Select Committee on European Union Forty-Ninth Report


SINGLE HULL OIL TANKERS (5111/03)

Letter from the Chairman to David Jamieson MP, Parliamentary Under-Secretary of State, Department for Transport

  Thank you for your Explanatory Memorandum dated 3 February 2003 which Sub-Committee B considered at its meeting on 17 February.

  While we understand the desire of the Commission to accelerate changes in order to try to avoid a repetition of the Prestige and Erika disasters, we share the Government's concerns about these proposals. We would like to see the Commission's regulatory impact assessment (RIA) as soon as this is produced.

  We find it difficult to understand the rationale behind the proposal to impose a double hull regime on tankers down to 600 tons deadweight. There is, of course, a strong case for the larger ocean-going tankers to be double hulled, but no case at all, so far as we can see, for smaller tankers. The smaller the vessel, the more complex it is to build a double hull that is capable of being properly maintained against corrosion. It is also very rare that coastal craft are involved in disasters such as those that affected the Prestige and Erika. The cost, too, of trying to build small craft with double hulls is likely to be disproportionate.

  We understand from paragraph 12 of your Explanatory Memorandum that your Department has commissioned a RIA for the United Kingdom. We should like to see this assessment as soon as possible, especially given the expectation mentioned in the final paragraph of your Explanatory Memorandum that the text of the Regulation will be put to the Transport Council in June for agreement. We do not see how the Government can give its agreement to the present proposal. We should be grateful to be kept fully informed of the changes made to the text in negotiation.

  Under the circumstances, the Scrutiny reserve on this document is maintained.

20 February 2003

Letter from David Jamieson to the Chairman

  Thank you for your letter of 20 February following the consideration of this Explanatory Memorandum in Sub-Committee B on 17 February.

  I note that the Committee has expressed a wish to see the Commission's regulatory impact assessment as soon as it is produced. I share your desire to see this document but I am afraid that, despite much prompting from Member States, the Commission has not yet produced its impact assessment.

  The Committee also asked to see an assessment of the impact which the proposal could be expected to have in the UK. A partial assessment has been produced and is annexed to this letter. It addresses the main areas of concern for the UK and also sets out an estimate of the benefits which the proposal is intended to bring. You will see from paragraph 63 of the assessment that the negative impact of the proposal could be significantly reduced by:

    —  a reduction from 30 in the index number below which heavy oil could not be carried in single hull tankers; and

    —  phasing out smaller single hull tankers over a number of years instead of banning them immediately.

  In negotiation we have had some success in achieving these objectives. The Presidency has put forward a compromise proposal which, if accepted, would reduce the index number from 30 to 25.7 and provide a phasing out period for small single hull tankers. This will be discussed at Transport Council on 27 March.

  I shall, of course, keep the Committee informed of changes to the proposal in the course of negotiations.

19 March 2003

PARTIAL REGULATORY IMPACT ASSESSMENT

The Commission's proposal for a Regulation to accelerate further the phase-in of Double Hull Tankers and to ban the carriage of heavy oils in Single Hull Tankers

ISSUE

  1.  The Commission's response to the oil spill caused by the tanker PRESTIGE in November 2002 off the coast of Falicia in Spain, should be seen in the light of the measures taken after the severe oil spill off the French coast resulting from the accident to the ERIKA in December 1999. Shortly after the ERIKA accident, the Commission presented a number of proposals designed to prevent such accidents occurring again. One of the "ERIKA" measures was a proposed Regulation on the phasing out of single-hull oil tankers. This Regulation was adopted on 18 February 2002, and applied from 1 September 2002[12]. This measure was also agreed at the international level when the International Maritime Organisation (IMO) adopted a revision of Regulation 13G of Annex I to the International Convention on the Prevention of Pollution from Ships (MARPOL) 73/78 at the forty-sixth meeting of the Marine Environment Protection Committee in April 2001. The timetable for the phase in of the double hull design or equivalent requirements that were eventually adopted at EU and the international level were less ambitious than those initially proposed by the European Commission.

OBJECTIVE

  1.  In its Communication on improving safety at sea in response to the PRESTIGE accident (COM(2002)681 final) the Commission announced a number of further measures. On 6 December 2002 the Transport Council called for an acceleration of the phasing-out of single-hull tankers, for the application of the Condition Assessment Scheme (CAS) to tankers from 15 years of age and for Member States to conclude administrative agreements to ban single hull tankers from carrying the heaviest grades of oil into their ports, terminals and anchorage areas.

