US wants IMO rules on cleaner marine fuels in phases

The Trump administration is pushing to ease the rollout of new international rules to power commercial ships with environmentally cleaner fuels, fearing the measures will drive up costs for consumers and businesses.

The rules, set roughly a decade ago through the International Maritime Organization (IMO), an arm of the United Nations, take effect on Jan. 1, 2020, and aim to slash the amount of sulfur in marine fuel for oceangoing ships.

The International Energy Agency, which advises governments on energy policies, has warned that the measures – by banning cheap energy sources and requiring ships to run on premium fuels – could cause a surge in demand for specific fuels that ripples across commodity markets and affects prices for crude, diesel and other petroleum products.

International oil prices have recently surged above $80 a barrel and some predict $100 is possible, driven by a reinstated US ban on Iran oil exports and dwindling spare capacity among members of the Organization of the Petroleum Exporting Countries.

The new maritime demand is expected to tighten supplies further, especially for low-sulfur diesel but also in oil markets more broadly. That could raise prices for all types of fuels – from home heating oil in Pennsylvania to boating fuel in Florida and gasoline across the country – just as the presidential primaries enter full swing, analysts said.

The White House says the administration is focused on the damage rising fuel costs might have on the economy, but some administration officials concede the timing of the implementation could have political implications in an election year.

"Few things terrify an American president more than a spike in fuel prices," said Bob McNally, a former energy adviser to then-President George W. Bush. "If President Trump learns that IMO 2020 risks a big fuel oil-price spike in the winter of a presidential election, he is going to object."

A spokesman said the White House isn't seeking to withdraw from the agreement, and declined to characterize administration plans as an effort to delay implementation. Instead, the shipping and energy markets may face less disruption if the rules were phased in in the name of "experience building," he said.

Such a move is necessary to "mitigate the impact of precipitous fuel-cost increases on consumers," the White House said in an email to The Wall Street Journal. "The administration wants to ensure that IMO 2020 occurs in a manner that is not harmful to consumers and the global economy."

IMO officials were baffled by the White house stance. They said the US and Canada since 2015 have had stricter sulfur limits in place on fuels for ships calling on their coasts than those required by the IMO in 2020. Shipping and energy executives said the cost for shipowners of the cleaner fuels would amount to about $15 billion a year.

White House officials are alarmed by internal and external projections that suggest the global economic costs could surpass $100 billion, with the US portion of that potentially rising to more than $10 billion.

These analyses remain estimates, and officials say there is no certainty how much costs will rise. But what is clear is that shippers are already planning to pass potentially billions of dollars in compliance costs to consumers.

"The US is ready to accept some degree of economic pain" to achieve its goals against Iran, one US government official said. "But the implementation of IMO 2020 [standards on marine fuel] complicates matters." (WSJ)