# June 10, 2010

**Ref. No. [UMCES]CBL 10** 

**- 130** 

**MERC Ballast Water Economics Discussion Paper No.**  **2**



# Preliminary Overview of Global

**Ballast Water Treatment Markets** 

**Prepared by: Dennis M. King,**  **Mark Riggio and Patrick T. Hagan Maritime Environmental Resource Center** 

### 1 

# Introduction

**After more than a decade of technical analysis and political debate at the national and international level, legislation by the International Maritime Organization (IMO) to require**  **ballast water management on ships is coming closer to ratification. Propos ed rulemaking by the**  **United States Coast Guard (USCG), which largely mirrors the IMO requirements, was published on August 28, 2009, adding to the momentum for implementation of ballast water discharge**  **standards which are expected to be met by installing**  **o nboard ballast water**  **treatment systems that**

**operate during ballasting, during deballasting, during transit, or in some combination.**  **1**



### The IMO convention is scheduled to take effect 12 months after ratification by 30 countries **representing 35% of the world’s commercial tonnage. As of Oc**  **tober 31, 2009, 18 countries had ratified the convention, representing 15.36% of the world’s shipping t**  **onnage. 2**  

### Ratification by **Panama, with more than 20% of the global shipping tonnage, would be sufficient to meet the 35% requirement, and a number of European Union countries would be expected to follow suit.** 

**Because of delay in ratification by a sufficien t number of countries, IMO granted a delay for the**  **first set of ships subject to the regulations, those ships constructed in 2009 or later with a ballast capacity of less than 5000m**  **3** 

### . These ships now have until the vessel’s second annual survey, but

**no la ter than December 31, 2011, to comply.**  **3** 

### But

**, by 2016, all ships subject to the regulations**  **will be required to have operational ballast water treatment systems (BWTS) on board.**

**For planning purposes it would be useful for industry leaders and governments in IMO member**  **nations to have preliminary answers to questions about :**  **the potential**  **size and value**  **of the global** 

**market s for BWTS**  **; how they are likely to develop after**  **the ratification and implementation of** 

**IMO ballast water standards ;**  **and how they will be**  **affected by the way IMO and U.S. ballast**

**water stand ards are monitored and enforced.** 

**To develop preliminary answers to these questions we first examined the expected cost of**  **purchasing and installing various types of BWTS on representative ships in eight ship type/size**  **categories that make up most of the global merchant fleet that will be affected by IMO ballast water regulations. That research and preliminary cost estimates are presented in a 2009**  **University of Maryland, Maritime Environmental Resource Ce nter (**  **MERC )**  **discussion paper titled: “A Preliminary Analysis of Ballast Water Treatment Costs” which is available on** 

**- line at**  **http://www.maritime**

**- enviro.org/reports/Reports.html**  **/.**

**We then examined Lloyds global shipping fleet data as of**  **November 9, 2009 to**  **determine the size, type, flag, and age of the vessels in the global fleet that are likely to install BWTS to meet**  **IMO ballast water discharge standards. With full compliance, we estimate that more than 68,000** 

**vessels in the global merchant fleet will**  **even tually install**  **on**

**- board BWTS.**  **D epending on a** 

**number of factors that are still uncertain t**  **his estimate of the relevant global fleet may**  **result in high or low**  **estimate s in the corresponding**  **size of the global**  **BWTS market**

**. For purposes of our**  **analysis, f or**  **example, we assume that all vessels will comply**  **regardless of the ir**  **age**

**. However,**  **it is likely that some older vessels will either be retired, rerouted so that they are not subject to**

**BW regulations, or simply not comply.**  **This would make our estimate of t**  **he relevant fleet high. On the other hand, w**  **e also assume that only**  **one unit will be installed per ship in the relevant global fleet**  **when, in fact, some larger vessels may require multiple units.**  **This would make the**

### 2 **market for BWTS larger than what is re flected by**  **our estimate of the number of ships**  **complying. And while we in**  **clude more than 8 ,000 fishing vessels under 1000 DWT, we assume** 

