Sulphur Regulations

Wednesday 18th June 2014 Westminster Hall

16:35

[Karl Turner (Kingston upon Hull East) (Lab)]

It is a pleasure, as always, to serve under your chairmanship, Dr McCrea.

I am pleased to have secured this debate on a pressing issue that could have serious consequences for jobs in my constituency and the rest of the UK. I have several concerns about the regulations and several questions that I would like the Minster to address. I am worried that the EU regulations, which come into force on 1 January 2015, could put at risk over 350 jobs in my constituency and 2,000 jobs in ports across the UK. I am concerned that the European Commission and the Government have not done enough to measure the impact of the directive on local economies such as that in Hull. I am grateful to the National Union of Rail, Maritime and Transport Workers and the UK Chamber of Shipping for their briefings on a topic that is clearly a concern for all. The UK Chamber of Shipping and the RMT have produced estimates on the impact of the implementation of the regulations, and it is unclear whether the Government have fully assessed the evidence and are satisfied that the regulations will not dramatically undermine the shipping industry. I hope the Minister can provide some assurances that the Government have properly investigated the evidence and additional costs associated with the regulations.

I am persuaded that in an attempt to do all that we can to protect jobs, shipping companies should be given more flexibility to implement new rules in a way that does not undermine jobs. What does the Minister think of that? I will, however, add a cautionary note for the shipping industry. I am conscious that it has had several years—I believe since 2008—to prepare for the changes and substantial amounts of tax relief, in the form of tonnage tax, to aid transition. I hope that the additional costs are not used simply to reduce the payroll bill and that the industry does not use existing loopholes in legislation to meet additional costs by recruiting low-cost crew at non- UK ratings. However, the Government have a role to play in the transition and I solicit the Minister’s views on the possibility of providing mitigating support to maritime businesses to ensure stability in the shipping sector.

The Humber is the UK’s busiest trading route and positive things are happening in the estuary. Companies such as Siemens and Associated British Ports are investing millions into Hull, and there is no doubt that affordable shipping between Hull and Europe is imperative to this investment. That is why we need certainty that nothing will undermine our local shipping industry and the economic development of our ports. We need our ports to be open for business and to ensure that exporters are not priced out of using ferries sailing out of Hull.

Over the coming years, shipping and freight to the Humber will be more important than ever. I am therefore worried by a report in the Financial Times, in which Jens Holger Nielson, chief executive of Samskip, a freight company that runs into the Humber, says in response to the regulations that they will

“shut transport routes and companies across Europe”.

[Mr Andrew Smith (Oxford East) (Lab)]

I congratulate my hon. Friend for shining a spotlight on such an important issue. In addition to the point that he has rightly made about the likely impact of the regulations on the shipping industry and jobs, are we not also likely to see forecourt diesel prices driven up, with all that that means, and the danger of thousands more lorries on our roads as the price of transport by ship goes up relative to road transport? Does he agree that the Government need to say what they have done to avert that and what they will do now to ensure that common sense prevails?

[Karl Turner]

I am grateful to my right hon. Friend for that intervention. He is absolutely right, of course, and I will return to that point.

As the Minister is aware, the route between Harwich and Denmark is to close after 140 years, because of declining demand and the £2 million annual cost of cleaner fuel. I am concerned that other routes will follow. Echoing such fears, the Transport Committee reported that the regulations could reduce shipping activity, affect ports and roads, and cause job losses.

Any attempt to reduce sulphur emissions is commendable and no one is arguing against reducing them per se, but I am concerned that this so-called green policy will in fact have a detrimental effect on the environment—as my right hon. Friend said. I agree that increased costs will see a modal shift, with freight travelling by road instead of by sea; road freight emits around 10 times more CO₂ per tonne than shipping.

