GREENHARBOURSIIGreeningtheGlobalSupplyChain:ExploringpartnershipstoreducemarineemissionsinthePRDStakeholderWorkshopSummaryReportThursday,17June2010

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TableofContents

ExecutiveSummary................................................................................................ 3

Background............................................................................................................ 4

WorkshopSummary............................................................................................... 5

TowardsHealthierShipping,VeronicaBooth,CivicExchange...................... 5

MaerskLine’sFuelSwitchExperiences,TimSmith,MaerskLine .................. 6

ExpertCommentary.................................................................................... 7

SmallGroupDiscussions ............................................................................. 9

PlenaryDiscussion .................................................................................... 11

Conclusions.......................................................................................................... 12

AppendixI:ProgrammeandParticipatingOrganizations...................................... 13AcknowledgementsCivicExchangewouldliketothankthefollowingpeople:

• TimSmithforhispresentationandcomments;• RogerTupper,WCMok,ArthurBowring,KellyLaiandSimonNgfortheircomments;• JasonMa,LuísCoruche,RitaLiandPatrickLaufornote‐taking.

Civic Exchange is a non‐profit public policy think tank that helps improve policy anddecision‐makingthroughresearchandanalysis.Theopinionsexpressedinthisreportrepresentthoseofthespeakersandparticipantsanddo not necessarily represent those of Civic Exchange. This summary is based on thepresentationsanddiscussionsontheworkshopheldon17June2010.

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EXECUTIVESUMMARYBuilding on stakeholder communities created in previous Green Harbours work,1 CivicExchange has continued to engage the government as well as the ship, cargo and portsectors to discussways to reduce emissions from ships inHong Kong and the Pearl RiverDeltaregion.On17June2010,35participantsfromthesesectorscametogethertodiscussvoluntarymeasurestodothis.Theworkshop’smajor outcome is thatmajor shipping lines verbally committed to draft avoluntary agreement that ships use distillate fuel while at berth in Hong Kong waters(distillate fuel issubstantially lesspollutingthantypicalmarinebunker fuels).Theshippinglines are willing to do this with the expectation that the Hong Kong SAR Governmentintroducelegislationmakingthisswitchmandatorywithintwoyears.Oneshippinglinehasagreed to lead this initiative with the target of announcing it, with other participatingshipping lines, later thisyear.Other stakeholders, suchas shippersandports, can supportthisinitiativebyofferingpreferentialtreatmenttothosecompaniesparticipatinginthefuelswitch.Thisinitiativeisanimportantfirststepinreducingthemarinesector’scontributiontoHongKong’s air pollution. However, the gains made from this initiative must be extendedthroughout the Pearl River Delta region through continued cooperation amongst thegovernment and private sector stakeholders. The relevant Hong Kong governmentdepartments must continue to communicate effectively with their counterparts inGuangdongtopavethewayforcoordinatedpolicyaddressingemissionsfromthesesources.Any regulation, as well as the voluntary fuel switch, must be in line with internationalregulation (in this case following theEUmodel) toeaseoperations for compliant shippinglines.Thediscussionsalsocovereddiversetopicsincluding:Regulation: Regulation remains the most effective way to reduce emissions from thesesources. The private sector prefers regulation, as it ensures that all competitors face thesamecosts.AllportsinthePRDmusthavethesameregulationtoensureequalcompetition.Competition&Cost:Insuchacompetitiveindustrywithtightmargins,anyincreaseincostisexaminedclosely.However,cargoshippersarewillingtoacceptsomeincreaseincost,asthiscostisultimatelypassedontotheendconsumer.Largershippingcompaniesmayhavelessdifficultyinabsorbingthesecoststhansmallershippinglines.Fuel Supply:Withanadequate supply, asdemand for cleaner fuel increases, its pricewilldecrease.Currently,thereisaninadequatesupplyofcleanerfuelinthePRD.Fuelsupplierswouldneednotificationofany increase indemand inorder toproducesufficientdistillatefuel.Switchingtocleanerfuelsisthemosteffectivewayofreducingemissionsfromships.Recognition: Recognition programmes are powerful drivers for improvement. A green

