Hong Kong: Hong Kong Pushes China To Co-Establish Emissions Control Area

Last Updated: 22 May 2014
Article by John Wang and Lucas Feng

As reported by 21CBH on 18 February 2014, Hong Kong officials visited Beijing lobbying on the formation of the Pearl River Delta Emissions Control Area (ECA). The ECA was proposed as early as late 2012, but no material step has been made since then. It seems that the ECA may not be established in a short time, and further issues needed to be worked out through cooperation by both sides.

Only a few days after 2014 Chinese new year's holiday, Hong Kong Environment Department officials flied to Beijing despite the severe smog there to meet senior officials of PRC Ministry of Communication. The visit was aimed at establishing the first Asian ECA, the Pearl River Delta ECA. The proposed ECA will cover the Pearl River Delta, including Hong Kong and its nearby area of Canton. Upon establishment, ships entering into the area must switch to low sulfur fuel.

Back to 22 October 2012, Hong Kong environment undersecretary Christine Loh Kung-wai had expressed that the HK government was determined to set up an emissions control area for ships in the Pearl River Delta. It would be the first such region in Asia and the third in the world. According to the figures released by Civic Exchange, a think tank founded by Loh, within the Pearl River Delta region Hongkongers account for 75 per cent of deaths attributed to sulphur dioxide in ships' emissions. The analysis showed that setting up an ECA could reduce those deaths by 91 per cent. Loh furthered that the government was already discussing with the Guangdong government regarding the use of eco-friendly fuel in port.

About three months later on 16 January 2013, the chief executive of Hong Kong, C Y Leung had pledged to introduce "green transport" in the city on his maiden policy addressed by introducing a number of environmental protection measures. Leung stressed the importance of improving air quality through both roadside and ocean shipping. "The emissions of ocean-going vessels at berth accounted for about 40% of their total emissions within Hong Kong waters," Leung warned. He furthered Hong Kong was "stepping up our efforts with the Guangdong Provincial Government in exploring the feasibility of requiring ocean-going vessels to switch to low-sulphur diesel while berthing in Pearl River Delta ports".

Leung's green shipping policy was welcomed by both the Mainland and Hong Kong side. An official from neighbouring Shenzhen Port told a journalist from Sinoship News, "We have been making efforts in energy conservation and emissions reduction. We have updated some port facilities into more eco-friendly ones. The ECA would require a joint effort, and we are looking forward to it." An official from Guangzhou Port commented, "Although we have not got any notices from the government, this is a good thing for both sides. Building a green port is also our goal, and we have the responsibility and obligation to respond to the government's call to build a green port, and to establish a low-carbon economy".

Although Leung's green shipping policy was welcomed by some stakeholders, the Hong Kong officials' recent Beijing trip shows that certain issues are still pending solution. Three challenges can be expected for setting up the ECA. Firstly, the issue is whether the bunker suppliers can and would like to supply low-sulphur bunker. The second issue is regarding the shipowners' attitude towards the green bunker move. Thirdly, it is required to evaluate the impact of ECA upon competitiveness of ports within Pearl River Delta.

Regarding the first issue, oil import and crude refining within PRC are controlled by three major state-owned oil companies, i.e. Petro China, Sinopec and CNOOC, and marine bunker supply is dominated, if not monopolized, by CHIMBUSCO, a joint venture owned by Petro China and COSCO. It seems that further time is needed for these bunker suppliers to switch to low-sulphur supply.

With respect to the shipowner's attitude, it seems that owners, especially owners of Mainland coastal vessels, may be reluctant to accept the fuel cost increase which would be brought up by establishing the ECA. According to the test held by the Hong Kong environment department, fuel cost would rise by 0.93 HK dollar per liter if vessels use bunker containing 0.005% sulphur instead of burning bunker containing 0.5% sulphur. Regarding the cost rise, the Hong Kong environment department argued that the cost will reduce with the expansion of using of low-sulphur bunker for the reason of economy of scale, and the FOB Singapore price difference between the two bunker was only 0.02 HK dollar per liter. However, due to the oil industry is tightly controlled by Chinese state-owned companies, Mainland vessel owners can hardly enjoy the economy of scale brought up by importing cheaper Singapore's product. Thus, within a short time, it can be expected Mainland owners may be not willing to pay for the green bill.

Thirdly, the fuel cost rise may give a disadvantage to ports within Pearl River Delta and may also damage the competitiveness of corporations using these ports. Industries may be lured to transfer to places outside the ECA and thus damaged the local employment.

Despite the obstacles underway, on 16 January 2014 the Hong Kong government has vowed to mandate oceangoing vessels' switch to low-sulphur fuel when berthing at Hong Kong from 2015 and Hong Kong became the first Asian port to take such initiative. However, such initiative can receive little fruit if the Mainland did not take steps at the same time. During the last decade, Hong Kong has been declining as the shipping hub of South China and increasing vessels switched to neighboring Yantian port of Shenzhen which is 13 km to Hong Kong but only charges 1/3 of Hong Kong's port handling fees. Back to the Mainland, "We are to declare war on pollution, such as what we did on poverty", Premier Li Keqiang said on 5 March 2014 at the opening of the annual meeting of parliament. The air pollution and smog have long been seen on the headlines of media. It is interesting to see how the hot-button social issue will be solved by the two sides. It can be expected that co-establishing the first Asian ECA will be a powerful weapon in Premier Li's war against pollution.

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