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Bulletin 9: Covid-19 & Impact of the Environment on the Superyacht Industry

Insights / 23-07-2020

The COVID-19 pandemic has evidenced the inextricable and delicate connection between the environment, our health and the economy. This is of paramount importance to the superyacht industry, as the enjoyment of clean seas and of unspoilt nature is the essence of the yachting experience. Marine environmental concerns are currently being addressed by international conventions and EU legislation, and there is little doubt that both yards and yacht-owners will be increasingly required to combine luxury with sustainability in future.

As a result of the lockdown and travel restrictions imposed by governments across the globe, air pollution has drastically decreased in many parts of the world and we have seen a resurgence of wildlife. From India to Venice, the more positive side of the pandemic has been in the shape of clearer waters, blue skies and wild animals exploring urban areas (though dolphins in Venice is unfortunately a myth). While it is at this stage uncertain whether the positive effects on the environment due to the response to the coronavirus pandemic will have a lasting impact, a sustainable transformation of the marine industry is already underway and the COVID-19 pandemic might accelerate this process.

One of the 17 Sustainable Development Goals (SDG) identified by the United Nations (UN) to be achieved by 2030 is the sustainable use of the oceans, seas and marine resources (SDG 14). Given the particular concern on the status of the marine environment, the UN has further proclaimed the “Decade of Ocean Science for Sustainable Development” (2021 – 2030) to support efforts to reverse the cycle of decline in ocean health. As the UN specialised agency for marine transport, the International Maritime Organisation (IMO) has an integral role in meeting these targets, as well as other SDGs (for example SDG 13 on climate action and SDGs 6 and 9, aiming at a sustainable society).

The industry as a whole is under great pressure to comply with IMO’s progressively tightening emission standards set out in the revised Annex VI to the International Convention for the Prevention of Pollution from Ships (MARPOL), revising the limits to sulphur oxides (SOx) and nitrous oxides (NOx) emissions in particular. With a view to taking action to meet the objectives of the Paris Agreement on climate change, the IMO has set the target of reducing annual greenhouse emissions by at least 50% and Co2 by 70% compared to 2008, by 2050.

With reference to SOx and the coming into effect on 1 January 2020 of the reduced global sulphur cap on marine fuels set out in the revised Regulation 14 of MARPOL Annex VI (commonly referred as “IMO 2020”), in practice affecting the larger superyachts consuming fuel oil with a higher sulphur content, we have already seen clients required to consider greener fuel options and find technological solutions to comply with the new cap.

Regulation 13 of MARPOL Annex VI governs NOx emissions, by setting out the allowable limits in three progressively stricter Tiers. Tier III currently applies to the operation of marine diesel engines in larger superyachts cruising in existing NOx Emission Control Areas (“ECAs”) such as the US Caribbean but not presently the Mediterranean. From 1 January 2021, Tier III will extend to yachts below 500gt and above 24 meters built thereafter and those undergoing a refit where a diesel engine is replaced by a different one or uprated. The use of NOx-reducing devices such as the Selective Catalytic Reduction (SCR) system appears to be the most popular option to make superyachts compliant with the regulations. From a practical perspective, the main challenge currently faced by the industry is to find the physical space on board sub-500gt yachts in which to install a NOx reducing system. Even though innovations are being developed in this context, the effectiveness will depend on various factors and the technology has not been extensively tested on these smaller superyachts as yet. Given the structural interconnection between these systems and the operation of the engine, any failure in the system is likely to have a significant impact on the performance of a charter. Owners would therefore be well advised to fully test such systems before letting the yacht out on charter.

More generally, the “Ocean Stewardship 2030” report released by the UN Global Compact on 26 May this year, provides a roadmap of what will be expected by policymakers and industry players in the next decade to deliver SDG 14. This includes decarbonisation, which is one of the five focus areas identified by the report. To set the industry on a path to achieving the 2030 and 2050 goals, the IMO is considering regulations addressing design efficiency and operational requirements, which are expected to enter into force by 2023, and also a shift to carbon neutral fuels. The report further recommends setting up a global research fund within the framework of the IMO, such as for example the proposed International Maritime Research and Development Board (IMRB). Ending plastic waste entering the ocean is a further essential objective according to the report.

The EU is moving in the same direction, aiming to be climate-neutral by 2050 further to the European Green Deal announced last December. The Green Deal includes, as a key pillar, the creation of a full ‘circular economy’ – an economic system where the value of products, materials and resources is maintained in the economy for as long as possible and the generation of waste is minimised. More particularly, we note from the implementation tracking table to the “New Circular Economy Action Plan” adopted by the European Commission in March 2020, that in 2021 it is planned to review the use of certain hazardous substances in electrical and electronic equipment, the rules on end-of-life vehicles, the introduction of mandatory requirements on recycled plastic content and plastic waste reduction measures for key products such as packaging. Further, in 2022 it is also planned to review the rules on proper treatment of waste oils. Given that a significant number of the leading yards and superyacht charter companies are based in Europe, we expect that the impact of these measures on the industry will be significant; the creation of a “circular boating economy” will relate to the whole life cycle of the yacht, from design, to yachtbuilding, maintenance, reuse of materials, waste management and recycling.

The EU Blue Economy Report 2020 published in June, also shows how the blue economy is linked to the European Green Deal and highlights both the need to preserve marine ecosystems, and identifies the EU sources of funding in this context (namely BlueInvest, EIB and ERDF). We note that BlueInvest grants will support projects that “accelerate innovation in the blue economy and [..] involve in particular the sustainable use of marine resources for innovative and/or circular economic activities and contribute to healthy oceans and Europe’s ‘Green Deal’ ”. The Blue Economy Report includes (mega) yachts in its review of the shipbuilding sector, passenger transport and most clearly as part of what it calls ‘tourist navigation’ (‘luxury’ and ‘leisure’) and ‘recreational boating’ (even touching on the harmonisation of VAT rules).

In light of the rising environmental concerns, there is no doubt that the industry will be under increasing pressure to become more sustainable and that meeting this challenge will be integral to ensuring the future of the superyacht industry. Even though the industry players will be under extreme pressure to adapt their business models as a result, there may also be scope for turning this urgent challenge into an opportunity. For example, staying ahead of the curve by accessing some of the available EU funds, or by setting up public-private partnership initiatives within the framework of the IMO, to develop new sustainable and environmentally friendly technologies and systems. We also note that some incentive schemes promoting green shipping are already being adopted by the merchant shipping industry more generally and ports in particular (ie the Environmental Ship Index, Clean Shipping Index, GHG Emissions Rating, the Green Award), incentivising for example the reduction of emissions below the statutory minimum. A development of similar schemes by the marinas specific to the yacht industry might further support this green transition.

Duncan Bateson

Duncan Bateson Partner

Alberta Longanesi Cattani

Alberta Longanesi Cattani Senior Associate

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Environmental issues / Superyachts