In April 2008, the International Maritime Organisation agreed to reduce sulphur emissions from shipping to ensure that ships only use fuel that emits 0.1% sulphur in designated sulphur emission control areas. The entire eastern and southern seaboards of the UK sit within that control area, so every ship coming in and out of ports from Falmouth to Aberdeen will be required to comply with the regulations on 1 January 2015. At least 220 usual routes operating from the UK will be affected and there is real concern that increased costs will see the closure of many of those routes, resulting in job losses.

[Caroline Nokes (Romsey and Southampton North) (Con)]

I congratulate the hon. Gentleman on securing this important debate. Does he agree that not only shipping companies are likely to be affected, but fantastically successful ports such as the port of Southampton, which contributes directly to around 15,000 jobs in Hampshire? It is critically important for us to have transitional arrangements so that the private sector investment that has continued in Southampton for many years carries on in future.

[Karl Turner]

I agree with the hon. Lady, and I thank her for her intervention. For me, the issue is mainly about the loss of employment, and she is right to mention her own constituency because I am sure that she is concerned about employment there. Although the IMO adopted the regulations, it also definitely recognised that flexibility would be required to allow companies the transition time to adapt to the new era without damage to businesses. The hon. Lady made that same point.

Following an inquiry by the Transport Committee, it reported that the regulations would see an 87% rise in fuel costs, and shipping companies estimate that approximately €55 million will be added to annual fuel bills. To meet such increased costs on the North sea routes will probably be economically unviable. I am told by P&O Ferries and other shipowners that, in reality, ferries tend to run on tight margins. The costs will create a problem not only for ship operators, but for exporters, leading to a detrimental effect on our region’s exports and tourism.

Hull’s local economy relies heavily on tourism, and Hull city council’s 10-year plan sees tourism as a major contributor to the economic regeneration of the city. Hull will be the city of culture in 2017 and we are working hard locally to ensure we have reliable and affordable transport links. As a result of increased fuel costs and in order to overcome the extra expenditure, ferry operators will no doubt pass them on to their customers or, worryingly, reduce services. It is therefore of great concern that the regulations could have a severe impact on the number of tourists coming through our ports and weaken the much-needed tourism economy.

No one disputes the need to reduce sulphur emissions, but, if we consider the resulting increased use of road haulage and accept that shipping produces considerably less carbon emissions per tonne kilometre than any other commonly used means of freight transportation, the environmental argument for the policy in the regulations is undermined.

[Penny Mordaunt (Portsmouth North) (Con)]

I thank the hon. Gentleman for securing the debate, which is timely, because today the Freight Transport Association is celebrating its 125th anniversary. Does he accept that the argument that we need to focus on is how the regulations will be implemented, and the timing, because the UK Chamber of Shipping has accepted and, in my understanding, is content with the move on sulphur emissions?

[Karl Turner]

I agree entirely with the hon. Lady; it is true that timing is the issue. Some argue that businesses have had long enough, frankly, and that some assistance has been provided through tax subsidies. However, as a Member for Parliament for east Hull, where unemployment is high, when businesses tell me that they are worried about job losses, I have to be concerned.

The Hull and Humber chamber of commerce has also expressed worries that the regulations will have a negative impact on the local road haulage sector—job losses in that sector as well perhaps. It argues that increased costs will inevitably be passed on to consumers, such as road haulage firms, and those firms may see it as necessary either to travel longer distances by road, with shorter sea crossings, again increasing CO₂ emissions, or to relocate to other areas of the UK where the implications of the fuel cost increase are less dramatic. Both options are damaging to the economy and indeed to the environment.

As I have said a few times in my remarks, no one has a problem with reducing sulphur emissions, but I am not convinced that the regulations will achieve that goal. I am not convinced that the Government have fully considered the evidence or the true impact that the regulations will have on jobs, the environment, our roads and the shipping industry. We absolutely have to ensure that sulphur emissions are reduced, but that needs to be balanced with growth in a fragile economy. The Government plan to review the effects of the policy in 2019, but I ask the Minister to consider a review much earlier, perhaps 12 months after implementation.