**that the se**  **smaller vessels in this fleet**  **are likely to comply through use of less expensive products** 

**that are still to**  **be determined and approved and are not considered**  **in our analysis of BWTS.**

**Even with these caveats, the number of ships in the affected global fleet represents**  **a massive global market f**  **or BWTS, perhaps 10,000 units per year (**  **or 30 installations per day)**

**. This**  **means that if the IMO “D** 

**- 2” regulation timetable is to be met** 

**, the capacity to produce and install**  **BWTS will need to grow enormously between now and 2016. Of course, once existing ships are in compliance, hopefully by 2017 or so, only newly built sh**  **ips will require the installation of BWTS, so global**  **BWTS markets will then shrink to around 2,000 ships per year (**  **five or so**  **installations per day)**

**.**

**In anticipation of this large emerging market for BWTS**

**, many entrepreneurs and potential** 

**vendors have deve loped a range of technologies that could serve the global BWTS market. As**  **of July 2009, however, only eight**  **BWTS had been fully certified by the IMO as achieving levels of efficacy at removing or killing organisms that will meet IMO ballast water discharg**  **e standards. We contacted technology vendors whose systems had been approved by IMO to**  **obtain information about the cost of purchasing, installing and operating various BWTS and to help understand what types and sizes of ships and on which shipping routes**  **they are most likely to be used. Based on information we collected about the range of costs and the suitability of**  **these systems**

**, we estimate that the value of the global market for purchasing and installing** 

**BWTS between 2010 and 2016 will be in the range**  **of US$43 to**  **$ 7**  **4 billion**

**.**

**Ballast water treatment vendors will of course be competing with each other in this new global market. However, they will also be competing against another factor: ship owners and operators**  **who choose not to comply with regulati ons, or who use various legal, political, and diplomatic**  **tools to delay compliance. Because the emerging global markets for BWT S will be regulation** 

**** **driven, the market information in this report includes descriptions of some**  **significant**

**enforcement issues that will arise as**  **the ballast water convention comes into force between now**

**and 2016 and will affect implementation and compliance.**  **How these issues are addressed by** 

**IMO member nations will have an enormous influence**  **on the supply, demand, and price**  **of**

**BWTS**

**, and on the effectiveness of U.S. and IMO ballast water discharge restrictions.** 

**The paper has four sections.**  **Section 1 provides a preliminary profile of the global fleet of ships that is likely to make up the market for**  **BWTS. Section 2 summarizes our analysis of the cost of acquiring and installing BWTS aboard “typical” ships in a var**  **iety of ship sizes and classes and uses these representative costs and the number of ships in each ship class and the IM**  **O tiered compliance**  **schedule. In Section 3, we develop a preliminary assessment of the value and**  **pattern of development of global BWTS markets. Section 4**  **describes some of the monitoring and enforcement issues that will strongly influence when and how global BWTS markets w**  **ill**

**evolve.**

### 3 

# Part 1: The Potentially Affected Global Fleet

**To understand the potential global demand for ballast water treatment systems, we queried the Lloyds database of global shipping, most recently on**  **November 9, 2009**

**, and examined data for**  **flag of vessel, ship size (in deadweight tonnage), ship type, and**  **ship age.**



## Vessel Flag Characteristics

**We reviewed the Lloyds**  **world merchant fleet data to understand the flag characteristics of the fleet, both by size in deadweight tonnage, and by number of ships**  **. Dea dweight tonnage is**  **significant for implementation of the IMO convention, which is scheduled to take effect 12 months after ratification by 30 countries representing 35% of the world’s commercial tonnage.** 

**As of Oc**  **tober 31, 2009, 18 countries had rati fied the convention, representing 15.36% of the**  **world’s shipping tonnage. 4**  

### Ratification by Panama, with more than 20% of the global shipping **tonnage, would be sufficient to meet the 35% requirement, and a number of European Union countries would be expect**  **ed to follow suit.**

**To illustrate the status of ratification of the convention, we first sorted the data by deadweight tonnage for the total world’s commercial fleet (not just for those types of vessels we consider to**  **be subject to the IMO ballast water tre atment regulations). (See Table 1a for a list of the top 35**  **countries by deadweight tonnage.) We also sorted the data by number of merchant ships to demonstrate the potential market for ballast water treatment technologies represented by the top** 

