Green seas ahead – how will environmental regulations affect smaller operators?27 February 2015
The industry is responding to tightening environmental regulations, but will smaller players be able to keep up with the significant expenditure required without jeopardising their operating models? Elly Earls speaks to Crystal Cruises’ Greg MacGarva to find out.
Increasingly stringent regulations on everything from emissions to energy efficiency have resulted in cruise operators large and small taking huge strides towards improving their green credentials.
Exhaust gas cleaning systems have been installed, 'scrubbers' used to burn cleaner fuels and state-of-the-art coating systems applied, but abiding by regulations - national and international - doesn't come cheap and there is concern that some smaller companies may struggle to remain competitive.
Since 1 January 2015, ships operating in emission control areas in the Baltic and North Sea, as well as North America and the US Caribbean, have been mandated to cap their fuel sulphur content at 0.1%, down from the 1% limit to which they'd been adhering since 2012. By 2020, regulations could be tighter still, with the IMO planning to implement a law forcing all cruise ships, no matter where they are in the world, to burn fuel with a sulphur limit of 0.5%, down from 3.5%.
Beyond emissions regulations, legislation has also tightened when it comes to energy efficiency (since January 2013, large ships have been legally required to follow the International Maritime Organization (IMO) Energy Efficiency Design Index (EEDI) minimum efficiency standards), while new United States Coast Guard (USCG) ballast water requirements, designed to prevent invasive species being shipped into US waters, entered into force in 2012.
For Greg MacGarva, vice-president of marine operations at Crystal Cruises, it's a constant challenge to keep up with ever-evolving regulatory requirements with the resources he has available. "Right now, ballast water treatment is on the front burner, along with exhaust gas emissions," he says. "These new regulations are items on which we all need to focus to be successful so I look at it as one very large and fascinating optimisation challenge.
"We have requirements, and we have resources. Management's responsibility is to prioritise the former to maximise the effect of applying the latter. In our industry, both can be quite dynamic, so that adds yet another dimension of complexity. To address this, we are in virtually a constant stage of planning and prioritising, so that when it's time to act, the right things are being done for the right reasons."
Smaller operators: responding in force
The hottest regulatory topic in the industry at the moment is the new sulphur content legislation, which came into force in January 2015 and is expected, by 2020 in the US alone, to prevent 5,500-14,000 premature deaths, 3,800 emergency room visits and 4.9 million cases of acute respiratory symptoms, according to the Environmental Protection Agency (EPA). Operators have responded to the new requirements in different ways.
For example, while Crystal is burning cleaner fuels just as it has done in the past where required, other operators like Carnival, and by extension Holland America Line, have invested in filtration systems or 'scrubber' technology, which removes sulphur, nitrogen and particulate matter from exhaust. Both options require significant investment: while burning fuels that comply with the new regulations typically costs twice as much as using standard bunker fuel, installing one unit will set operators back $3-5 million. Carnival alone has announced it will spend $400 million on installing scrubbers in more than 70 vessels, including nine Holland America Line ships. MacGarva says: "We are also looking closely at scrubber technology as it advances."
Beyond considering emission- reduction technologies and cleaner burning fuels, operators are also doing all they can to reduce fuel consumption and improve energy efficiency. Indeed, stresses MacGarva, "Virtually anything that can measurably improve fuel consumption and help us improve our ability to protect the environment merits review and consideration."
The key, he notes, is measurement, as opposed to accepting manufacturers' claims at face value. "If we were to add up all the efficiency improvement claims of all the technologies that purport to save energy, we would probably be able to run on no fuel at all," he explains. "The members of our technical team each follow specific technologies, but the challenge is sorting the claims from reality."
Technologies that have proven beneficial for Crystal include LED lights, which are being phased in to replace existing bulbs; advances in diesel engine technology, which are significantly reducing emissions; and hull coating systems, which are steadily evolving with both improved smoothness and antifouling characteristics, according to MacGarva.
"In the last two years, both Crystal Serenity and Crystal Symphony had complete bottom blasts and new state of the art paint systems applied," he adds. "From multiple speed/power tests done before and after, we were able to document a 3.5% average improvement in fuel consumption for both ships."
Other small cruise operators are also making great strides when it comes to meeting environmental regulations. Among other initiatives, six of the 15 ships operated by Holland America Line - which was named 2014 Marine Environmental Business of the Year by the Port of Seattle - use shore power at the ports of Seattle, San Diego and Port Metro Vancouver to reduce fuel consumption and air emissions, while Silversea employs the latest diesel-electric propulsion design on its vessel Silver Spirit, allowing much of the engine to shut down when there is less demand for power.