1See,VeronicaGalbraith,LynneCurry&ChristineLoh(2008),GreenHarbours:HongKongandShenzhen–ReducingMarineandport‐relatedemissions,www.civic‐exchange.org/en/live/upload/files/200806_Gports.pdf;PreviousGreenHarboursworkshopsummaries:September2009:www.civic‐exchange.org/en/live/upload/files/090929GHreport.pdf;February&March2008:www.civic‐exchange.org/en/live/upload/files/200806_gportsws.pdf

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labelingprogrammethroughwhichshipsarepubliclyrecognizedforparticipatingingreenerpracticesismotivationforshipstocomplywithsuchprogrammes.BACKGROUNDTheHongKong‐Shenzhen‐Guangzhouregionhasthehighestconcentrationofshippingandport‐relatedactivities,andsomeofthehighestpopulationdensitiesandlevelsofmarineairemissionsintheworld.UnlikeEuropeandNorthAmerica,therearecurrentlynocontrolsonmarine emissions in this region. Ships that switch to cleaner fuels elsewhere continue toburnhighlypollutingbunkerfuelinthePearlRiverDelta(PRD)region.Recentresearchhasrevealedthatwhilemanyshipownersandmanufacturershavebroadsustainabilitygoalsandenvironmentalpolicies, theseareprincipally focusedon reducinggreenhousegases ratherthantoxicpollutantswhichdirectlyimpactthehealthofcommunitieslivingclosetoports.Inordertoensurea levelplayingfieldamongstPRDportsandtotackletheemissions inacomprehensive way, regulation for ships should span the PRD. However, regulation iscomplicatedbythejurisdictionalboundarybetweenHongKongandMainlandChina.Inter‐governmentalcoordination isnecessary,but it isunclearwhenthisHongKong‐Guangdonggovernment coordinated regulation would come into effect. In anticipation of thisregulation, theprivate sector canexpedite the regulatoryprocessby leading thewayandshowingthattheyareawareofthenegativehealthimpactoftheirindustriesonsurroundingcommunities,andarewillingtotakeappropriatestepstomitigatetheseeffects.Civic Exchange held a targeted workshop to explore the possibility of developingpartnershipsbetweenenvironmentally‐responsibleshippinglines,portsandmanufacturers,withtheaimofreducingmarineairpollutionandassociatedpublichealthimpacts.Civic Exchange’s presentation briefly outlined the current knowledge on the public healthimpacts and regulation ofmarine emissions worldwide, before Tim Smith ofMaersk LineoutlinedafuelswitchprogrammehiscompanyhasimplementedinNorthAmerica.Theaimsoftheworkshopweretofoster:• abetterunderstandingofhowreducingemissionsmightimpactthecosts,marginsand

competitivenessofdifferentstakeholders;• matchmaking opportunities for manufacturers seeking to clean up their supply chain

withportsandshipownerswhoareeagertoleadthewayinreducingemissions;and• a discussion of how early adoption of voluntary measures could help to prepare

shipownersfortighterregulationinthefuture.

