission. It says that the benefits would be between €15 billion and €34 billion a year, while the costs would range from €2.6 billion to €11 billion. I wonder how rigorous that analysis was and whether the Government checked to see if it was right. It is sometimes the case that costs are relatively real and easy to identify but benefits are somewhat less specific. 

Norman Baker:  Any cost-benefit analysis tends to be an art rather than a science, whether on a road scheme or a matter of this sort. The Commission’s impact assessment contains, we believe, sufficient evidence to conduct a reasonable benefit-cost analysis, but we have some areas of concern. 

The impact assessment highlights that the most acutely affected sectors are likely to be short sea shipping and ferries, which are passenger vessels for the purpose of the directive. The effect on consumers and the haulage industry of potential ferry price increases is not assessed. There is no evidence about the effects of changes in price on demand, or rates of cost passed through for this sector. The impact assessment does not cover any benefits other than those to human health. Reduced damage to agriculture, forests and buildings is also likely to occur and perhaps should have been factored into a full assessment. The UK approach to valuing air quality differs from that used in the Commission’s impact assessment. Consequently, the benefit-cost ratios may vary in the UK impact assessment. 

Jacob Rees-Mogg:  May I ask a follow-up question on the costs? The Commission notes that it will add $2 per tonne for bulk goods. I wonder whether bulk goods will include food to a large extent and, therefore, whether some of the extra costs might fall most on those least able to bear them. 

Norman Baker:  It is certainly the case that whenever legislation is brought in to tighten environmental regulations or health outcomes, there is the potential for costs to increase, which leads on to the final product cost. Therefore, if products are moved by ship—my hon. Friend is quite right to point out that food is—there is the potential for some small increase in cost, but that is why we have to assess the overall benefits, the health benefits, and the environmental benefits, which undoubtedly flow from dealing with sulphur from ships, and weigh those against the economic consequences of taking action.

Sulphur emissions, in terms of fuel’s sulphur content, are much higher in shipping than with cars. We mentioned that sulphur content in global fuel is 3.5%. The figure for cars is 0.001%, so there is a huge disparity that shows the failure over decades to tackle sulphur from shipping. Action on this front is overdue, but we have obviously been keen to avoid any unwanted impact on business or on the final consumer, which is why the Government have sought to take steps, to which the European Union has by and large agreed, to be reasonable in such matters. For example, we do not say that a particular fuel must be used, but we show the outcomes. It is fine to use an alternative fuel or to use scrubbers to clean up the gases. If a compliant fuel genuinely cannot

Column number: 8 
be found and if that can be proved—independent inspectors will check that—there will be no penalties. We have tried to come up with a package that makes sense in health, environmental and economic terms. 

Steve Baker (Wycombe) (Con):  In relation to abatement technology—so-called scrubbers—may I refer my hon. Friend to Transport Committee evidence of 25 October 2011, when we met ship operators? I asked them to put into context the capital cost of scrubbers, and for a cruise ship worth $500 million new, it was suggested that the cost of scrubbers may be $25 million, which is some 5% of the value of a new ship and is really quite substantial. May I press my hon. Friend to ensure that the full range of economic costs of such technology is taken into account when the Government hold discussions on the subject? 

Norman Baker:  Of course, there is no requirement to install scrubbers. They are simply an alternative that we have enabled to be provided for the maritime industry so that it has an alternative to securing low-sulphur fuel. In that sense, heavy-duty fuel oils can still be used if scrubbers are installed. Of course, if capital equipment is installed, the cost tends to be up front, but there is a saving in due course, because fuel will be cheaper over the longer term. It is a commercial decision for ship operators as to which course they choose. No one is obliging the scrubbers to be purchased, so the capital costs are for commercial consideration by the industry. If the industry is likely to follow such a route, then, as with any other product that becomes popular, the capital and unit costs will come down. 

Steve Baker:  I am sorry to press the Minister on this subject, because I know that he is fresh to this particular brief, but have the Government made any assessment of the proportion of ship operators that will practically be forced to install scrubbers? 

Norman Baker:  I am not sure that we have done that. If we have, I do not know about it. It appears that we have not done so. However, I am not sure that any operators are obliged to, because assuming that alternative fuel is available, there is no reason why they cannot opt for that. 