**35 count ries as measured by number of ships** 

**. (See Table 1b.) Note that the United States, for**  **instance, has a much lower number of ships in the latter table. This is largely because we have excluded smaller fishing vessels (less than 300 gross tons) from our ana**  **lysis.**

### 4 **Table 1a**  **. Top 35 Flag Countries, by Deadweight Tonnage . Countries that have ratified the** 

**Ballast Water Convention as of October 31, 2009**  **are highlighted in bold.**

**Flag Flag % by DWT**  **Number of Ships %**  **Ships of World Fleet** 

**Panama 22.52%**  **8,881 7.87%** 

**Liberia 10.49%**  **2,565 2.27%** 

**Marshall Islands 5.93%**  **1,541 1.37%** 

**Hong Kong 5.47%**  **1,487 1.32%** 

**Greece 5.36%**  **1,682 1.49%** 

**Bahamas 5.29%**  **1,566 1.39%** 
**Singapore 5.07%**  **2,786 2.47%** 

**Malta 4.22%**  **1,639 1.45%** 

**China 3.53%**  **4,347 3.85%** 
**Cyprus 2.46%**  **1,109 0.98%** 
**Korea (South) 1.73%**  **3,087 2.74%** 
**Norwegian International Register 1.50%**  **579 0.51%** 
**Germany 1.46%**  **1,111 0.98%** 
**United Kingdom 1.43%**  **2,189 1.94%** 

**United States of America 1.39%**  **8,257 7.32%** 
**Italy 1.27%**  **1,812 1.61%** 

**Japan 1.26%**  **6,555 5.81%** 

**Isle of Man 1.17%**  **453 0.40%** 

**India 1.15%**  **1,368 1.21%** 
**Danish International Register 1.02%**  **500 0.44%** 
**Antigua 1.01%**  **1,231 1.09%** 

**Bermuda 0.87%**  **197 0.17%** 
**Malaysia 0.84%**  **1,375 1.22%** 

**Unknown 0.81%**  **5,457 4.84%** 

**Indonesia 0.64%**  **5,100 4.52%** 

**France (FIS) 0.62%**  **787 0.70%** 

**Netherlands 0.62%**  **1,746 1.55%** 
**Turkey 0.62%**  **1,424 1.26%** 

**Russia 0.60%**  **3,682 3.26%** 
**Philippines 0.57%**  **2,335 2.07%** 

**St Vincent 0.57%**  **1,143 1.01%** 
**Belgium 0.56%**  **373 0.33%** 

**Vietnam 0.43%**  **1,439 1.28%** 
**Cayman Islands 0.32%**  **611 0.54%** 

**Taiwan 0.32%**  **663 0.59%** 

**TOTAL 93.11%**  **81,077 71.86%** 

### 5 **Table 1b**  **. Top 35 Flag Countries, by Number of**  **Merchant Ships** 

**.**

**Flag Number**  **of Ships Flag % of World Fleet**  **Subject to Ballast Water Treatment Regulations**  **Flag % by DWT** 

**Panama 7,484**  **10.98% 23.10%** 

**Japan 4,376**  **6.42% 1.29%** 

**China 3,167**  **4.64% 3.46%** 

**Unknown 3,068**  **4.50% 0.64%** 

**Indonesia 2,829**  **4.15% 0.62%** 

**Russia 2,525**  **3.70% 0.56%** 

**Liberia 2,292**  **3.36% 10.68%** 
**Korea (South) 1,905**  **2.79% 1.79%** 
**Singapore 1,793**  **2.63% 5.13%** 
**Philippines 1,661**  **2.44% 0.59%** 

**Malta 1,530**  **2.24% 4.41%** 

**Hong Kong 1,401**  **2.05% 5.70%** 

**Greece 1,326**  **1.94% 5.63%** 

**Bahamas 1,289**  **1.89% 4.87%** 

**Marshall Islands 1,254**  **1.84% 6.02%** 

**Vietnam 1,252**  **1.84% 0.40%** 

**United States of America 1,239**  **1.82% 1.16%** 
**Turkey 1,177**  **1.73% 0.65%** 
**Antigua 1,112**  **1.63% 0.99%** 