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WORKSHOPSUMMARYTowardsHealthierShippingVeronicaBooth,CivicExchangeEmissions from ships are increasing in absolute terms as well as in proportion to othersources. The health effects from these emissions are proven, and are quite harmful. TheHongKongGovernmentrecognizesthisandismovingtoimproveHongKong’sairquality.Ships are an efficient way to move goods and materials around the world and a hugeamount of global shipping traffic passes through Asia’s waterways. Emissions from thisvolumeoftrafficnegativelyaffectspublichealth.A2007studyshowstheeffectofemissionson population near coastlines and port cities in particular, with 60,000 people dyingprematurely each year due to emissions from ships. The projected growth of shipping isexpectedtoresultinanincreaseinmortalities.HongKong,ShenzhenandGuangzhouareamongthetop10busiestcontainerports intheworld,handlingsome12%ofglobalcontainer throughput.This isanenormousamountoftraffic in a region with ineffective regulation and high population density. These factorscombine to make the PRD region the place where shipping emissions may have thestrongesteffectonpublichealthintheworld.Because ports are often located in cities, emissions from ships are inhaled at higherconcentrationsthanemissionsfromothersources,suchaspowergeneration.Thereforeshipemissionsmay affect public healthmore than emissions from power generation becausethere is less opportunity for dispersal. The relative exposure levels of ship emissions areproven,particularlyinchildren,theelderlyandthesick.Marine emissions are increasing in absolute terms and in proportion to other emissionsources.Emissionsfrompowerplantswillreducebyabout90%inthenextfewyearsduetodesulphurizationtechnologies,whileemissionsfromroadtransportwillremainstable.Withincreasingportactivity,marineemissionshavenosignificantregulationtokeeplevelsfromincreasing further. Indeed as other sources decrease, the relative significance of marinesourceswill rise. In fact, in the areas closest to theport, emissions from shipsmakeupasignificantpartofroadsideemissions:it’snotjustthetrafficthat’saffectingyouatroadside,it’salsotheships.TheHongKongSARGovernment isputtinggreater focusonto thepublichealtheffectsofpoorairquality.Itisaddressinglocalsourcesofpollution,andthepublichealthagendawillbecomemoreobvious in thenext few years. Therehas alsobeenmore regional planningacrossthePRD.GuangdongandHongKonghaveanagreementtoreducemarinepollution,2andaproposedPRD“BayArea”conceptualizesthePRDregionasahighqualityoflifecentrefor China. This pan‐PRD planning includes greener planning, and with ports projected togrowfurtherthismeansthatgreenerportsarenecessary.

2LegislativeCouncil,PanelonEnvironmentalAffairs,FrameworkAgreementonHongKong/GuangdongCo‐operation,EnvironmentalProtectionandEcologyConservation,24May2010,www.legco.gov.hk/yr09‐10/english/panels/ea/papers/ea0524cb1‐1923‐5‐e.pdf.

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Internationally, Emission Control Areas (ECA) as described in the International MaritimeOrganization’s marine pollution regulation MARPOL Annex VI have been effective inreducingtheamountofemissionsinspecificareas.TheNorthSea‐BalticSea‐EnglishChannelareaECAhasseenSO2emissionsdropby42%sinceitsintroduction.ThenextECAtocomeinto forcewill surround theNorthAmerican continent out to 200nauticalmiles from theshore.Othergovernmentshaveimplementedinitiativesthataffectshipswhileinterritorialwaters. For example the recently implemented EUDirective on clean fuel hasmeant thatshipsatberthandinterritorialwatersmustusefuelwith0.1%sulphurcontentorless.Carbonisalsoanissue,especiallyforcargoproducers.Companiesmustexamineco‐benefitsofreducingairpollutionandcarbon,asbotharepressingandinterrelatedissues.Nationally,itisChinesepolicytoreducecarbonemissions.MaerskLine’sFuelSwitchExperienceTimSmith,MaerskLineSince 2006, Maersk Line has conducted fuel switch operations in several European andNorth American ports to achieve air emissions reductions. This involves switching to lowsulphurdieseloil(LSDO)forboththeAuxiliaryEnginesaswellasMainEnginesfortheperiodoftimethatthevesselisinportorwithinanagreeddistanceofthecoast.InEurope,0.1%fuelwasused,whileintheUS,0.2%fuelwasused.This fuel switchinghasbeenbotha voluntary initiativeofMaersk Line, anda response tomandatoryregulation,dependingontheport.Todate,MaerskLinehassuccessfullymadeover1,500fuelswitchoperationsglobally.MaerskLinewishestobeattheforefrontofitsindustryinrespondingtotheenvironmentalchallenge. Itdoesthisbygainingexperienceandworkingwithotherstakeholdergroups inanticipationofactualorpotential legislationtocontrolmarineemissions. MaerskLinehasfound that fuel switching offers the following advantages in addressing environmentalimpactfromshipping:

• Itisamobilesolution;• Itcanbeimplementedrapidly;• Noexpensiveshoreinfrastructureisrequired;• Itdoesnotshiftemissionstootherpowersourcesorlocations;and• Thereisalowsafetyrisk.