We produced an impact assessment checklist for the Commission’s original proposal, which accompanied the letter of my predecessor, the hon. Member for Hemel Hempstead (Mike Penning), to the European Scrutiny Committee on 12 July. We have not produced an impact assessment on the proposed compromise agreement that the EU is hopefully about to finalise, but we will as soon as the agreement is adopted. We have, however, examined the costs and benefits of the revised annex. We helped fund, and actively participated in the IMO expert group, which produced a report in 2007 on the effects, including the costs to industry of the fuel options for the revision of annex VI. After the revised annex VI was adopted by the IMO, the Maritime and Coastguard Agency commissioned a study by the Entec consultancy to provide information on the likely impacts of the revised annex VI. In 2009, the MCA published the report of the Entec study with the catchy title “Impact Assessment for the revised Annex VI of

Column number: 9 
MARPOL”. The study looked at the compliance costs to the shipping industry, the costs to the UK refining industry, administrative costs, and costs to wider society, including freight transport costs and passenger fares. Therefore quite a degree of work has been done. 

We have also examined the economics of alternative compliance methods. For a cruise ferry with a yearly fuel consumption of 30 kilotons, we looked at the costs of using 0.1% sulphur fuel and the investment costs of scrubber technology, and how long they would take to pay off. That is only one kind of ship, but in that instance it would take eight to 12 months to recoup the costs of installing that particular equipment. I should say that that was what the European Commission produced as supporting evidence for its proposals.

Jim Fitzpatrick:  I will refer the Minister back to his final answer to the hon. Member for North East Somerset, but I would just like to address the question about scrubber technology raised by the hon. Member for Wycombe. In the Minister’s last comment, he mentioned the time it would take to recover the cost of introductions. Page 81 of the European Union documents states that scrubbers are 90% efficient, notwithstanding the waste that they produce that has to be discharged. Do the Minister’s comments to his hon. Friends mean that the Government are therefore saying that they are sceptical about the efficiency of scrubbers and would not recommend them to the industry as a way of dealing with the new regulations, in whatever shape they are in when they are introduced? 

Norman Baker:  It is not our job to recommend to industry what line it should take. We have sought to provide alternatives to ensure that in each individual case industry can choose the least-cost method to meet the requirement. The Government’s job, and the European Union’s job, is to decide the appropriate sulphur level. It is then our job to try to ensure that there are different means of achieving that to try to minimise cost to industry. To be honest, it does not matter how they achieve it provided that they achieve it—that is all that matters. We certainly support the use of alternative compliance methods, such as scrubbers, and we are happy that shipowners choose to install them if that is what is right for their business. 

Jim Fitzpatrick:  To go back to the final answer given to the hon. Member for North East Somerset, and, to a certain extent, following on from the answer the Minister has just given, paragraph 0.5 of the original report raises concerns about the availability of appropriate fuel for vessels to be able to procure—what the Minister was talking about—and raises a question about whether it is open to states to exercise discretion, rather than penalising the company of the individual vessel. However, paragraph 0.10 states that 

“a…number of vessel detentions can be expected.” 

On page 158, paragraph 8, the explanatory memorandum states that 

“action…may include not taking control measures”. 

Will the Minister clarify whether the Department thinks there will be detentions, or is this matter still in flux and still to be finalised in the negotiations? 

Column number: 10 

Norman Baker:  If the hon. Gentleman is asking me whether we think that alternative fuel will be available, we think that it will. But it was at the British Government’s request, I think I am right in saying, at MARPOL and the European Union that we arranged for a provision to be inserted to enable any shipowner who genuinely could not source appropriate fuel to say that they could not do so and then become exempt from that requirement. On a very simple level, for example, there may be union disputes at a range of ports that prevent refining capacity from being provided. Under those circumstances, it may be that the fuel, which would normally be secured by a ship operator to meet the requirement, is not available for a short period of time. There are legitimate reasons why alternative fuels may not be available either in the short term or the medium term. 

We have sought to say, “This is what we want you to secure. We want you to use these alternative fuels or some other means of compliance, but if you genuinely cannot do so, then it is wrong that you should be penalised for something that is outside your control.” Those are the steps we have taken, both in the European Union and at MARPOL. Shipowners may continue their operations when compliant fuel is unavailable if the ship can demonstrate that it has made its best efforts to obtain compliant fuel oil. Enforcement officers should take that into account when determining what action, if any, should be taken. It is, therefore, a question of common sense and being reasonable. 

Jim Fitzpatrick:  Page 37 raises the question of consistency with other European Union policies. In aviation, the European Union, with UK support, decided to set its own path and introduce the emissions trading scheme against an international agreement being struck at Montreal with the International Civil Aviation Organisation. In this instance, we seem to be saying to the European Union that we want to go with the IMO, and that we do not think that the EU policy is appropriate for UK shipping. I am not challenging or disputing that in any way, but it tends to suggest an inconsistency between aviation and shipping policies. Will the Minister confirm that?