**Netherlands 1,106**  **1.62% 0.57%** 
**Italy 1,054**  **1.55% 1.32%** 

**Norway 979**  **1.44% 0.15%** 
**United Kingdom 957**  **1.40% 1.38%** 
**Cyprus 943**  **1.38% 2.55%** 

**Cambodia 832**  **1.22% 0.21%** 

**Thailand 730**  **1.07% 0.32%** 
**Germany 719**  **1.05% 1.52%** 
**Malaysia 717**  **1.05% 0.75%** 

**St Vincent 687**  **1.01% 0.52%** 

**Honduras 659**  **0.97% 0.06%** 

**India 621**  **0.91% 1.16%** 
**Spain 557**  **0.82% 0.05%** 
**Norwegian International Register 494**  **0.72% 1.53%** 

**Canada 470**  **0.69% 0.26%** 

**Sweden 389**  **0.57% 0.19%** 

**TOTAL 54,594**  **80.06% 90.23%** 

### 6 

## Vessel **Type s in Potentially Affected Global Fleet** 

**We analyzed data by type of ship for “delivered” ships listed in the Lloyds Fairplay database, and our analysis determined that the sub** 

**- types listed in Tables 2a and 2b would be subject to**  **IMO regulations for ballast water treatment. In the case of fishin g vessels, we included only**  **vessels of 300 gross tons or more, and we excluded other sub** 

**- types we determined were not**  **carrying ballast water or would only be operating within one captain of the port zone (COPTZ). We then estimated ballast capacity for dif**  **ferent sized vessels in each sub**

**- type fleet, using**  **information for actual ships listed in the American Bureau of Shipping database as the basis for**

**our estimates.**

**Our analysis indicates that more than 21,000 ships will be subject to the first round of IMO retrofit requirements, which includes those ships with ballast water capacity of 1500** 

**- 5000 m3.**  **These ships will be required to have ballast water treatment starting in**  **2014. 5**  

### Of those ships, the **vast majority**

**— more than 16,000** 

**— are general cargo ships.**  **(See Table 2a**  **.) Of U.S.**

**- flagged**  **vessels, we estimate that only**  **183 ships will be in this first category of vessels required to retrofit by 2014, with 131 of those ships either being general cargo or refrigerated cargo ships.**  **(See Table 2b.)** 

**About two**

**- thi**  **rds of the demand for installation of technology to meet IMO D2 Standard will be associated with meeting the**  **2016 deadline for ships with less than 1500 m3 capac ity (more than**  **16,000 ships) or with more than 5000 m3 capacity (more than 45,000 ships).** 

