United States: Recent Guidance By Suez Canal Authority Highlights Complexities Of IMO 2020 Compliance

Highlights

• Recent guidance issued by the Suez Canal Authority (SCA) shows the complexity of the maritime industry's challenges implementing the International Maritime Organization's (IMO) 2020 low-sulfur fuel rules.
• The SCA released initial guidance highlighting that until Egypt ratified MARPOL Annex VI, the SCA would not put conditions or restrictions on fuel oil or scrubbers, except, as the SCA later clarified, prohibiting open-loop scrubbers from discharging wash water in the Canal. The result — taking the guidance on its face — is a ban on scrubbers but not on using high-sulfur fuel banned by IMO 2020.
• Despite the confusion, vessels with scrubbers flagged in countries that have ratified Annex VI — the vast majority of such tonnage — may comply with Annex VI and the SCA by burning compliant fuel during transit. Issues with uniformity will continue as the IMO and industry continue to work on implementation of IMO 2020.

A steady stream of recent developments has flowed as the maritime industry grapples with implementing the International Maritime Organization's (IMO) 2020 global low-sulfur fuel rules. Recent announcements by the Suez Canal Authority (SCA) notably highlight the complexity lurking in the details.

In late December, the SCA issued Circular 8/2019, stating that the "Suez Canal Authority puts no conditions or restrictions on fuel oil or Open-loop Exhaust Gas Cleaning Systems until ratification of MARPOL Annex VI by Arab Republic of Egypt." Indeed, because Egypt has not ratified Annex VI of the International Convention for the Prevention of Pollution from Ships (MARPOL), and consequently has also not enacted local implementing legislation, Egypt does not have such restrictions in place. But, having said that the SCA "puts no conditions or restrictions on ... Open-loop Exhaust Gas Cleaning Systems," the circular continued to state that "This is also in consistence with the obligation that [w]ash water resulting from exhaust gas cleaning systems shall not be discharged into water during vessels transit of Suez Canal."

To many observers, the circular was ambiguous. On one hand, SCA states that there are no restrictions on open-loop exhaust gas cleaning systems (i.e., open-loop scrubbers), and on the other, it imposes a ban on using open-loop scrubbers.

In a widely reported follow-up note, the SCA clarified its position prohibiting open-loop scrubber discharge in the Suez Canal, stating that "cleaning water from (exhaust gas) is forbidden to discharge to Suez Canal during transition of ships at any circumstance."

That too Egypt can do. Even though approved scrubbers are a permitted means of complying with MARPOL Annex VI, and the guidelines in MEPC.259(68) provide standards for permissible wash water discharge, coastal states (Annex VI signatories or not) can implement more stringent restrictions on discharges into their territorial waters, as a small number of other states and ports have done.

Takeaways and Considerations

Still, ambiguity remains. On the face of the circular, as clarified, ships with open-loop scrubbers would be required to turn them off when transiting the Suez Canal, where, the circular states, there are "no conditions or restrictions on fuel oil." Those ships of course, generally burn fuel with sulfur content in excess of the global cap. The circular implies, and some industry stakeholders have interpreted, that the SCA therefore will continue to permit ships to burn non-compliant fuel in the Suez without the use of scrubbers.

However, the fact that the SCA might permit use of non-compliant fuel in the Suez without scrubbers is largely a non-sequitur. Without ratification of Annex VI or other local legislation, Egypt itself lacks enforcement authority, but the vast majority of international tonnage is registered in states that have ratified Annex VI. Signatory flag states apply, and have authority to enforce, Annex VI to vessels under their flags wherever they are located. Thus, the vast majority of international tonnage with open-loop scrubbers transiting the Suez may comply with both the SCA circular and Annex VI by turning off scrubbers and switching to compliant low-sulfur fuel while in transit through the Suez. To do otherwise could risk repercussions by the flag state and potentially other port states.

Aside from compliance confusion, another oddity here is the SCA promoting a ban on open-loop scrubber discharge without being a signatory to Annex VI and seemingly without a consistent environmental effort to at least promote (in the absence of ability to enforce) use of compliant fuels. For example, wash water discharge in the Panama Canal (which includes freshwater reservoirs), is also prohibited, but Panama expressly requires changing over to low-sulfur fuel. Conversely, Japan, which is one of the very few MARPOL signatory port states that has scientifically studied the comparative environmental impacts in its ports and coastal waters of IMO 2020 compliance, has concluded that vessels running on high-sulfur fuel with open-loop scrubbers achieve a better environmental result in its waters than vessels using low-sulfur fuel without scrubbers. While Egypt is not yet a signatory to Annex VI, the SCA is not prohibited from recognizing the binding effect of Annex VI on the vast majority of international tonnage transiting the Suez.

Putting aside the significant questions about the propriety of scrubber discharge restrictions in the absence of compelling scientific support, the discussion is generally about the relative merits of reducing the known hazards of air pollution versus potential marine impacts of scrubber wash water discharge. But that is apparently not the case here.

The current state of the guidance from the Suez Canal Authority — restricting scrubber discharge, without an effort to restrict or at least promote use of compliant fuel — appears well outside of the norm.

Holland & Knight's Maritime Team will continue to monitor and follow up with developments as they occur.

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