Hull is having a tough time and we need to work hard to protect every local job in my city. Our roads are at bursting point and the last thing that we need next year is heavier lorry congestion. I urge the Minister to push the European Commission for more implementation time and to do all that he can do to ensure that jobs and the environment are fully protected.

16:49

[The Parliamentary Under-Secretary of State for Transport (Stephen Hammond)]

It is a pleasure to serve under your chairmanship this afternoon, Dr McCrea. Like other Members, I congratulate the hon. Member for Kingston upon Hull East (Karl Turner) on securing this important debate. The sulphur regulations will undoubtedly have an impact on the shipping industry, jobs and the environment. I will answer a number of his points but also put on record some of what the Government have been doing. Some of the information that has been put about is perhaps slightly disappointing.

The hon. Gentleman was right to identify at the start of his speech that the fundamental issue is air pollution and its impact on human health and the environment. Everybody accepts that air pollution is bad for people’s health. We are talking not just about quality of life, although that is important, but about costs to industry and the commercial sector when people are off work because they are sick, and costs to the national health service for treating those who need treatment. Reducing sulphur emissions will undoubtedly provide benefits to public health, in both inland and coastal communities. Reducing the emissions will also provide benefits to the environment. Sulphur is linked to acid rain, which affects plant life and crops, and can upset the balance of delicate marine eco-systems.

For exactly those reasons the Government have worked consistently with the International Maritime Organisation, or IMO—the international body with the knowledge and expertise to regulate international shipping appropriately and proportionately—to develop measures to regulate pollutant emissions from ships. Throughout the whole of that process, under both this Government and the previous Government, the aim has been to develop measures that are effective and proportionate, with a view to implementing them in a way that minimises both the regulatory burden on and the cost to industry.

In the IMO, pollutant emissions from ships are controlled by annex VI to the international convention for the prevention of pollution from ships, more commonly known as MARPOL. Although it is true that a number of operators have worked to reduce emissions, sadly some have taken no steps on the issue. The regulations, which date back to 2008, and some of the new limits in MARPOL annex VI stem from the recognition by the international shipping community and the Government that the new limits need to be supported. The limits will help air quality and will also have consequential benefits for human health and for the environment.

[Caroline Dinenage (Gosport) (Con)]

I agree with the Minister—I know many shipping and ferry companies based in my region do, as well—that the intention of reducing emissions is admirable, but there is a twofold concern, which he has already raised. One element is the cost of the changes: one local ferry company has calculated that it will have to spend £320 million on converting its fleet. But it takes three months to convert each ship, and it is those time scales that are of most concern to companies.

[Stephen Hammond]

My hon. Friend is of course right, and she will hear in my speech what I did immediately I became shipping Minister, some 21 months ago, to recognise that. She will also want to hear about some of the work we are now doing with companies to reassure them about how they can minimise costs.

My hon. Friend will also recognise, as did the hon. Member for Kingston upon Hull East, that the Government and the EU are not seeking to impose on the industry something that was announced only today, yesterday, a month or a year ago. The industry has had over six years to get its head around the regulations. Indeed, it is worth reading into the record what the view of the UK Chamber of Shipping was when the proposals were first announced back in 2008. I quote directly from the chamber of shipping’s document:

“The IMO’s proposal to progressively reduce sulphur emissions globally to the equivalent of 0.5 per cent sulphur content in all fuel by 2020, and in designated sensitive coastal areas to 0.1 per cent sulphur content equivalent by 2015, is a major move forward. These realistic deadlines also give the oil industry the time it needs to ensure that the required quantities of low sulphur fuel will be readily available.”

That was its view in 2008, and at that stage it recognised that the time scales were realistic.