### 7 **Tabl e 2a.**  **Number of Vessels by Vessel Type**  **and Estimated Ballast Capacity** 

**Sub Type Count**  **Ballast Capacity**

**of <1500m3 Ballast**  **Capacity of**

**1500**

**- 5000m3**  **Ballast Capacity**

**of >5000m3**

**Barges 6**  **574 0**  **0 574** 

**Bulk Carriers 8,110**  **0 0**  **8,110**

**Container Ship 4,724**  **0 0**  **4,724**

**Crude Oil Tanker 2,160**  **0 0**  **2,160**

**Chemical Tanker 1,474**  **0 0**  **1,474**

**Chemical/Oil Products Tanker 9,323**  **0 0**  **9,323**

**General Cargo Ship 18,187**  **0 16,535**  **1,652**

**Fishing Vessels 8,001**  **7,970 30**  **1**

**LNG Tanker 327**  **0 0**  **327**

**LPG Tanker 1,194**  **540 0**  **654**

**OSVs 2,000**  **1,923 0**  **77**

**Passenger (Cruise) Ship 515**  **0 479**  **36**
**Passenger**

**- Passenger/Cargo (Ro** 

**- Ro)**  **3,359 3,324**  **35 0** 

**Passenger Ship 2,942**  **2,941 1**  **0**

**Refrigerated Cargo Ship 2,542**  **0 2,538**  **4**

**Ro**

**- Ro Cargo Ship**  **1,873 0**  **1,700 173** 

**Livestock Carrier 101**  **0 90**  **11**

**Vehicle Carrier**  **784 0**  **196 588** 

**TOTAL 68,190**  **16,698 21,604**  **29,888**

### 8 **Table 2b. Number of U.S. flag Vessels by Vessel**  **Type and**  **Estimated Ballast Capacity**

**Sub Type Count**  **Ballast Capacity of** 

**<1500m3 Ballast**  **Capacity of**

**1500**

**- 5000m3**  **Ballast Capacity of** 

**>5000m3**

**Barges 9**  **0 0**  **9**

**Bulk Carriers 73**  **0 0**  **73**

**Container Ship 87**  **0 0**  **87**

**Crude Oil Tanker 17**  **0 0**  **17**

**Chemical Tanker 5**  **0 0**  **5**

**Chemical/Oil Products Tanker 100**  **0 0**  **100**

**General Cargo Ship 89**  **0 62**  **27**

**Fishing Vessels 334**  **332 2**  **0**

**LNG Tanker 0**  **0 0**  **0**

**LPG Tanker 0**  **0 0**  **0**

**OSVs 121**  **103 0**  **18**

**Passenger (Cruise) Ship 31**  **0 31**  **0**

**Passenger**

**- Passenger/Cargo (Ro** 

**- Ro)**  **104 103**  **1 0** 

**Passenger Ship 114**  **113 1**  **0**

**Refrigerated Cargo Ship 71**  **0 71**  **0**

**Ro**

**- Ro Cargo Ship**  **62 0**  **15 47** 

**Livestock Carrier 0**  **0 0**  **0**

**Vehicle Carrier 22**  **0 0**  **22**

**TOTAL 1239**  **651 183**  **405**



## Vessel Size

**We further sorted the Lloyds data by deadweight tonnage to develop**  **a more comprehensive view** 

**of the various**

**- sized vessels in what we consider to be the world merchant fleet subject to ballast** 

**** **water regulations (Table 3)** 

**. Again, in the case of fishing vessels, only those of 300 gross tons or**  **more were included in our analysis. More than 92% of our estimated 8,001 fishing vessels subject to IMO ballast water regulations are less than 1000 DWT. Given the slim operating**  **prof it margins of smaller fishing vessels** 

**, it is unlikely that they will be able to afford the types of** 

**BWTS that are the focus of our research**

**, or will have room aboard to accommodate them**  **. Our assumption is that the**  **se smaller fishing vessels will need to fi**  **nd some other way to comply with IMO ballast water regulations.** 