Significant emissions reductions have been achieved through this fuel switch initiative. InCalifornia,wherethefuelswitchoccurred24nauticalmilesfromtheshore,thistranslatestoa reduction of approximately 2400 tons of emissions in an 8‐month period. Specifically,particulatematter(PM)wasreducedby86%,whileSOxdecreasedby95%.Eachfuelswitchuses29.4MTofLSDO.In implementing a fuel switch, there is no capital investment required on the part of thevessel or port. Vessels are equipped with separate service tanks for distillate fuel.Furthermore, a fuel switch can be implemented quickly, in weeks rather than years, andtherearenopersonnelsafetyortrainingissues.However,thefuelcostdifferentialissubstantial:thecostoftheprogrammetoMaerskLineisoverUS$20million in theUSalone.Lowsulphurdistillate fuel is typically40‐70%more

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expensive thanheavy fuel oil. For example, the cost differentialwas aboutUS$180/tonnebetweenthefourthquarterof2009andthefirstquarterof2010.Dependingonthecurrentcostoffueloils,andtheplaceofpurchase,thecostoffuelhasattimesbeenmuchhigher.Atcurrentprices,thecostdifferentialofswitchfuelatCalifornia’sportsisaboutUS$5,400.Internationally,somegovernmentshavebeensubsidizingfuelswitchprogrammes,asattheportsofVancouver, Seattle andHouston. ThePortsof LA/LongBeachalso subsidised fuelcostsbeforethelowsulphuremissionsregimebecamemandatoryAlso,thefuelswitchmustbedonecarefully,astherearesomefuelpumpleakageissues.Incaseoflongerrunning,manufacturerssuggestchangeovertoacylinderlubricationoilwithalowerbasenumber.Timelydatacollectionwasespeciallychallengingintheearlymonths,andstillrepresentsachallenge.MaerskLinehasnotencounteredproblems insourcinggoodqualitydistillate intheUS. InEurope and Japan, distillate is available, but expensive. Distillate is difficult to source inSingapore andHong Kong. However, vessels calling in Europe and theUSwest coast andthencomingtoChinawillalreadycarryLSDOonboard.LookingtoSouthChinaandthePRD,giventhenumberofportsandlargenumberofvesselcalls in proximity to high concentrations of population, the region would be an obviouslocationtooperateafuelswitchregime.Suchaschemecouldmakeameaningfuldifferencein total air emissions for the area. However, itwould also be very costly to operate, andconsequently requires collaboration from government, transport users and otherstakeholders to make it viable. A voluntary scheme initially funded by government grantand/orreductioninportduesmightbeagoodwaytotestpracticalapplicationintheareaandstartbuildingsupportfromtransportusersandthegeneralpopulation.As stakeholders in the region begin to consider implementing fuel switching, some issuesneed tobeaddressed suchas: identifyingwhowill pay for thehigher costofusing LSDO;establishingreliableandcosteffectivesuppliesofLSDOforSouthChinaports;ensuringthatno port in South China suffers a competitive disadvantage due to stricter regulation;includingallmaritimeoperators (not just the international linershippingoperators)withinthe scope of emissions reductions programmes; and bringing the ports and landsideoperationsofthelinerindustrywithinthescopeofemissionsreductionsprogrammes.

EXPERTCOMMENTARYRegulation,CompetitionandCost:• Regulationaffectseveryone.Itraisesthebarwithnocosttocompetitiveness.• Afuelswitchprogramisworkable,asispassingonthecostssothatthe‘polluterpays’.• An initial voluntary fuel switch programme that fosters collaboration rather than

undermines competition between ports would give government support thatstakeholdersarewillingtoberegulated.

• The competitiveelementofHongKong’sports cannotbe ignored. Terminals are at adisadvantageiftoo‐strictregulationisimplemented.