A time scale was put in place for reducing the global sulphur limit. There is a separate, staged timetable for reducing levels to the more stringent limit in designated emission control areas. In almost all respects, the IMO MARPOL standards have been incorporated into EU law, in the directive on sulphur in marine fuels. The origin of the requirements does not lie solely in the UK. It is not that the UK Government are placing burdens on the shipping industry; on the contrary, the requirements are part of an international worldwide agreement, stemming from international and European agreements. The industry was fully consulted on those at the time.

I have to say that I am pretty disappointed that the UK Chamber of Shipping continues to react as if the sulphur limits are new and are somehow inherently undesirable, or else that the UK Government should have avoided them. The fact of the matter is that the regulations are about the protection of health and protection of the environment, which is a legal obligation. The UK Chamber of Shipping has been brought into the Government’s deliberations at every opportunity. It is well aware of what the Government can and cannot do legally and of the fact that we have pushed back continually to try to change the time scales.

Again, in 2009 the UK Chamber of Shipping wrote to The Guardian:

“The latest IMO legislation was recognised by governments and the shipping and refining industries as a prime example of ambitious but pragmatic rule-making.”

It recognised that in 2009, so to pretend today that the regulations are something new is slightly disingenuous.

[Karl Turner]

Does the Minister accept that the chamber of shipping is saying that ferry operators are concerned about job losses and about their businesses failing as a result? That is an issue for me, as Member of Parliament for east Hull. Will he address that directly—is there anything he can do as a Government Minister?

[Stephen Hammond]

The hon. Gentleman is right to be concerned. If he waits a few minutes I will tell him directly what the Government have done and are doing now.

The idea that is being put forward today, namely that these are new regulations and a crunch is coming—there is not; there is a date for implementation coming—is not supported by all of the chamber’s own members. On the contrary, some members of the chamber belong to the Trident Alliance, which is a coalition of shipping owners and operators who share a common interest and do not share the views being put across.

I accept that shipping is not the only source of pollutant emissions, but without the controls, polluting emissions from ships will grow significantly because of the reductions made by other modes of transport: unless action is taken, by 2020 shipping will account for more than half of all sulphur emissions in Europe.

As everyone has recognised, the limits undoubtedly pose challenges for shipowners, particularly for those whose ships operate predominantly or exclusively in an emission control area. The Government appreciate that some shipowners, and ferry operators in particular, have raised concerns about the cost of complying with the new limits. From our discussions, we are conscious that the impacts are not spread evenly, and that routes for multipurpose vessels—those carrying both passengers and freight—are likely to see the highest costs. We also recognise the importance of ferries and jobs.

Throughout the whole process we have therefore sought to implement the sulphur limits in a way that maximises the opportunity for the industry to minimise the economic impact. I became shipping Minister in 2012, and immediately in October of that year and again in 2013 I chaired round-table meetings of industry stakeholders, including from shipping, the ports, abatement technology—more colloquially known as scrubbing technology—oil refining and logistics sectors, to consider how we could make sure that people could work to comply with the regulations in a way that minimised regulation and cost. As a direct result, we commissioned a survey to look at the economic costs to industry.

[Penny Mordaunt]

I thank the Minister for what he has done with the shipping sector. Whatever the sector needs, whether it be incentives or a boot up the backside, that work needs to carry on. Does he recognise that it is not just the sector itself that is affected, but the ports and jobs connected to ports? In Portsmouth we are putting a lot of money into our commercial port. Will he give us an assurance today that our ambitions—whether on ferries, cruise liners or freight—will be able to be met if the directive is implemented?

[Stephen Hammond]

I certainly hope to be able to do that by the end of my speech, and to explain some of the things we are doing. Portsmouth, like so many other places, including Hull, has a booming port industry. There is a renaissance, particularly in my hon. Friend’s port and in my home town of Southampton, from where there are huge exports, the like of which would not have been dreamed of 15 years ago. That is a tribute to the port industry, which is now a great success.