### 9 **Table 3. Number of Vessels by Vessel**  **Type and**  **Deadweight Tonnage.**

**Vessel Type World Fleet DWT** 

**0**

**– 999**  **1,000**

**- 9,999**  **10,000**

**- 29,999**  **30,000**

**- 49,999**  **50,000**

**- 69,999**  **>=70,000 Total** 

**Barges 274**  **275 15**  **8 2**  **574**

**Bulk Carriers 392**  **878 1703**  **1743 1264**  **2130 8110** 

**Container Ships 6**  **788 1628**  **1013 812**  **477 4724** 

**Crude Oil Tankers 16**  **112 37**  **163 120**  **1712 2160** 

**Chemical Tankers 423**  **806 164**  **79 1**  **1 1474** 

**Chemical/Oil Products Tankers 1665**  **4621 1206**  **1249 245**  **337 9323** 

**General Cargo Ships 5921**  **10612 1409**  **223 22**  **0 18187** 

**Fishing Vessels 7395**  **604 2**  **0 0**  **0 8001** 

**LNG Tankers 1**  **5 12**  **11 36**  **262 327** 

**LPG Tankers 193**  **678 154**  **71 98**  **0 1194** 

**OSVs 600**  **1399 1**  **0 0**  **0 2000** 

**Passenger (Cruise) Ships 243**  **227 45**  **0 0**  **0 515** 

**Passenger**

**- Passenger/Cargo (Ro** 

**- Ro) Ships**  **2327 997**  **35 0**  **0 0**  **3359**

**Passenger Ships 2883**  **58 1**  **0 0**  **0 2942** 

**Refrigerated Cargo Ships 832**  **1453 254**  **3 0**  **0 2542** 

**Ro**

**- Ro Cargo Ships**  **840 726**  **292 15**  **0 0**  **1873**

**Livestock Carriers 22**  **68 9**  **2 0**  **0 101** 

**Vehicle Carriers 13**  **183 558**  **28 2**  **0 784** 

**TOTAL 24,046**  **24,490 7,525**  **4,608 2,600**  **4,921 68,190** 



## Age of the Merchant Fleet

**We queried the Lloyds merchant flee t data by age of ship, as well. Table 4 shows the world fleet**  **by vessel type and age. The general cargo ship and fishing vessel fleets are the oldest, which suggests they would be less likely to adopt the treatment technologies approved by IMO to date.**  **More than half of the ships comprising these two sub** 

**- types are 25 years or older.** 

**The table includes 2009 new**

**- builds (1,804 ships) listed in the database. Because of delay in**  **ratification by a sufficient number of countries, IMO granted a delay for the first set of ships**  **subject to the regulations, those ships constructed in 2009 or later with a ballast capacity of less**

**than 5000m 3**  

### . These ships now have until the vessel’s second survey, but no later than December **31, 2011 to comply. However, more than 60% of the new vessels under construction in 2009 are**  **bulk carriers, container ships, or tankers that we estimate to have greater than 5000 m3 ballast water capacity, which do not require treatment technology for new builds until 2012.** 

### 10 **Table 4** 

**. Number of Vessels by Vessel**  **Type and**  **Vessel Age**

**Vessel Type 0** 

**- 4**  **years 5** 

**- 14**  **years 15** 

**- 24**  **years 25+**  **years 2009 Builds**  **Total**

**# %**  **# %**  **# %**  **# %**  **# %**  **# %** 
**Barges 27**  **0.3% 30**  **0.2% 125**  **0.8% 387**  **1.4% 5**  **0.3% 574**  **0.8%**

**Bulk Carriers 1592**  **15.7% 2328**  **16.5% 1894**  **12.3% 1938**  **7.2% 358**  **19.8% 8110**  **11.9% Container Ships**  **1650 16.3%**  **1881 13.3%**  **675 4.4%**  **323 1.2%**  **195 10.8%**  **4724 6.9%** 

**Crude Oil Tankers 624**  **6.2% 788**  **5.6% 473**  **3.1% 127**  **0.5% 148**  **8.2% 2160**  **3.2%**

**Chemical Tankers 281**  **2.8% 278**  **2.0% 501**  **3.3% 338**  **1.3% 76**  **4.2% 1474**  **2.2%**

**Chemical/Oil Products Tankers 2088**  **20.7% 1781**  **12.6% 1748**  **11.4% 3283**  **12.2% 423**  **23.4% 9323**  **13.7% General Cargo Ships**  **1705 16.9%**  **2692 19.1%**  **3779 24.6%**  **9794 36.5%**  **217 12.0%**  **18187 26.7%**  **Fishing Vessels 283**  **2.8% 1119**  **7.9% 2454**  **16.0% 4132**  **15.4% 13**  **0.7% 8001**  **11.7%**

**LNG Tankers 18**  **0.2% 78**  **0.6% 151**  **1.0% 52**  **0.2% 28**  **1.6% 327**  **0.5%**

**LPG Tankers 217**  **2.1% 322**  **2.3% 289**  **1.9% 320**  **1.2% 46**  **2.5% 1194**  **1.8%**

**OSVs 491**  **4.9% 245**  **1.7% 220**  **1.4% 889**  **3.3% 155**  **8.6% 2000**  **2.9% Passenger (Cruise) Ships**  **58 0.6%**  **157 1.1%**  **109 0.7%**  **183 0.7%**  **8 0.4%**  **515 0.8%** 
**Passenger**