• Subsidiesareausefulwaytoencouragecleanerpracticesinitially.However,allportsinthePRDregionmustofferthesesubsidiesformaximumeffect.

• Usingcleanerfuelmayleadtoacompetitivedisadvantageforships.Whileeconomiesofscalemaytranslatethe increasedcosttoUS$5,400for largeships,smallershipsdonothavethisadvantageandmayhavetopayuptoUS$10,000fortheswitch.

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• Stakeholdersmustassessifcostisinfactabarrier.Inanindustrywherecostsfluctuategreatlyirrespectiveoffuelprices,theincreasedcostoffuelmaybeanartificialbarrier.

• This price differencemay drive the lower‐performers out of the PRD region to otherareaswithlessstrictregulation.

• Ultimatelytheendconsumerwillpayfortheincreaseincost.• Somequestionremainsregardingwhowillcovertheinitialcostincrease.Thiscouldbe

done through a government subsidy, or through a voluntary initiative in whichstakeholderscollaboratetoallusecleanerfuel.

• Basedonthereductionofthequantityofpollutantsfromvessels,fuelswitchingisveryeffective. However, a cost/benefit analysis has not been completed to assess theeconomicaspectofthisswitch.

InternationalRegulation:• Allshorelinesshouldbeprotectedthroughaglobalstandardrequiringdistillatefuelfor

allshipsallthetime.• Countries that wish to apply for an Emission Control Area under the International

MaritimeOrganization’sMARPOLAnnexVImustproducebackgroundresearchprovingships are a major source of pollution. This would not be the case if regionalgovernmentsdesignateaLowEmissionZone(LEZ)independentlyfromtheIMO.

• Such locally‐formedpolicieswouldneed tobe in linewith international regulation tosimplify operations for ships that call atmultipleports. Ships arewilling to carry twogradesoffuelonboard.

• IMOcan’tdoanythingwithinterritorialwaters(12milesout)• CurrentlyInthePRD,therearenoincentivesandnoregulationthateffectsoceangoing

vessels.• ECAs must be implemented with great care, as issues of competitive distortion can

arise.SomemanufacturerslocatedalongtheshoresofthenorthernEuropeanECAhavefound they’re at a disadvantage because of the more expensive fuel used: factoriesoutside of the ECA zone with access to train lines have been benefiting from theincreaseincost.

• Thereisopportunityforvoluntaryinitiativespoweredbyincentiveswhileregulationisbeingthoughtfullydeveloped.

UsingCleanerFuels–Efficacy&Supply:• Amongallmeasures,thebestwaytodecreaseemissionsistouselowsulphurfuels.• Stakeholders can draw useful information from Maersk’s experience and extrapolate

whatcanhappeninthePRD.• Shipsarewillingtoreducemarineemissionsbutarereluctanttodosovoluntarily.These

stakeholderswantregulation,andsupportoncost.• Fuelpriceandavailabilityaremajorconcerns.Fuelsuppliersandusersmustcoordinate

toensurethatthereisnosuddendemand.• Fuelsuppliersneedtimetoupgradetherefineriestomeetincreasingdemand.Ittakes

approximatelyfiveyearstoinstalldesulphurizationfacilitiesatarefinery.• Fuelsuppliersneedcommunicationwithregulatorsinordertoensureadequatesupply.

Othertechnologies:• Manyport‐sideemission reductionsolutionsexist,withvarying levelsof infrastructure

and investment required, such as: LNG power sources, very effective marine dieseltechnology,particulatetraps,andEuroVengineequipmentforportequipment.

• Newterminalsshouldhaveshorepower–electricityproducedmaybecleaner.

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SMALLGROUPDISCUSSIONSFollowingtheexperts’opinions,thestakeholdersdividedintosmallergroupstodiscusstheissues that aremost relevant to them as they consider reducing their emissions, with anemphasisonexploringvoluntarymeans.Cost:• Certainincreasesincostarenotreallyanissueforcargoproducers.Thesebuyerswant

to ship fromHong Kong and other ports in the PRD for reasons other than absolutecost,suchasreliabilityandspeed.Evenso,theywill fighteverycentofprice increaseevenwhenpricescanswing30‐40%.