  3.  The Commission proposes to meet these objectives by an amendment of the Regulation (EC) No 417/2002.

RISKS

  4.  Parts of the proposal, as currently drafted, could cause considerable disruption to energy supplies within the EU. As a major processor of crude oil from the North Sea and an exported of heavy fuel the UK is likely to be particularly affected by the proposal.

OPTIONS

Option 1:

  5.  The Commission proposes that Regulation (EC) 417/2002 should be amended so that:

    —  the current phasing out scheme for single hull oil tankers of 5000 dwt and above should be accelerated; and

    —  the transport of heavy grades of oil in single hull tankers of 600 deadweight tons (dwt) and above, bound for or leaving EU ports, should be prohibited (this goes further than the Council Conclusions which call on Member States to secure administrative agreements to prevent the carriage of heavy oil in single hull tankers);

    —  the Condition Assessment Scheme, an enhanced inspection regime which tankers of 20,000 tons deadweight and above must satisfy to be able to operate after certain dates, should apply to all single hull tankers down to 5,000 dwt from the age of 15 years.

Phasing out single hull tankers

  6.  In terms of double hull capacity, the Commission[13] and some trade associations (such as the Oil Companies International Marine Forum (OCIMF) [14]and the International Association of Independent Tanker Owners (Intertanko)[15]) believe that there is enough spare capacity across the world to phase out and replace single hull tankers in the timetable proposed in the Regulation. There is though the issue of where that capacity is located—almost certainly it is not in the EU. The existence of capacity does not automatically mean that it is available as and when it is needed in the EU.

  7.  The Commission's analysis shows that the proposal would move forward the replacement of the majority of single hull tankers by three or four years.



  There will be some years where the rate of replacement would peak and the number of ships required is superior to the number of ships currently built in one single year, but the Commission believes that normal market operations would be able to deal with this problem as the industry would anticipate and plan in advance a timetable for replacement. (However, the Commission has not made it clear how normal market operations could have anticipated and so prevented a peak in 2003 when its proposal was produced only in 20 December 2002).

  8.  OCIMF says that there are a large number of double hull tankers currently trading outside Europe that could in theory trade in heavy grades of oil. A transfer of these vessels to EU trades could meet demand in the larger size bands, but with less coverage in the size bands below 40,000 dwt. However there are a number of issues to be resolved. These include:

    —  the practical availability of vessels to trade in the EU;

    —  the way in which tankers would be secured through time charter or spot trading;

    —  the effect on rate levels and differentials in the EU tanker trades;

    —  the degree of excess capacity in the current tanker market;

    —  the particular routes and cargoes that would have to carried; and

    —  the effect on rates and availability of capacity in the rest of the world.

  These issues require further consideration before a final judgement can be made on the degree to which substitution of tankers from outside the EU could meet EU demand for movement of heavy grades of oil.

  9.  The main issue for both smoothing off the accelerated phase-out and the immediate fuel ban is the ability actually to substitute tonnage in different regional trades and market sectors.

Ban on single hull tankers carrying heavy grades of oil

  10.  The UK is particularly concerned at the proposal to set the boundary on the size of single hull vessel that may not transport heavy grades of oil at 600 dwt. Smaller tankers, between 600 and 5,000 dwt, are particularly significant in coastal traffic (for example, supply of fuel oil to Scottish islands) and bunkering (ship refuelling). Therefore the proposal could have serious repercussions on the energy supply to small islands and on the ship refuelling trade.

  11.  The UK also fears that the ban on the use of single hull vessels might negatively affect exports of fuel oil, as this product is generally transported via specialist ships, most of which are single hulled. The consequence of a restriction of fuel oil exports could have serious implication for the UK refining industry.

  12.  In addition, the proposal may result in more competition for double hull tonnage if other countries adopt a similar line to prevent vessels being "dumped". Even if they do not, the EU risks criticism for "exporting" its problems with single hulls to other parts of the world.

  13.  The Commission's proposal could, perversely, run counter to Community (and UK) policy on modal shift and especially the encouragement of short sea shipping as a more environmentally friendly alternative to road transport.