Norman Baker:  Aviation and shipping have both been outside the climate change target and have been dealt with differently from other greenhouse gas emission sources, not least because of their international character, which does not apply to road transport, for example. The IMO is also a different organisation from the ICAO. Compared with the ICAO’s handling of the greenhouse gas emissions in aviation, the IMO seems in my view to have been more proactive in dealing with this matter, not only in terms of carbon emissions, but with sulphur emissions, which we are discussing today. It is therefore right that we should seek pragmatically to take the correct approach for each means of transport, according to what we can achieve. The ICAO has not yet conformed to robust means of dealing with climate change, and therefore, the EU decided to take action under the EU emissions trading scheme, as the hon. Gentleman will know from his time in government. That was a sensible and correct policy. 

Generally speaking, sulphur trading is not analogous to carbon trading. Carbon emissions affect global climate but have no direct local impact on public health. It is

Column number: 11 
not quite the same as sulphur emissions, where, for up to 200 miles, public health can be affected, which makes the matter particularly important for our coastal communities. 

Martin Vickers (Cleethorpes) (Con):  On Friday, along with the hon. Member for Scunthorpe, I attended a meeting of business leaders in my constituency, in which the chairman of the Hull and Humber chamber of commerce shipping committee made it clear that the industry is far from satisfied with the proposals. The Minister spoke of a good outcome for the UK, but that opinion is not shared by the industry. The chairman expressed concerns about potential job losses at the Humber ports; will the Minister tell us whether the Department has an estimate of the impact on jobs, and whether discussions continue with the industry? 

Norman Baker:  On the last point, the Under-Secretary of State for Transport, my hon. Friend the Member for Wimbledon is in touch with the industry regularly. I am sure that he will be an active and supportive Minister for the shipping industry. 

If such views are being expressed by the industry, it is a little harsh. First, long-term certainty over direction of travel and future targets is important for business, whether in the shipping industry or any other sort of business. One message I have received in my ministerial capacity, and before that, as a council leader and an MP, is that business does not particularly mind what it is asked to do provided that it knows what is being asked and that the trajectory does not change. The certainty being provided here to the industry is helpful. 

Secondly, I argue that the fact that the UK has been successful in aligning what the EU has sought to do with what MARPOL has produced is helpful in removing the uncertainty about which outcome is predominant. Thirdly, some of the changes that we have been able to secure in the negotiations have been beneficial to the industry. From my limited examination of what has happened, I think that the arrangement achieves the right balance between the environmental, health and economic impacts of the proposals. 

Finally, I make this point: these negotiations are international—whether at EU level, with 27 member states, or through the IMO—and it is simply not possible to craft an outcome that is perfect for the UK but perhaps not beneficial for other states around the world. We have quite a lot of what we asked for from the negotiations at the IMO and the EU, and I hope that the shipping industry would look at it in those terms. 

Martin Vickers:  I accept what the Minister says, and I am sure that the industry will welcome certainty. However, can I press him a little more on job losses? In some cases, the job losses I refer to are in companies that are from Immingham and Hull, but are based in other EU countries. Does the Department have any estimates of the anticipated impact on jobs? 

Norman Baker:  I am advised that we do not expect port operators to be significantly affected. If ferry companies were to cease running services, it would

Column number: 12 
reduce the level of business at those ports, but we have no reason to think that would occur. If cargo is sent by road to channel ports for a shorter sea crossing using less marine fuel, that would, in theory, reduce the level of business at the ports, but there is no evidence that that will occur. If anything, it is a move towards looking at short sea shipping as an alternative, given the price of fuel and congestion on the roads. We do not think that there is likely to be a huge impact. 

We do not know how many UK staff are employed in companies that will be affected, but we will look at that when we develop a full impact assessment, which we are required to do when an EU directive has been concluded. 

Finally, it may be of some comfort to my hon. Friend and his constituents in Immingham and elsewhere that the Department for Transport is hosting an industry round table meeting in the next few weeks to consider the issue of abatement technology and the costs of compliant fuel. 

Jacob Rees-Mogg:  I want to follow up the question from the hon. Member for Poplar and Limehouse on the relationship between international organisations in the United Kingdom. This may be the most obvious and therefore stupid question, but why are we doing it twice? It seems that the EU and the IMO are doing exactly the same thing with a few minor differences and on a very slightly different time scale. Would it not be more sensible—I apologise to all the people sitting next to you, Mr Chairman—to save some bureaucratic time and just do it once? 