• Thecostofthefuelswitchfrom24nauticalmilesfromshoreisaboutUS$10perbox,thoughsomestakeholderswishedtoseefurtherestimates.

• MakingafuelswitchatberthmaycostUS$1perboxforlargershippinglines.• However, a fuel switch to LSDO is less expensive for larger shipping companies than

smallerones,duetoeconomiesofscale.• TerminalsinHongKongarealreadymoreexpensivethanothersintheregion.• Stakeholdersshouldsharetheextracost.• Anycostincreaseshouldbegraduallyimplementedthroughtime.• Any cost increase shouldbe implemented carefully to avoid threateningHongKong’s

competitiveness.Regulation:• Regulationisfundamentaltoreducingemissionsfromshippingandportactivities.• Private sector stakeholders feel that government should form regulation so that the

private sector canplan ahead.However, governmentmaywant theprivate sector totake voluntary actions to beginwith as an interimmeasure. Itmay be easier for thegovernment to legislate and promote regional change once regional operators havestatedtheirintenttouseLSDO.

• Theprivatesectorwillwanttoknowthepublicbenefitsofafuelswitch,aswellasthepolicy direction that government intends to take, when developing a voluntary fuelswitchinitiative.

• TheHongKonggovernmentmustworkwithotheradministrationsinthePRDregionsothattheregulationwillbeuniformregion‐wide.RegionalplanssuchasthePearlRiverDelta“BayArea”conceptarethebackdropforsuchagreements.

• Focusing on regulation inHongKongmaybe the best first step that this stakeholdergroupcanmake.

• Anat‐berthfuelswitchusingLSDOisanachievabletargetforHongKong.• Oncethisregulationhashappened,itwillactasanexampletootherregionalportson

waystoaddresstheseissues.• Regulation is themost effective way of guaranteeing a level playing field across the

PRD.Thisiscriticaltomaintainingports’competitiveness.• The government may be unwilling to subsidize profitable activities such as shipping,

although subsidiesmay be an effectiveway of introducing new initiatives that couldleadtopolicychange.

• Fuelswitchingisveryefficientbecauseitreducesemissionswherebunkerfuelhasthemostnegativeimpactonthepopulation.

• The Hong Kong Government should announce a medium term regulation, and inanticipationofthisregulationtheprivatesectorcouldimplementitsownvoluntaryfuelswitch.

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• Shipping companies are dependent on international regulations. Internationalregulationmeans smoother operations, particularlywhen factors such as fuel qualityandinfrastructurefixeslikethoseneededforshoresidepowerareconcerned.

• Detailssurroundingafuelswitchwillneedtobedeveloped,suchasthedistancefromshoreatwhichshipswillberequiredtoconductthefuelswitch.

Fuelsupply:• From the perspective of the fuel suppliers, a fuel switch programme for Hong Kong

alonewouldnotcreatesufficientdemandforcleanfuelsourceshere.• Withincreaseddemandwouldcomeincreasedavailability.• Fuelprovidersarehesitant tocommit tobuildingadditional refineriesor transporting

LSFOtosupplythePRDregionunlesstheshippinglinesshowthattheyarecommittedtopurchasingthefuelandareabletoestimatetheirconsumptionaheadoftime.

• Technicaldiscussionsarestill importantat thispoint.Forexample, itmaybepossibleforshipstouselowsulphurautomotivedieseloil(LSADO)insteadoflowsulphurfueloil(LSFO). If it iseasiertosupplyLSADO, itmightbemorebeneficial forship linestouseLSADO instead of LSFO. Hong Kong ferry lines have tested out switching to LSADOwithouttechnicalproblems,althoughsomeexperiencedincreasedcostsasidefromthefuelfrompurchasinglubricantsneededtousewiththeLSDAO.

