Finnish government: ‘Compensation package for Sulphur Directive costs’

The weekly journal Tekniikka & Talous reports that the ministers Jan Vapaavuori and Lauri Ihalainen have a working group pondering a compensation package for the costs of the Sulphur Directive. The compensation would not be 100% though, due to the economic distress (of the government? economy in general?)

I am not at all sure on what grounds such a compensation package could be legal, in the sense of European State aid legislation and/or competition regulation. But whatever the final form of the package, this is a very clear example of transferring costs from the target of the legislation (i.e. the industry) to the taxpayer. This is a clear socialization of negative externalities, which is unacceptable and goes totally against the letter and spirit of the Sulphur Directive.

The Sulphur Directive implements from 2015 a tax/surcharge on Sulpur emissions by marine ships, therefore posing a strong incentive to innovative technologies to produce low-sulphur fuels, something which Finland has a great potential for, and some successful pilot-projects. The European Commission has recently approved a Finnish scheme that allows state aid of up to 50% in the acquirement of either new vessels or equipping old vessels with new technology, on the basis of the Environmental Guidelines. Thus, the industry wants to have it both ways: AND getting money for investment (from taxpayers) AND externalizing costs TO the taxpayers. Like I said:

I expect, nonetheless, that the Finnish industry will not be satisfied with this [the investment aid].

Oh and by the way, this is not some EU-only scheme – it was devised by the International Maritime Organization and covers the Baltic Sea, North Sea, North American Area and Caribbean Sea. The Baltic sea area ‘means the Baltic Sea proper with the Gulf of Bothnia, the Gulf of Finland and the entrance to the Baltic Sea bounded by the parallel of the Skaw in the Skagerrak at 57°44.8′ N.’ Finland is a signatory to the MARPOL Convention, which is the legal basis for the IMO regulation on sulphur. See a short overview and map here on Wärtsilä’s website.

In October 2008 the International Maritime Organization (IMO) adopted amendments to
Annex VI of the MARPOL Convention which, inter alia, strengthened the requirements on the
permitted sulphur limits in ships fuels. Two sets of emission and fuel quality requirements
are defined by Annex VI: (1) global requirements, and (2) more stringent requirements
applicable to ships in Sulphur Emission Control Areas (SECA). Baltic Sea is included in SECA
area, where as of 1st July 2010, the maximum sulphur limit has been reduced to 1.00%, (from
1.50%), while from 1 January 2015, sulphur content in ships’ fuel must be below 0.1%.

[UPDATE: I found a link to a conference on adapting to the low sulphur demands in the US coastal waters by shipping companies etc.]

I am really curious how the Finnish government is going to wrangle itself out of this. And I especially also await the reaction of the Green Party’s minister of the Environment.

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3 responses to “Finnish government: ‘Compensation package for Sulphur Directive costs’

  1. Kate Schrøder Jensen

    I think you got it all wrong. The Finish Government won’t subsidice 50% of the fuel cost, it must be 50% of installation of abatement technologies, such as exhaust gas scrubbers or implementation to run the ships on LNG (Natural Gas). I also think you should be more causious in your opinion. The impact of this legislation will run to sums of money you wouldn’t even believe. Loss of jobs and more transport by truck is the consequence, then I don’t know what would be cheapest for the tax payer.

  2. Dear Kate,

    (I wrote a longer reply but it vanished.)
    The EU-approved scheme is indeed for helping with costs of conversion or gas scrubbers. But there are no details on the package which the news article mentions. That article mentions that the working group considers a package for compensating the costs of the Sulpur Directive. But without more details, it is hard to say anything about that.

    My main point is one of innovation in relation to regulation. This is not anything new – the resistance to innovation on environmental technology is what cost the American car industry its dominant position. In the case of the Sulphur Directive, it is clear that after 2015 a stiff charge will be applied to transport that uses the wrong fuel. From my perspective, the Finnish forest industries should have done much, much more to scale innovations instead of fighting regulation. The IMO amendment on sulphur emissions dates from 2008. From 2008 to 2015, the interest rates have been extremely low, and although this was at the same time a bad time for the industries in terms of profitability, the low interest rate in combination with looming regulation could have spurred great investment in biofuel development and scaling. That is called risk-taking, and given that both Stora Enso and UPM around 2007/2008 changed their strategies in the direction of biofuels/energy, this should not have been seen by shareholders/investors as excessive risk-taking.

    By the way, I ran across this presentation (http://www.pmsaship.com/pdfs/Kate%20Jensen%20-%20Alfa%20Laval,%20Panel%204.pdf), which among other things mentions the estimated monthly savings after 2015. As far as I know, gas scrubbers are in any case a sensible investment economy-wise, especially if ships move a lot in sensitive areas. So, yes, in the aggregate, this Sulphur Directive will inflect huge costs, but these costs are some other company’s gains.

  3. Pingback: Innovation in the paper industry – the only way forward (pulp bleaching) | Arjen polku

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