Norman Baker:  If we were designing the system from scratch, it would not start from here. That is the simplest way of putting it. The EU has long had a competence in such shipping matters and therefore to some extent is updating its original requirements and regulations. Obviously, the IMO is well established too. There is an argument for trying to rationalise in due course, but I am afraid that is not where we are at present. We have tried to align the output from both so that we avoid unnecessary complications and problems. 

All EU countries, apart from the four or five that are land-locked, are members of the IMO, so they are in the same position as we are in having a foot in both camps. Whereas the UK needs to implement the revised annex in national law, the Commission indicated that it intended to implement the revised annex VI. Rather than going it alone and having to amend domestic legislation—a point I made earlier to the hon. Member for Poplar and Limehouse—it was sensible to await the outcome of the European legislation and do the whole thing in one go. We are doing what we can to meet the legitimate point that has been made to try to rationalise things as far as possible and make two systems into one. 

Jim Fitzpatrick:  I have two final questions. I want to follow up the point raised by the hon. Member for Cleethorpes about potential job losses, which I raised in my earlier questions about the Chamber of Shipping and modal shift, and therefore the loss of routes, vessels, harbour capacity and so on. Paragraph 3.6.3, on page 75, says that the studies listed in annex I make the calculation about losses. However, annex I simply gives a list of the studies; it does not give details of what they have

Column number: 13 
uncovered. If the Minister’s colleague could send us information about that, it would be helpful, because obviously we are all concerned about maintaining jobs at ports. 

The Minister made reference to a meeting that his colleague is convening to take matters forward. I seek assurance that all aspects of the shipping industry will be covered. I hope that the shipping community will be invited—shipowners as well as officers, and representatives from Nautilus and the National Union of Rail, Maritime and Transport Workers. 

Norman Baker:  On paragraph 3.6.3, I will ask my hon. Friend the Member for Wimbledon to write to the hon. Gentleman and other Members with further details. The issue of jobs is obviously important. 

I mentioned reverse modal shift a moment ago in terms of one concern that had been raised. Some studies have shown that reverse modal shift might occur in parts of Scandinavia around the Baltic. Substantial increases in freight costs are predicted in studies by the German shipping and ports industry and by the Finnish and Swedish Governments. Some of those studies also refer to reverse modal shift. However, our Government have not yet seen any evidence to suggest it is likely to be the case in the UK. In other words, we think it may be a localised factor that does not necessarily affect us. However, I will ask my hon. Friend the Member for Wimbledon to send that information. 

On the industry round table, I am not privy as to whom my hon. Friend the Member for Wimbledon has lined up to attend. Normal departmental practice, as the hon. Member for Poplar and Limehouse will know, is to make such events as wide and relevant as possible. There is no point having meetings without key people who have legitimate points of view that they could express in a sensible arrangement around the table with others with similar interests. I am sure the meeting will be as comprehensive as it needs to be. 

The Chair:  If no other Member wants to ask the Minister a question we come to the more formal debate on the motion. 

Motion made, and Question proposed,  

That the Committee takes note of European Union Document No. 13016/11 and Addendum, relating to a Commission Communication on the review of the implementation of Directive 1999/32/EC related to the sulphur content of certain liquid fuels and on further pollutant emissions reduction from maritime transport, and No. 12806/11 and Addenda 1 and 2, relating to a draft Directive amending Directive 1999/32/EC as regards the sulphur content of marine fuels; and supports the Government’s view that the proposed compromise, which is closely aligned with the international standard in the MARPOL Convention, is a welcome outcome.—(Norman Baker.)  

5.5 pm 

Jim Fitzpatrick:  I am grateful to the Minister and his officials for the assistance they have given in Committee today to further our familiarity with, as the Minister described it, a very complex subject. Clearly concerns are being raised by the shipping industry about how the matter will finally be resolved. We are all keen to ensure that it is to the satisfaction of the UK economy, UK shipping and UK jobs and businesses. We will remain vigilant and supportive in that regard. I am grateful to

Column number: 14 
the European Scrutiny Committee for sending us the document to review. At the risk of incurring the Committee’s wrath, sometimes I think it sends documents because they are too complex for it, so it wants Ministers and others with an interest in the subjects to examine them in greater detail. That is no bad thing. It is probably the appropriate thing to do. 