• Makingtemporaryfuelswitcheswillincreasetheship’soperationalcomplexity.Smallershippingcompaniesmaynotcurrentlyhavetheengineeringexpertisetomakethefuelswitchingatsea,andwillrequiresupplementarytrainingtodothissafely.

• If demand for LSFO increases before refineries are properly equipped to supplyincreased volumes of the fuel, the cost for LSFO actuallymay increase, affecting thecompetitivenessofHongKong.

Recognition,PublicRelations&CitizenAwareness:• Thereisbusinessvalueinbeingagreenport.• Shippingcompaniesthatraiseindustrynormswillleadbyexample,andthismaybean

effective way of encouraging the shipping lines to improve their environmentalperformance.

• Pressure fromconsumersandcitizens isanotherwaytodrive improvements.Ports inthe US and Europe were able drive regulation largely because of citizen pressure inseeking justice and demanding that the government regulate and companies usecleanerfuel.HongKongcitizensneedtobefurthereducatedaboutthehealtheffectsfromshipandportactivities inorder topush theHongKonggovernment tobemoreconcernedaboutthisissue.

• A“GreenLabel”programmethatrecognizesshipsusingcleaner technologiescangivetheshiplinesavoluntaryreasontobeginfuelswitching.Thispublicrecognitionisverymotivating for shipping lines. Shipping lines with high brand consciousness may feelmorepressure toacquire sucha “Green Label” tomaintainor improvebusinesses asconsumerpressurebuildsup,ashasbeenthecaseinUSandEuropeanports.

• A “Green Label” could be rolled out by a public organization first, and througheducation, highlight the significance of the “Green Label” to the public and increasepublic’sattentiononthisissue.

• Basedonrecentsurveys,HongKongcitizensareapproachinga“tippingpoint”wheretheywillbegintodemandthegovernmentforimprovementstotheenvironment.ThismayhelpechosuccessesthatcitizensinEuropeandtheUShaveseeninimprovingairquality.

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Pollution:• The Mainland’s priority is reducing emissions from power plants and land‐based

vehiclesfirst,butreductionofshipemissionsarealreadywithintheirscope.• Currently, retailers are working on the environmental effects of their manufacturing

processes,andoncarbon.PMandSO2typicallyfallbetweenthecracks.Emissionsfromshipsareconceptuallyfartherremovedfromtheendconsumerthancarbonemissions.

• Theremaybeapublicrelationsbenefitfromafuelswitchprogramme,butthatsuchaprogrammeshouldbedonecarefullysoasnottochaseawaycustomers.

• Ultimately,thepublicwillprefercompanieswillgoodenvironmentalperformance.• Moreresearchneedstobedonetoquantify theemission improvement founddueto

fuelswitching.PLENARYDISCUSSIONThe stakeholders reconvened following the small group discussions. The following is asummaryoftheensuingdiscussion:FUELSWITCHATBERTHINHONGKONG• Shippingrepresentativesvolunteeredtodraftavoluntaryinitiativetousedistillatefuel

atberthinHongKongwaters.• TheEPDwillmove to introduce regulationwithin two years andprepare to convince

thegovernmentaboutthebenefitsitwillhaveonthepublic.• Byhavingtheprivatesectorandgovernmentworkingtotakethisnextstep,everyone

hasaroletoplay.• Working with stakeholders across the PRD will be extremely important in order to

simplify future regulationacross thePRD, andas suchnot significantlyharmingHongKong’scompetitiveness.

• WhathappensinHongKongwillbecloselyobservedbyMainlandports,andmayalsobe replicated there. Therefore some care must be taken to think through any suchregulation.

OTHERISSUESDISCUSSEDRecognitionprograms• Use “Green Labels” to, on one hand, incentivize ship lines to voluntarily begin fuel

switching, and, on the other hand, educate and incentivize consumers to presentpressuretocompanies.

Consumer&Citizeneducation• A stronger civil society aware of the public health effects associated with emissions

fromshipswouldhelpgovernmentandtheprivatesectortocleanupoperations.Ports’efforts• Regional ports are willing to work collectively to improve their environmental

performance,withtheunderstandingthatgovernmentwillcreatetheregulationinthisarea.