**- Passenger/Cargo (Ro** 

**- Ro)**  **287 2.8%**  **674 4.8%**  **670 4.4%**  **1702 6.3%**  **26 1.4%**  **3359 4.9%**  **Passenger Ships 222**  **2.2% 788**  **5.6% 776**  **5.1% 1128**  **4.2% 28**  **1.6% 2942**  **4.3% Refrigerated Cargo Ships**  **62 0.6%**  **298 2.1%**  **945 6.2%**  **1232 4.6%**  **5 0.3%**  **2542 3.7%** 

**Ro**

**- Ro Cargo Ships**  **283 2.8%**  **441 3.1%**  **333 2.2%**  **785 2.9%**  **31 1.7%**  **1873 2.7%** 

**Livestock Carriers 0**  **0.0% 7**  **0.0% 6**  **0.0% 88**  **0.3% 0**  **0.0% 101**  **0.1%**

**Vehicle Carriers 221**  **2.2% 213**  **1.5% 191**  **1.2% 117**  **0.4% 42**  **2.3% 784**  **1.1%**

**TOTAL 10,109**  **100.0% 14,120**  **100.0% 15** 

**, 339**  **100.0% 26,818**  **100.0% 1,804**  **100.0% 68,190**  **100.0%**

### 11 

# Section 2: BWTS Equipment and Installation Costs

**In order to assess and compare the cost of various ballast water treatment (BWT) systems, we contacted by email and telephone the technology vendors whose systems had been approved by**  **IMO as of May 2009, and conducted follow**

**- up telephone interviews**  **and ema il exchanges**  **with industry representatives.** 

**The following types of systems were evaluated:**

 **Filtration and UV**

 **Filtration and Chemical**

 **Deoxygenation and Cavitation**

 **Electrolysis and Electrochlorination**

 **Filtration, Deoxygenation and Cavitation**

**We examined the costs associated with each of these systems installed and operated aboard ships**  **in the following types/**  **size categories:** 

 **Bulker: Cape**

**- sized Vessel** 

 **Bulker: Panamax**

 **Container: 2500 TEU**

 **Container: 8000 TEU**

 **General Cargo: Breakbulk**

 **General Cargo: Ro**

**- Ro** 

 **Tanker: TAPS Trade**

 **Tanker: VLCC**

**This list of eight ship types/sizes is not comprehensive with regard to the scope of the proposed IMO regulations, but it provides a fair representation of the cost profiles for the BWTS we**  **analyzed, over a range of ty pical applications. We did not examine vessels that routinely treat**  **less than 70,000 metric tons of ballast water annually, since these vessels are likely to end up using alternative methods to be in compliance with regulations,**  **such as continuing to use ballast**  **water exchange if allowed, taking on fresh water for use as ballast**

**, or foregoing ballasting when**  **in restricted or regulated waters.**

**Based on analysis that incorporated information from vendors and other sources, the range of expected BWTS purchas**  **e costs across system types and categories of ship types/sizes listed above was estimated to be $640,000 to $94**  **7 ,000. For all types of systems, there are some**  **economies of scale when purchasing, with bulk orders reducing the cost of a system by**  **$40,000**

**to $104,000**  **per unit, depending on the system**  **type**

**. 7** 

### 12 **Table 5. Estimated**  **Purchase Price**  **of Ballast Water Treatment System**  **s**

**Type of Unit Base Price**  **Bulk Price**

**Filtration and UV Light $**  **933,333 $**  **840,000**

**Filtration and Chemical $**  **946,667 $**  **852,000**

**Deoxygenation and Cavitation $**  **640,000 $**  **600,000**

**Electrolysis & Electrochlorination $**  **666,667 $**  **600,000**

**Filtration, Deoxygenation & Cavitation  ** $**

**- $** 

**-**  Not enough data found on Filtration, Deoxygenation &**  **Cavitation Systems to include**



### We also analyzed the range of costs to install these systems. The range of costs outlined in Table **6 is based on an analysis of six installation options, including:**