  14.  Another area of concern is the disruption to international arrangements, which is likely to result from an EU decision to depart from the phase out agreement only recently secured in IMO. An EU decision to accelerate further the phasing out of single hull tankers may not cause great economic dislocation within the EU but the effect could be greater if other regions decided to adopt a similar line, thus increasing the competition for double hull tonnage. Moreover, "dumping" single hull tonnage from the EU to other parts of the world which may be as environmentally sensitive but have less ability to police the use of poorly maintained ships and to deal with pollution incidents, is unlikely to enhance the EU's reputation for environmental responsibility.

CAS inspection regime

  15.  CAS is an additional, discriminatory survey technique intended to detect poor, and reward good, ship maintenance, and it is poor maintenance that is the root of many casualties. Our main concern is whether the surveying industry can muster enough resources quickly enough to meet the extension to all tankers and the earlier decision dates now proposed, by comparison with those required in the post-Erika Regulation. We need reassurance on that to be able to endorse an approach, which in principle we approve and consider positively.

Option 2

  16.  The UK position is that the proposal should be amended to avoid potentially serious economic implications both at EU and UK level.

ISSUES OF EQUITY

  17.  The proposal will apply to all 15 EU countries plus those such as Norway as part of the EEA. All countries are likely to be similarly affected by the accelerated phasing out of single hull tankers, as the costs would be reflected in higher freight rates and shipping costs. These are then passed on as higher prices for crude oil and/or oil products and since these are internationally traded commodities and goods, the impact will be felt similarly in all countries. However, countries with a larger trade in heavy fuel oil, such as the UK, are likely to be more affected.

  18.  At a UK domestic level the proposal is likely to have a greater impact on small islands communities—such as the Shetlands, Orkneys and Channel Islands—then the rest of the country, as these depend on supplies of fuel oil for their power generation. The ban on single hull tankers shipping fuel oil could interrupt their supply and force power stations to close, leaving the islands without power generation.

  19.  At the industry level, the proposals will affect both the UK shipping and "upstream" and "downstream" oil industries. An initial assessment of the proposal to ban the carriage of the heaviest grades of oil in single hull tankers suggests that the greatest impact would be felt in the small (600-5,000 dwt) vessel sector, engaged mainly in the coastal and short-haul operations, and in the form of "bunker barges", in ship-refuelling. Since few of these vessels are fitted with a double hull, an outright, almost immediate, ban in respect of some products would cause problems of availability in shipping capacity which would have significant effects on supply.

BENEFITS

Option 1

  20.  The benefits of the proposals are difficult to assess since they are quantifiable mainly in terms of avoiding the potential costs of cleaning up after an oil spill and the externality costs in terms of lost revenues from tourism and/or fishing. The situation is complicated by the fact that the proposals will apply only to EU-registered vessels or those operating to or from EU ports. Neither the ERIKA nor the PRESTIGE was registered in an EU State or operating to or from an EU port when they were lost.

  21.  Compared to single hull tankers, double hulls do have incremental environmental advantages, particularly in low impact collisions and groundings, and have the current advantage of being relatively new. They are not however a substitute for proper standards of management, operation, maintenance and corrosion control. Double hull ships will still cause problems in the future if the quality of maintenance and operation is allowed to deteriorate as they pass into the hands of second, third and subsequent owners and change Class or Flag.

  22.  It follows that the requirement for an enhanced inspection regime is likely to be of greatest value in protecting the environment.

  23.  The quantifiable benefit of the proposals are dependent on two factors: the avoided costs (in terms of cleaning up and lost revenues) and the higher probability of incident leading to loss for single hull tankers compared to double hull tankers.

  24.  Clean-up costs vary depending on the type of oil spilled, the amount spilled, the physical and biological characteristics of the spill location, weather conditions, the time of the year and the effectiveness of clean-up. In the past costs for large spills involving crude oil and in some instances fuel oil have ranged from the $83 million for the Braer (UK) incident in 1993, to the $219 million for the Nakhodka (Japan) in 1997 or the $2.5 billion for the Exxon Valdez (USA-Alaska) in 1989. The Erika compensations are still to be finally defined, but they are likely to exceed $180 million.

  25.  The draft Regulation forms part of a package of proposals initiated by the Transport Council which collectively are intended to reduce the incidence of severe spills of persisting oil and oil products. It represents the precautionary elements of that package, but it is questionable how many of the past spills would have been prevented by these measures alone.

Option 2

  26.  If the Regulation is amended to address some of the issues raised by the UK, we could add to the potential benefits of option one, the security of ensuring sufficient capacity to avoid disruption to oil supplies.