Shippinglines

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• The shipping lines want international regulation, or regional regulation that mimicsinternationalregulationinordertosimplifyoperations.

• Standardization is amajor concern,particular in relation to shoresidepowerand fuelstandards.

• Publicrecognitionofvoluntaryeffortsisimportant.CargoProducers• Cargoproducers arewilling to support a fuel switch, as the associatedprice increase

willbepassedon to theendconsumer.Furthermore,becauseof the largevolumeofgoodsbeingtransported,theincreasedfuelcostisnegligible.

Fuelsuppliers• Current market demand for cleaner fuel in Hong Kong is currently too small to be

profitable, but as demand increases, fuel suppliers can deliver. If shipping linesworktogether to increase demand, then the fuel suppliers would be able to support thismovement.

CONCLUSIONSThisworkshopendedwithagroundbreakingverbalcommitmentbymajorshippinglinestoworktogethertoproduceavoluntaryinitiativetousedistillatefuelatberthinHongKong.This agreementwill be drawnupover thenext fewmonths and announced to thepublicwhencompleted.While this agreement focuseson ships,other stakeholdershavea role toplay inensuringthe success of this initiative. The shipping lines arewilling to draft this initiativewith theunderstandingthatregulationfromHongKongwillfollowwithinnomorethantwoyearsofthefuelswitchcomingintoeffect.Portscanalsohelpencourageshipstousecleanerfuels,by voluntary initiatives of their own, such as “green label” recognition programmes andofferingpreferential treatmenttothesevessels,suchaspriorityberthing.Cargoproducerscanalsoincentivizeshippinglinestomakethefuelswitchbychoosingparticipatingshippinglinesoverothersthatdeclinetoparticipateinthefuelswitch.The stakeholder group surrounding the shipping and port industries is diverse. Thisworkshophasnotfocusedonthepollutantsemittedfromothersources,suchaslocalcraft(eg, tug boats, barges, and other mid‐stream operators), trucks, and cargo handlingequipment. While certain regulations and programmes are in place to reduce emissionsfromthesesources,thereisstillscopeforfurtherimprovements.Overall,thisvoluntaryinitiativeisanexcellentfirststepinimprovingHongKong’sairquality.Itwill be critical to leverage themomentumput in placeby this initiative andextend thegainsthroughoutthePRDregion.Thisinitiativewillbeinlinewithinternationalregulation,toeasethetransitiontosuchagreementswheneventuallyimplementedintheregion.HongKong is in an excellent position to use its strengths in monitoring, enforcement andimplementationtoshowregionalleadershiponthisissue.

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AppendixI:Programme&ParticipatingOrganizationsSESSION1:Introduction

2.00 Welcome:ChristineLoh,CEO,CivicExchange

SESSION2:Leadership&Challenges

2.05 Towards Healthier Shipping: Veronica Booth, Researcher, CivicExchange

2.15 MaerskLine’sFuelSwitchExperiences:TimSmith,ChiefExecutive,NorthAsia,MaerskLine

2.30 Q&A

2.40 ExpertResponses

3.00 Q&A

SESSION3:Anticipatingregulation:Buildingalevelplayingfield

3.30 Smallgroupbreakoutsession

4.15 Reportbacktoplenary

4.30 NextSteps

SESSION4:SummingUp

5.20 Summingup,thanks&close

ParticipatingOrganizationsBMTAsiaBSRCarbonWarRoom,VirginManagementChinaMerchantHoldingsEnvironmentalProtectionDepartmentExxon‐MobilHamburgSudHongKongLimitedHongKongContainerTerminalOperatorsAssociationHongkongInternationalTerminalsHongKongShipowners’AssociationHongKongUniversityofScienceandTechnologyMaerskMarineDepartmentModernTerminalsMOLAsiaLimitedNYKOOCLLi&FungGroupYantianInternationalContainerTerminals