Meanwhile, Paul Gauguin Cruises, as well as burning low-sulphur fuel, has also decreased its water consumption by changing shower fittings, modernising its air-conditioning systems with automation, installing LED lights and cleaning the hull at each dry dock with antifouling systems.
Slowing down, but not simplifying
But surely all the expenditure required just to meet, let alone exceed regulatory requirements, as many small operators are doing, has led to cuts and changes elsewhere in the business, jeopardising traditional operating models.
In 2010, David Dingle, the chief executive of Carnival UK, which operates 11 cruise lines including Cunard and Holland America, certainly thought it would, describing the new emissions regulations, then five years away, as the "the biggest single threat to the cruise industry", and saying they would result in older and smaller ships becoming unprofitable, as well as vessels running at lower speeds and visiting fewer ports.
So has this prediction become a reality? For MacGarva, yes and no: ships are slowing down, but itineraries are certainly not getting simplified. In fact, at Crystal, it's quite the opposite.
"The most effective thing you can do to save fuel is slow down," he notes. "To that end, our itineraries are becoming more port-intensive and we see a favourable effect on our fuel budget projections."
"In addition, because of our fleet's unique power generation plant, each ship has four most economical speeds. Crystal Symphony and Crystal Serenity each have six diesel generator sets of the same size. One is necessary for hotel services (when in port) but the ships can steam comfortably, at different speed ranges on two, three, four or five engines. The sixth is essentially a spare and allows routine cyclic maintenance to be performed in service without affecting a vessel's performance.
"The most efficient sailing speed with each of these engine combinations is well known to the itinerary planners and every effort is made to develop schedules at these speeds. The need to economise on fuel is therefore embedded in the itinerary development process."
Reduced itineraries are emphatically not on the cards, though. "Economies of scale would (and have) driven the opposite outcome, and it is doubtful that guests would be interested in simplified itineraries. In fact, Crystal is constantly looking for new and exciting ports of call."
In 2016, for example, the line will launch a new expedition-style voyage in the Arctic, which will show guests the impact of climate change first hand: an incentive, if ever there was one, to operate in an environmentally sound manner.
MacGarva confirms: "For the Northwest Passage transit, this includes the voluntary use of 0.1% sulphur content marine gas oil, which is extremely clean-burning and is well within the applicable requirements for that region. This, along with a relatively slow transit speed, will achieve our goal of minimising our carbon footprint."
Changes at operator level alone, however, will not necessarily offer the most effective solutions to meeting the industry's tightening regulations, according to MacGarva. While collaboration between operators and regulators is key to success, ports must also be in on discussions.
"Partnering with and helping to familiarise those responsible for developing and implementing regulations is essential to ensure regulators broaden their exposure to the business and challenges industry faces with the effect that they can make more- informed decisions," he stresses, adding that it is also essential to ensure that regulatory requirements do not outpace the development of technology, or are implemented in a less than holistic manner.
"For example, we would rather see technology that will reduce emissions, regardless of the fuel type burned. The fuel cycle (including production) must be viewed holistically, however: in order to provide cleaner fuel, the refineries must significantly increase their own carbon footprint to further the cracking process to obtain a higher volume of more- distilled product.
"Another example is a port installing an electrical shore tie and mandating cruise ships shut down their generators and use shore power. That's all well and good when the power is coming from hydro or wind, but it makes no sense in ports, where it's from a coal-fired plant."
Crystal is already partnering with regulatory agencies including the USCG to vet existing and upcoming regulatory challenges and the company also plans to maintain connections with the regulatory process through membership of industry body CLIA's working groups and committees.
"In the next five years or so, the challenges will probably be substantially the same as they are now," MacGarva predicts. "There has been, and continues to be, a steadily increasing importance attached to staying current with and adapting ships' systems and operational parameters to comply with the proliferation of regulations, mostly environmental and security related.
"Increasingly, operators must be aware, not only of international (IMO/ILO), flag and port state, but also of state and local regulations that are sometimes far more conservative, and irregularly enforced, than those at national and international levels. The overall goal is to be always able to meet - and, where practicable, exceed - any and all regulations and requirements in the regions in which Crystal Cruises' ships sail."