BUSINESS SECTORS AFFECTED

  27.  The business sectors potentially affected are:

    —  Shipping industry.

    —  Shipbuilding industry.

    —  Ship-scrapping industry.

    —  Chartering industry.

    —  Oil production industry.

    —  Petroleum products traders.

    —  Refiners.

    —  Energy and electricity providers.

  28.  The shipping industry and charterers are directly affected as they will have to replace their vessel fleet as the phasing out timetable kicks in. Oil industry and products traders will be affected as the ban on single hull tankers might impede the normal practice of their business—import and export of crude oil and heavy fuel oil. Refiners will be affected as the difficulties in exporting fuel oil could cause refineries to stop their operations—production of other lighter products is not possible unless the fuel oil is disposed in some way. (Although there are other ways to dispose of heavy fuel oil besides exporting it they would not help those who rely on the fuel oils being imported). Energy and electricity providers in small islands could be affected as their power generators function on fuel oil, generally supplied by small single hull tankers.

SMALL BUSINESS SERVICE

  29.  It does not appear that this proposal or the amendments being suggested by the UK and like-minded Member States will have a significant impact in the Small Business sector.

COSTS (ECONOMIC/POLICY IMPLICATIONS)

  30.  This is a partial impact assessment and, in the time available, it has not been possible to quantify fully the costs or benefits of the proposals. However it is hoped to develop and refine these aspects of the assessment in subsequent iterations.

Option 1: Commission proposal

  31.  The costs of the Commission proposals are difficult to assess due to the lack of available data and the relative short time notice with which the proposal has been put forward. The Commission itself has not yet carried out a proper analysis of the regulatory and economic impact assessment of the proposals.

  32.  The economic implications of the proposals can be divided into three broad areas:

    —  implications of the accelerated phasing out of single hull tankers;

    —  implications of the ban of transport of heavy grades of oil in single hull tankers leaving or entering EU ports; and

    —  the enhanced inspection regime (CAS).

Accelerated phasing out of single hull tankers

  33.  Regulation 417/2002[16], agreed as part of the Erika package following the sinking of the tanker Erika in 1999, set out a timetable for the phasing out of single hull tankers. This regulation implemented measures that had been agreed in the IMO[17] and were therefore globally applicable.

  34.  The new Commission proposal will amend the current Regulation to accelerate the phasing out of single hull tankers. The costs of the proposal would be in terms of the additional costs, incurred by companies/industry, of replacing single hull tankers in advance of the original timetable.

  35.  Additional costs from replacing single hull tankers with double hull tankers are identifiable as capital costs and operating costs. Capital costs are the costs of building new double hull tankers under the timetable set out in the proposed regulation compared to the costs of building new tankers under the timetable set out in the previous Regulation.

  36.  Operating costs include manning, supplies, routine maintenance and repairs, administrative costs, fuel and port costs. The additional costs of the proposed Regulation are the difference between operating costs of single hull tankers and costs of double hull tankers, that shipping companies will incur under the timetable set out in the proposed Regulation. In addition to that there is also the question of increased financing and leasing costs that would be incurred by the manufacture and operation of new modern tankers (although new tonnage is likely to be more fuel efficient and capable of being operated safely with fewer crew).

  37.  These additional costs of replacing single hull tankers are likely to be reflected in higher freight rates, which are then likely to be passed on as higher final products prices. Freight rates have already increased since the Prestige accident partly because of high insurance premiums but also because of the move by the EU to ban single hull tankers. Freight rates increased by more than $1/bbl for UK continent to US Atlantic coast rates since October.

  38.  A detailed study would be needed to assess the potential increase in freight rates but since these only represent a small proportion of the cost of oil products the overall impact on product prices is likely to be small. Moreover, the costs and rates are likely to be spread equally across all EU members as oil and oil products are internationally traded and priced.

  39.  The OCIMF paper makes a preliminary assessment of the effects of the ban on carrying heavy grades of oil on single hull tankers above the 5,000 dwt limit. A critical assumption behind this analysis is the degree to which double hull tankers currently trading outside the EU area could substitute for single hull tankers trading to or from EU ports. The degree of substitution is partly a technical matter to do with ability of individual tankers to carry particular types of cargo.

  40.  Intertanko figures imply a peak for withdrawal in 2003-04, which could congest mainly non-EU scrap-yards unless these single hulls could be efficiently "switched" with double hulls now in non-EU trades.