As a direct result of the round-table discussions, which were also about commissioning work on the economic costs, I immediately contacted the Secretary-General of the IMO and made exactly the point that the hon. Member for Kingston upon Hull East made: we must not wait for a review of the 2020 regulations, but should start a review immediately. I persuaded the IMO that it should start the review promptly following the implementation of these regulations.

Another outcome of the meetings is that the Government are looking at ways of helping the industry. My officials have been working closely with the UK Chamber of Shipping—which is why I am so disappointed—for a considerable period. We have solicited an assurance from the European Union that it will meet individual ferry operators who approach it to discuss a route to compliance. I accept that there are important issues to address, but both those things are a major step forward in helping the industry with the prospect of the regulatory burden.

One question is whether, as ships are encouraged to use fuels with a lower sulphur content, there will be sufficient fuel available. That is why the review is so important. It is equally important to look at other issues. Do we have an opportunity not to implement the sulphur limits? No, we do not because we would fail to meet international treaty obligations. More than that, we consistently spoke to EU fellow nations, none of which was prepared to deflect or move away from the time scales. If we do not implement the new limits, non-compliant UK-flagged ships will still be subject to enforcement action at UK ports. We do not have the opportunity or option of avoiding the limits. We cannot delay implementing the limits even on vulnerable routes. There is no exemption and that is why we have worked with the EU to allow ferry operators to discuss flexible implementation.

We held extensive discussions with other north European states that will be affected by the limits that will apply in the North sea. We pressed for exemptions for vulnerable routes, but there was no support from other members. The Government have not only pressed the case for ferry operators directly with the EU, but negotiated with other countries.

Shipowners have the option of installing scrubber technology or the exhaust gas cleaning system and we have been working with them on the cost of those systems. I recognise that significant capital is required and the Department is exploring the scope for securing EU finance under the trans-European network programme and affordable capital from the European investment bank for shipowners and ports that want to benefit from investment in that green technology.

The hon. Member for Kingston upon Hull East referred to a possible modal shift from sea to road and the identification of total fuel costs. Again, we are consulting on draft UK legislation. Part of that consultation is directly about the cost, but if we look at whether the implementation of the 0.1% sulphur limit will lead to a rise in costs for motorists, even if every ship in the emissions control area used 0.1% sulphur fuel rather than the abatement technology, we see that would still be less than 10% of the total market for middle-distillate diesel fuel. There will be a potential cost for motorists, but it will not be as great as stated. It is highly unlikely that every ship will use that. Many will use the scrubbing technology and I hope that the Government will be able to secure EU finance to enable shipowners to make transitional arrangements.

We have also been discussing with the industry our plans for applying a much more pragmatic approach to enforcement. It is important that enforcement is consistent and fair. My officials have already discussed with other member states and the Commission how to ensure a fair and consistent approach throughout the EU, so that services from UK ports are not unfairly disadvantaged.

It is important to look beyond compliance with the limits in the control area. I have been working closely with the Secretary-General of the IMO on the availability of 0.5% sulphur fuel in 2020, which will be the next challenge. l am pleased with the leadership that the UK has shown. We have been prominent, with the support of the Dutch and the Americans, in ensuring that the IMO is committed to engaging constructively and undertaking an early review.

There is no doubt that the sulphur limits are coming in in 2015 and prospectively in 2020. However, if the review shows that the fuel is not available, I will certainly negotiate with the IMO to push that limit back because it would be unfair to impose that on the industry. This Government and, to give them credit, the previous Government have worked with the industry to find ways of mitigating the cost and the regulatory burden and to ensure that jobs in this country are protected. That is why we are working to secure finance and transitional arrangements for people to implement scrubbing technology.

I hope that I have been able to reassure my hon. Friends and the hon. Gentleman that the Government, unlike the image that might have been presented, are taking the matter extraordinarily seriously. We have done so during my time in office and before. We have actively worked to support British shipping and the all-important jobs that come with it.

Question put and agreed to.

17:07

Sitting adjourned.