I had a meeting this morning with a business initiative called B9 Shipping. It has designed a vessel which includes 

“a proven automated square rig sail system with an off-the-shelf Rolls-Royce engine powered by waste derived bio-gas.” 

The system is being tested by the university of Southampton. I understand the Chamber of Shipping is very interested in it because it would eliminate the dangers and the emissions that we have been talking about. Were it to be proven technology, it could be a British invention of export quality. It could provide jobs in shipping. I had a meeting this morning with Diane Gilpin from the organisation. It is in contact with University College London and the shipping hub that exists there under the leadership of Dr Tristan Smith. 

I assume and am confident that the Department are in touch with Dr Smith and the academic hub at UCL. If not, I would encourage the Minister’s colleagues to do so. I know that the MCA and officials at the Department for Transport have been in touch with B9. The initiative looks interesting, and over the next five to 10 years it could provide green jobs, green energy and a more environmentally friendly way of sailing the seas, which would be to the benefit of the environment and would deal easily with this issue. It is not going to solve the worst problems, but it will be one small step for short sea shipping and UK shipping. 

The Opposition were tackling the issue when we were in government, so we know how complex it is. We know the lengths we are having to go to in order to get the best deal for the environment and for British shipping. When he winds up, could the Minister tell us whether the Committee on Climate Change has a role? I know that we are talking about smaller emission zones, but in general terms, dealing with the IMO, how involved is the Committee? What advice is it giving on dealing with this and general issues? 

In conclusion, we remain supportive in general. We seek assurances that we are getting the best deal for the British taxpayer and for British shipping. We will monitor the matter as vigilantly as we can. 

5.9 pm 

Jacob Rees-Mogg:  May I begin by congratulating the Minister, not something that I normally do to Lib Dem Ministers? He said at the beginning of his speech that he did not know much about the matter and would have to refer incessantly to his officials. In fact, he has shown us that he is completely on top of it. The whole Committee is clearly very grateful for that. It shows a modesty rare in politicians. However, this is genuinely an area where, dare I say it, international co-operation is not entirely unsuitable—I may almost be supporting something that comes from the EU, with slight reservations. The cost-benefit analysis needs to be looked at more rigorously, and more specifically in respect of the UK. I am surprised at the size of the figures on both the cost and the benefit sides. It seems highly unlikely that a little change to fuel

Column number: 15 
will lead to €34 billion in benefits or €11 billion in costs. Does it really cost that much? The European Commission lists the figure not as a one-off cost to improve refineries to take out sulphur and so on, but as an annual cost. The figures need to be looked at. 

There needs to be further discussion of the health benefits. I notice on page 104 of the bundle, in paragraph 2.3, on sulphur dioxide concentrations that: 

“The annual average concentration limit for the protection of vegetation in Directive 2008/50/EC is set at 20 microgrammes/m


and is stricter than that for the protection of human health but nonetheless exceedances were observed at only 2 of the rural monitoring stations”. 

If the standards are being set at a much higher level than is necessary for human health and they are only exceeded in two of the monitoring stations, perhaps sulphur dioxide is not the health problem that it is being ratcheted up to be to save €34 billion. 

I may be misunderstanding. I make no pretence; it is an extremely complex area. We need a much clearer idea of the real benefits and costs from the Government and the Commission, rather than, “This will be good for you because it is healthy and we will all live longer” without knowing why. With that I conclude. 

5.11 pm 

Steve Baker:  My hon. Friend the Member for North East Somerset reminds me of a point that came up in other evidence about the nature of such fuels: heavy fuels are residual fuels. They are what is left after distillation has been completed. However, the shipping industry might now be compelled, or find itself forced by the cost of scrubbers, to move up the chain and start burning distillate fuels that might not otherwise have been used. My concern is that there are already considerable pressures, particularly on the motorist. We might see a set of pressures up the stack of distillates, towards the lighter fuels. Have we really looked at the costs that will be imposed on everyone else by pushing marine users off residual fuels and into that distillate stack? 

5.12 pm 

Norman Baker:  I am grateful for the opportunity to provide a closing statement. I thank the hon. Member for Poplar and Limehouse, my hon. Friends and all those who have taken part in the debate for their constructive comments. 

The Government recognise that sulphur emissions are a major, local pollutant and have a significant impact on public health and the environment. We also acknowledge that other modes of transport and land-based industries have already addressed the problem of sulphur emissions. There is probably little scope for any further significant reductions in sulphur from land-based sources. Road transport vehicles, for example, already use fuel with a sulphur content 100 times less than the most stringent limit to be introduced for the maritime sector—the 0.1% limit for ships in the ECA. It is therefore important that the shipping industry plays its part in meeting our air quality targets. 