  41.  However, both the Commission and the OCIMF study looked at the worldwide situation and did not examine the consequences from a European perspective. It is likely that when considering only the vessels operating in EU waters as opposed to the all vessels operating worldwide, the assessment may be different.

Ban on single hull tankers carrying heavy grades of oil

  42.  The Commission proposes "to prohibit the transport of heavy grades of oil in single hulled tankers bound for or leaving EU ports of a member state of the EU".[18] Heavy grades of oil are defined in the original Commission proposal as heavy fuel oil, heavy crude oil, waste oils, bitumen and tar. Heavy fuel oil includes virtually all types of fuel oil; heavy crude oil includes crude oils whose API (American Petroleum Index) grade is lower than 30. [19]

  43.  The ban and the potential effects on the UK downstream and upstream oil sectors, and the impact on UK trade in oil products are of particular concern for the UK.

Upstream sector

  44.  With regard to the upstream oil sector, there are seven UK oil fields that use offshore loading systems and produce crude oil with a density that would be covered by the regulation (ie within the 30 API limit). All of these use shuttle tankers for offloading and six of the fields use floating production and storage facilities (FPSOs and FSUs) to process the oil.

  45.  The shuttle tankers used are in the range of 30,000 to 110,000 dwt (200,000-850,000 barrels). Most are Norwegian owned and are provided under contracts that allow field operators to call on them as required. Many but not all of these are double bottomed with wing tanks, ie not full double hulls and therefore to be banned under the draft's present text. However, this would offer some scope to argue for a distinction between single hulls and other hulls that give an enhanced level of protection. The field operators are covered contractually but cargo sizes and flexibility may be affected by the regulations, particularly in winter months. The field operators consider the risk of production interruptions to be relatively low (one to three days outage in average winter). However, this risk would increase if field operators, otherwise exempted from the regulations because their crude was lighter than the limiting density, decided on reputational grounds to contract for the limited fleet of double hulled shuttle tankers.

  46.  The seven fields produce crude oil in the range 19 to 30 API. Moving the limit of density covered by the Regulation from 30 API to 17.5 API would remove all of these fields and their associated shuttle tankers from consideration.

  47.  There is no indication that the floating production units (FPSOs and FSUs) used on these six fields would be captured by the regulation, as these are not tankers. Their primary purpose is not carrying oil, as they are not used for navigation and do not enter port other than for maintenance. Also, in most cases they have double bottoms and double sides. However, if the regulations were interpreted such as to include these facilities we estimate that about 1.3 to 1.4 billion barrels of recoverable reserves could be put at risk.

Downstream sector

  48.  On the downstream side there are two main issues both regarding the ban on heavy fuel oil: one relates to the energy supply to small islands and bunkering sites (for large ship refuelling); the second relates to refinery production.

  49.  The Commission proposal will disrupt bunkering operations and oil supplies to various on shore locations. Particularly at risk would be power stations in island and other isolated communities, typically with restricted harbours, which could not easily be supplied by alternative means.

  50.  Electrical power on small island communities is often generated using large diesel engines fuelled by heavy fuel oil. The fuel oil is delivered in small coasters of around 2,000 dwt capacity using single hulled ships. Since the proposed limit is set at 600 dwt there are no ships below this capacity available to supply these island communities. A study carried out by OCIMF identified that only 4 per cent of the worldwide fleet in the range 600-5,000 dwt is double hulled and that within Europe, there are only five double hull vessels trading in fuel oil of which two are new builds. Therefore, electrical generation could be put in jeopardy within a few weeks of the Regulation coming into force.

  51.  All medium and large cargo ships including crude carriers use heavy fuel oil as their power source. The fuel is delivered to the ships via barges or small coasters which range from 200 to 2,500 dwt in size. All these barges and ships are single hulled. Since the proposed limit is set at 600 dwt the vast majority of ships bunkers would not be permitted. The larger cargo ships would be forced to bunker outside the EU or extend their refuelling time by many days. This would result in further exports of heavy fuel oil from EU states including the UK. Trade between the UK and the rest of the world would be severely restricted and in some cases may be discontinued completely.

  52.  OCIMF estimated that "these measures cannot be implemented within the time frame proposed by the Commission since it requires the replacement of existing single hull vessels with double hull vessels that do not exist today".

