INDUSTRY'S PERSPECTIVE ON THE COMPLIANCE WITH THE LOW SULPHUR REQUIREMENTS. Pulp and paper industries' views and assessment

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1 INDUSTRY'S PERSPECTIVE ON THE COMPLIANCE WITH THE LOW SULPHUR REQUIREMENTS Pulp and paper industries' views and assessment Bernard Lombard, Trade & Competitiveness Director Brussels Wednesday, 1 June 2011

2 About CEPI and the European Paper industry CEPI: the Confederation of European Paper Industries 19 national associations as members CEPI goals: improve industry s competitiveness in EU Policy making, contribute to a good business climate, address image and reputation challenges 89 Mt of Paper & Board and 12 Mt of Market Pulp produced in % of the European production, 25% of the World production 700 companies, 1,000 mills Eur 72 Bn turnover, Eur 15 Bn added value 230,000 jobs, 60% of direct & indirect jobs in rural areas, 1.8 million indirect jobs (excl. distribution)

3 Paper industry and transport Why transport is important for paper industry? - paper has to be handled with care - total logistics costs average 10% of turnover - a wide spread of plants throughout Europe - large amounts of raw materials used - a global player on commodities markets - and customers with high expectations!! What do we expect from transport? - flexibility and co-modality - speed and reliability - cost-efficiency AND sustainability CEPI is a member of the European Shippers Council

4 Paper industry and transport Paper industry s objective: be the leading example of how competitiveness and sustainability can go hand in hand 2007: Carbon footprint guidelines 2009: Transport carbon footprint guidelines

5 Marine fuel and sulphur content The IMO decision 5,0 4,0 3,0 4.5% today 3.5% from 2012 International (and the rest of EU) If feasible English channel, North Sea & Baltic Sea 2,0 1,0 0,0 1.0% today USA & Canada will become ECAs in % from % from 2020 or In EU, 0.1% Sulphur for ships at berth effective on 1 January

6 Marine fuel and sulphur content The IMO decision Geographical Area of the IMO Sulphur Regulation for the SECA 13 countries fully or partly covered: about 1/3 of the European paper deliveries affected The Sulphur Emission Control Area (SECA) Countries with water only in SECA Countries with part of the coast in SECA Countries without coast in SECA Has recently ratified the Marpol convention

7 Many impact assessment studies Consequences of the IMO s new marine fuel sulphur regulations, VTT for Swedish Maritime Administration, May 2009 Sulphur content in ships bunker fuel in a study on the impacts of the new IMO regulations on transportation costs, the Centre of Maritime Studies for the Ministry of Transport and Communications, April 2009 Cost Benefit Analysis to Support the Impact Assessment accompanying the revision of Directive Mainly 1999/32/EC about on the availability Sulphur Content of of low certain Liquid Fuels, TNO & IVL for EU Commission, Dec Analysis of the Consequences of Low Sulphur Fuel Requirements, Transport & Mobility Leuven environmental for ECSA, January 2010 & economic impact Institut für Seeverkehrswirtschaft and Logistik Institute of Shipping Economics and Logistics, Bremen, September 2010 Impacts on the EU Refining industry & Markets of IMO specification changes & Other measures to reduce the sulphur content of certain fuels, Purvin & Gertz inc. for EU Commission Report on Impact Study of the future requirements of Annex VI of the MARPOL Convention on Short Sea Shipping, NECL for EU Commission and many others! sulphur fuel, modal shift and

8 Availability and cost of low sulphur fuel Low sulphur fuel Regular bunker oil Even though price varies over time the price difference between low sulphur fuel and bunker oil is almost always around USD/tonne There are real concerns about 0.1% sulphur fuel availability by 2012 but also about global 0.5% sulphur fuel by 2020/2025 for the oil industry If the shipping industry opts for low sulphur fuel, the oil industry would not be in position to meet the demand, because of the lack of production capacities

9 Sweden: a Paper Company case Supply chain: from Sundsvall to central Europe Trondheim Sundsvall Substitution of departure port: Trondheim to Sundsvall New arrival port instead of Hamburg 140 EMS lorries (60 ton) each day ( lorries/year) Hamburg 3 million tonnes a year Increased CO 2 emissions High sulphur fuel from Trondheim and onwards

10 Sweden: Modal shift from Sea to Road Sea transports Road transports Reduced transports Increase transports Source: Swedish Maritime Administration Modal back-shift of Swedish products: the effect will be much larger when all countries are included in the calculations.

11 Finland: Modal shift from Sea to Road % of forest industry of Finnish exports by maritime transport Finnish forest industry s maritime transport volumes: - around 15 million tonnes/year, over tonnes/day If shifted from vessels to land transports when exporting to Europe (=articulated vehicles to Sweden, further transportation to Europe by rail): articulated vehicles per day - 20 big freight vessels per day from ports in south-west Finland to Sweden - 50 additional freight trains per day on the Swedish rail network Source: Finnish National Transport Agency Transporting similar volumes by road and rail via Baltic countries would increase the number of vehicles and trains by an additional 50%, due to the infrastructure capacity constraints and weight limitations

12 International competition and sulphur Leakage Compare freight transport of pulp: Santos - Rotterdam and Sundsvall - Rotterdam: Sundsvall Santos (Sao Paolo) - Rotterdam - Sulphur limit of 3.5 % (from 2012) - Last day max 0.1 % sulphur (in SECA) Rotterdam g of sulphur per tonne of pulp Sundsvall - Rotterdam - Sulphur limit of 0.1 % (all in SECA) - 11g of sulphur per tonne of pulp Santos No emission cuts, rather sulphur leakage! Cheaper to go by boat days compared to 2-3 days from Sweden/Finland to EU market?!

13 Summary Substantial cost increase: marine fuel % / sea transport cost % / up to +10 /tonne of paper Disturbing logistics flow / supply chain in EU to ports not included in SECA (Trondheim? Marseille?), distorting internal market Serious effect on companies competitiveness, competition distortion, negative impact on future investments Modal back-shift from sea to road will increase CO2 emissions and congestion (against EU White Paper on Transport*) Minor environmental benefit of 0.1 % fuel compared to 0.5 % fuel * A shift of 30% of road freight to other modes, such as rail or inland waterway transport, by 2030 for distances over 300 kilometres

14 CEPI s views CEPI welcomed the global IMO decision to go for lower sulphur limits - part of our commitment to sustainability Let s first ensure realistic technological options are available before implementing strict and costly changes to fuel requirements A boost should be given to low sulphur supply production and technologies leading to reduction of sulphur emissions Member States and EU Commission should support environmental technology investments for retrofitting / new building Reaching the requirements solely with new technologies is highly complex and costly and requires time Uncertainty in legislation and technical requirements will prevent companies from investing before 2015 Compensatory measures raises serious questions (feasibility, costeffectiveness, compliance with EU competition rules) - with the risk shippers supporting ultimately the whole cost increase!!

15 CEPI s views - Conclusions The Commission should reconsider carefully the various impact assessments and better involved the various stakeholders to identify the most cost-efficient ways to improve the environmental performance of shipping while maintaining its competitiveness Implementation of the 0,1% sulphur content between 2020 and 2025 is a must, if a change to 0.5 % by 2015 is not achievable It would give industry time to develop and exploit technologies that lead to more cost-efficient sulphur emissions cuts and a better environmental outcome for the whole transport chain The revision of the Sulphur directive should be carried out in a way that allows future amendments to the 2008 IMO decision

16 For more information: Bernard Lombard Trade & Competitiveness Director