Freight by Water Conference Teesside 7 September 2012

1. Freight by Water Conference Teesside7 September 2012 Sulphur Directive Impacts

2. The Solutions • Fitting scrubbers • estimate €4m per ship • Using MGO at • +€200 per tonne • Switching to LNG in the longer term • Not widely available currently

3. Operator View • Scrubber is the best short term solution - technology permitting • LNG coming (long term) • Both may be part of the solution, but not the entire answer in 2015. • More time needed for technical development (Reliability)

4. Operator View – use scrubbers • The technology works, but… • Not yet ready for use on 60% of ships • Rules for using scrubbers (washing of materials into the sea) not yet in place (needed for investment decisions) • Practicalities for waste disposal from scrubbers not yet in place • Loss of energy efficiency = greater emissions of CO2 (1.5%) • Expensive investment solution = higher operating costs • Possible 10% cost increase to customers where it is available

5. Mitigating Solutions • Derogation/exception/transitional period for the 2015 requirement? • Grants • New/upgraded technology - scrubbers • Increased infrastructure availability – LNG • Increased compliant fuel availability – MGO

6. Wider Context • Everybody faces the environmental challenge… …and the regulatory challenge

7. UK Targets • UK climate change reduction targets against 1990: • 34 per cent by 2020 • 60 per cent by 2030 • 80 per cent by 2050 • Influences public policy decisions

8. Corporate • Emissions Reporting • Increasing requirement for companies to report their carbon footprint • From April 2013 all quoted companies will have to report on GHG emissions in the Directors’ Report section of their Annual Report • Transport operators have to report GHG emissions • Users “encouraged” to report third party emissions – guidance provided on freight • Review in 2016 – possible expansion of requirement

9. Rail • Non-Road Mobile Machinery Directive • Regulates carbon oxide (CO), hydrocarbons (HC), nitrogen oxides (NOx) and particulate matter pollution from rail engines (and inland waterway vessels) • Affects new and refitted engines • Applied at the start of 2012 • Flexibility for UK to end of 2014 • Rolling effect as new engines have to be purchased • Track Access Charges

10. Road • Euro standards • Progressively tighter emissions standards for engines since 1992 • Euro 6 emission standards for newly-manufactured trucks applies from start of 2014 • particle emissions halved and oxides of nitrogen emission reduced by 77 per cent • Expected to increase fuel consumption • Road Fuel Taxation • Road Charging • Fuel Prices • Demand imbalance for diesel • Increase in driver costs • Levelling of living standards with east European states • Shortage of drivers

11. END

12. Sulphur Directive • Limitsulphur content of marine fuels to 0.10% from 2015 within defined areas • Based on MARPOL Annex VI amended in October 2008 • Effectively ban heavy fuel oil unless emission abatement methods employed • SECA at 0.1% sulphur defined as Channel, North Sea and Baltic

13. The Sulphur emission control area