  53.  Increasing the minimum tonnage prohibited to 5,000 dwt and above would resolve this.

  54.  With regard to refinery production, all UK refineries manufacture heavy fuel oil since it is the residue left after distilling out the lighter products such as petrol and jet fuel. Heavy fuel oil is a useful product and used to generate heat by industry for processes and in power stations for generating electricity. The shipping industry also uses it to fuel the marine diesel engines.



  55.  Demand for heavy fuel oil in the UK has declined substantially over the last decade and it has been replaced with natural gas. Consequently the UK exports around 5.5 million tonnes annually of heavy fuel oil. Much of this is exported to Rotterdam for the marine trade, Italy for power generation and further afield to the US and Singapore.

  56.  The fuel oil is currently exported largely in specialised single hulled ships. In general the greater the distance the larger the ship used. The ships must have sophisticated heating systems on board since fuel oil is solid at ambient temperatures and the oil must be kept fluid for pumping. There are many double-hulled ships in the EU but few have heating systems installed.

  57.  The worse-case consequence of not being able to export the heavy fuel is that most UK refineries will shutdown and the remainder operate at low throughput. There will be the inevitable lack of transport fuels and the economy will come to a grinding halt within two months. At a minimum there could be disruptions to the supply of refined products.

  58.  OCIMF estimated that, considering the number of non double hull ships trading heavy oils in Europe compared with available double hull ships with heating coils (ie equipped for heavy oils transport) not trading in Europe, there would appear to be sufficient capacity. However, since some of the ships trading outside Europe may already be committed to other business and they are unlikely to re-locate into the European area, it is likely that disruptions to supply will result, as suitable ships might not be available in the right place at the right time. Any disruptions would be worsened if governments in other parts of the world introduced a similar ban.

UK trade

  59.  The UK is the main exporter of fuel oil within the EU, in terms of volume—5.6 million tonnes—and value—exports are worth £540 million. More than half of this trade is directed to EU states plus Norway (2.9 million tonnes or 53 per cent). The UK is also an importer (1.1 million tonnes), although Italy is by far the largest—with more than 14 million tonnes imported. We do not know the share of this trade that is carried by single hull tankers compared to double hull tankers but it is likely that if both exports and imports are affected by this Regulation the UK will be one of the countries most affected within the EU.

  60.  Fuel oil accounts for around 5 to 6 per cent of total petroleum (crude and products) exports by weight, but between 20 and 25 per cent of total petroleum product exports—in 2001 fuel oil was the largest UK exported oil product by weight.

  61.  The implications for trade into the UK and the rest of the EU depend on the validity of the Commission's contention that there is enough double hull capacity overall to be switched into the range of EU general crude and specialised oil products trades. In some cases, notably the fuel oil trade, we need further assurance that sufficient double hulls already fitted with specialised equipment can be enticed by higher charter rates into the EU trades, and at what cost.

CAS inspection regime

  62.  Our concern here is that the surveying industry can muster sufficient resources quickly enough to meet the extension to all tankers and the earlier decision dates now proposed, by comparison with those required in the Erika Regulation.

Option 2:

  63.  In negotiations we have concentrated on seeking changes to the proposal which would mitigate the cost/impact set out above. The negative effects of the proposal could be significantly reduced by:

    —  a reduction from 30 in the index number below which heavy oil could not be carried in single hull tankers; and

    —  phasing out smaller single hull tankers over a number of years instead of banning them immediately.

COMPETITION

  64.  Since the Regulation will apply to all the industries involved in an internationally traded commodity in all Member States it is not expected to cause significant distortion to the competitive position of any particular party.

ENFORCEMENT, MONITORING AND REVIEW

  65.  The ban on single hull tankers carrying heavy fuel oil into a UK port will be part of the port State control mechanism and will be enforced by the Maritime and Coastguard Agency.

CONCLUSION

  66.  The main practical problem is not the further acceleration of the phasing out of larger tankers for which the major penalty would be premium charter rates to secure double hulls. Even this problem would diminish as more post-ERIKA double hulls come into service.

  67.  However, the present draft text on banning the carriage of heavy fuels in single hull tankers from July 2003, would cause dislocation to the fuel trade with the risk that:

    —  fuel oil supplies to power stations on islands round the UK coast could not be guaranteed;

    —  the trade in ships' bunkers would be severely threatened with vessels having to bunker outside the EU;

    —  refinery throughput would be disrupted with supplies of petrol and aviation spirit being threatened; and

    —  the export trade in fuel oil would become dependent on being able to obtain sufficient double hull capacity of the correct type.