There will be a cost in complying with the new requirements. In accordance with the long-standing principle that the polluter should pay, most of the cost

Column number: 16 
will be borne by the shipping industry. Our objective has always been to try to minimise the cost of the proposals for industry, without undermining the important health and environmental benefits that will accrue. We recognise the points made by the ferry operators and passenger cruise industry operating in the Baltic and North seas about the cost and availability of the compliant fuel and the reliability of scrubber systems. That is why, back in 2008 at the IMO, the UK successfully argued for a gradual implementation of sulphur limits and for giving ship owners the choice of using scrubber technology and alternative fuels. 

Obviously, there will be a full impact assessment when the directive is finalised. Some issues about the health benefits and so on can be tested in far more detail at that point. On the point that my hon. Friend the Member for Wycombe made about heavy fuels, it will be perfectly possible to use heavy fuels out at sea. I understand that many, if not most, ships have more than one tank. It is therefore possible to switch from one tank to the other, using heavy fuels where there is no problem out at sea, because sulphur is a localised issue, then switching to the distillate, lighter fuels as they approach land or come into the emission control area. In that sense the effect will therefore be limited. 

Most of the concerns identified by industry about the availability of compliant fuel in time for implementation and about the reliability of scrubber systems stem from the international requirement and not from the European proposal—another important point. The UK supports the new international limits and the benefits that they will bring. We also have a legal treaty obligation to implement those limits, which were agreed in 2008, irrespective of what happens in the European Union. Nevertheless, the Department is pleased with the outcome of the European negotiations. The text of the new European directive, which we expect to be about the same as the proposed compromise agreement, is closely aligned to the international standard. That means that the issue of having enough compliant fuel inside the ECAs after 2015 has been addressed. The new directive, by incorporating the provision in MARPOL annex VI, allows ships an exemption when compliant fuel is unavailable. To date, we have not seen any evidence to suggest that there will not be enough compliant fuel in the ECAs, so we expect the exemption will be used to address local availability problems such as the refinery issue to which I referred. 

A more significant issue is whether enough compliant fuel will be available for the 0.5% global cap when it is implemented in 2020. We would have preferred the text in the draft directive to refer to the IMO’s fuel availability review to determine when to introduce the new global limit but that was not possible. We can live with the outcome, however, for two reasons. First, as I have indicated, we have the exemption that ships may use if they can demonstrate that no compliant fuel was available. Secondly, it is entirely possible that the review will recommend global implementation of the limit in 2020, thereby aligning with the EU. 

Jim Fitzpatrick:  In terms of being able to demonstrate to the satisfaction of nation states that ships have made best efforts, they need to be examined and checked. The Maritime and Coastguard Agency or an other agency of the country will require additional resource to be able to do that, which will have its own implications. 

Column number: 17 

Norman Baker:  That is a necessary consequence of providing the extra flexibility for industry, for which industry asked. The hon. Gentleman will appreciate that a system whereby people could self-declare and then not be subject to checks would not be one that was worth the paper it was written on. Therefore, there must be a system that enables checks to be made although, clearly, we do not want anything expensive or heavy-handed. 

Details of the enforcement regime have yet to be finalised. The European Commission has indicated that it was dissatisfied with the enforcement of the existing limits. It would prefer more sampling of fuel and expects non-compliance to increase under the new, stricter limits, but it is up to member states what type of enforcement regime they should apply. 

We have heard conflicting views about the reliability of scrubber systems. Ship owners are sceptical, but equipment manufacturers are clear that their products are ready for installation. As I said in my introduction, my ministerial colleague will consult widely on the issue

Column number: 18 
in order to get to the bottom of what is likely to be workable and cost-effective by January 2015. It is worth saying at this stage that equipment manufacturers have been working towards the 2015 and 2020 deadlines, which were agreed in 2008, so a great deal of work has already been done on that front. If the deadlines were postponed, as suggested by some ship owners, that could have a significant impact on the scrubber manufacturer businesses. 

Lastly, on the point made by the hon. Member for Poplar and Limehouse, the Department is certainly aware of B9 Shipping’s initiative and the work of Dr Tristan Smith. They demonstrate a promising approach to sustainable shipping, so we are on top of that and will follow progress with interest. I hope that is helpful. 

Question put and agreed to.  

5.18 pm 

Committee rose.  

Prepared 16th October 2012