  We are working with like-minded Member States to press for changes which would avoid these negative effects.

Letter to the Chairman for John Spellar, Minister of State

  You wrote to David Jamieson on 20 February asking to see an impact assessment for the above proposal. This was enclosed in David Jamieson's letter to you of 19 March, in which he indicated that the proposal would be discussed at the Transport Council on 27 March. The expectation was that the proposal would be the subject of a policy debate and might reach a general approach. Indeed, this is what is stated in the latest version of the Transport Council agenda, dated 21 March.

  However, the indications are now that there is a strong possibility that the Presidency will push for agreement on this dossier. They are encouraged in this by the conclusions of the European Council last week, which called on the Council to reach agreement.

  Although I would be very reluctant to agree the proposal before Members had had the opportunity to consider the impact assessment, the proposal as it stands contains acceptable transitional provisions in respect of the phasing out smaller single hull tankers over a number of years and an acceptable definition of the characterisation of heavy fuel oil. This will be particularly beneficial to services delivering fuel oil, to peripheral island communities. I believe that this is the best deal that can be achieved for the UK given the circumstances and I would not wish to jeopardise this position by with-holding my agreement. Mindful of the Committee's interest in the proposal, I therefore wanted to write in advance of the Council to advise you of this possibility.

26 March 2003

Letter from the Chairman to John Spellar MP

  Thank you for your letter dated 26 March, and also for David Jamieson's letter of 19 March and the partial regulatory impact assessment (RIA) that accompanied it.

  These letters and the RIA were considered by Sub-Committee B at its meeting on 31 March.

  We understand why you feel that you had to accept the compromise offered by the Presidency. Thank you for warning us in advance that would do this, and that you would accordingly need to override the Scrutiny reserve on this document.

  We understand that you and Brian Wilson are content with the compromise that will see the phasing-out of the smaller single-hulled tankers over a number of years up to 2007. We should like to know the details of the compromise agreed on 27 March. Does the phase-out extend down to vessels of 600 tonnes and above? Or have the smaller vessels between 600 and 2,500 tonnes, been excluded from the Regulation? Have you also managed to secure a period of delay of up to six months after the Regulation comes to force to allow the international tanker fleet to make the appropriate arrangements to meet the requirements of the Regulation for the larger vessels?

  We understood that the Commission could no longer submit proposals without a cost benefit analysis in the form of a RIA. What were the circumstances that enabled them, apparently, to dispense with this mandatory requirement on this occasion?

  Finally, why did the UK not press for a reduction in the American Petroleum Index (API) down to a level that would have benefited the entire North Sea industry ie around 18-19—or, at least, join the German and the Dutch in securing an even lower API that the compromise figure of 25.7?

2 April 2003


12   OJ L 64, 7.3.2002, p.1 Regulation (EC) No 417/2002 of the European Parliament and of the Council of 18 February 2002 on the accelerated phasing in of double hull or equivalent design requirements for single hull oil tankers and repealing Council Regulation (EC) No 2978/94, as amended by Regulation (EC) No 2099/2002 (OJ L324, 29.11.2002, p.1). Back

13   Commission paper: "Statistical data on available tanker capacity", for Accelerated phasing out scheme for single hull oil tanker (amendment of Regulation (EC) No 417/2002), 28 January 2003. Back

14   OCIMF paper on EC Commission proposal: Capacity study and comments on EU plans for single hull tankers, January 2003. Back

15   Intertanko: Tanker fleet phase out analysis, January 2003, from website www.intertanko.com Back

16   Regulation (EC) No 417/2002 of the European Parliament and of the Council of 18 February 2002 on the accelerated phasing in of double hull or equivalent design requirements for single hull oil tankers and repealing Council Regulation (EC) No 2978/94. Back

17   Resolution MEPC 95(46) amending Regulation 13G of Annex I of MARPOL 73/78 adopted on 27 April 2001, entering into force on 1 September 2002. Back

18   From Explanatory Memorandum of Commission proposal, paragraph 2.1. Back

19   Heavy fuel oil include precisely oil products falling under CN codes 2710 19 51, 2710 19 55, 2710 19 61, 2710 19 63, 2710 19 65 and 2710 19 69. Back


 
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