 **New Build**

**- U.S. Yard** 

 **New Build**

**- Foreign (Asian) Yard** 

 **Sh ore** 

**- based Retrofit** 

**- U.S. Yard** 

 **Shore**

**- based Retrofit** 

**- Foreign (Asian) Yard** 

 **Retrofit While Ship is in Service**

**- U.S. Vessel/Installation** 

 **Retrofit While Ship is in Service**

**- Foreign Vessel/Installation** 

**It is important to note here that installation costs wil l vary widely even within a particular ship**  **type/size depending on the characteristics of individual ship and space and other requirements of specific types of BWTS. The installation cost estimates provided here can be viewed as**  **“typical**

**, ” but they were b**  **ased on installing a single system aboard eight**  **particular ship s that** 

**were selected as being “typical” of**  **ships in each of our eight ship categories.** 

**The most critical factor affecting BWTS installation costs is the space requirements of the**

**BWTS and whet her various components of a particular BWTS can be located in a single location**  **on the ship or need to be placed in separate locations and linked together. Because of “footprint problems” many BWTS vendors offer modular systems that can be installed where**  **ver there is adequate space and connected together. While these modular features make them potential**  **candidates for installation aboard more types and sizes of ships, taking advantage of these**

**modular features can add significantly to**  **installation costs.** 

### 13 **Table 6. Range of**  **Installation Cost s**  **by Vessel Type (in thousands of US$)** 

**. 8** 

**New Construction Retrofit**  **Retrofit in Service**

**US Yard Foreign** 

**Yard US Yard**  **Foreign**

**Yard US Vessel**  **Foreign**

**Vessel**

**VLCC 32** 

**- 70**  **23**

**- 62**  **78**

**- 147**  **67**

**- 136**  **111**

**- 210**  **96**

**- 197** 

**Tanker TAPS Trade**  **27**

**- 60**  **18**

**- 58**  **72**

**- 131**  **63**

**- 119**  **106**

**- 170**  **92**

**- 100** 
**General Cargo RO**

**- RO**  **27**

**- 67**  **18**

**- 61**  **48**

**- 132**  **33**

**- 120**  **29**

**- 185**  **24**

**- 170** 
**General Cargo Breakbulk 27** 

**- 57**  **18**

**- 50**  **48**

**- 114**  **33**

**- 97**  **29**

**- 140**  **24**

**- 131** 

**Container 8000 TEU 30** 

**- 67**  **23**

**- 62**  **65**

**- 143**  **57**

**- 128**  **103**

**- 197**  **91**

**- 180** 

**Container 2500 TEU 22** 

**- 62**  **18**

**- 56**  **51**

**- 115**  **47**

**- 106**  **74**

**- 140**  **67**

**- 131** 

**Bulker Panamax 22** 

**- 64**  **18**

**- 56**  **60**

**- 125**  **54**

**- 115**  **93**

**- 155**  **85**

**- 142** 
**Bulker Cape Size 22** 

**- 68**  **18**

**- 62**  **62**

**- 173**  **73**

**- 143**  **85**

**- 190**  **74**

**- 169** 

**Retrofit in Service based on use of riding crew**



### A separate MERC report titled: **“Preliminary Analysis of Ballast Water Treatment Costs” includes detailed analyses of purchase, installati**  **on, and fixed annual operating costs (e.g.,** 

**maintenance ) and variable annual operating costs (**  **per metric ton of ballast treated )**  **for selected**  **ships in the eight types/sizes of vessels.**  **This report is available at http://www.maritime** 

**** **enviro.org/reports/Reports.html and presents all of the assumptions used to develop preliminary** 

**cost estimates and the vessel**

**- specific cost development spr**  **eadsheets that were used to develop**  **the cost estimates and resulting market value estimates presented here. The**  **cost spreadsheets presented in that earlier report**  **can be modified and refined easily to accommodate new cost data or different ship types/size**  **s/patterns of use. A summary of our preliminary cost analysis of fixed** 

**annual maintenance costs is**  **in Table 7 below**

**.**

**Table 7. Annual**  **Operating Costs**  **associated with BWTS Types** *****

**Vessel Type Filtration/UV**  **Filtration/**

**Chemical Deoxygenation/** 

**Cavitation El**  **ectrolysis/**

**Electrochlorination**

**General Cargo, Breakbulk $11,000**  **$31,000 $9,000**  **$17,000**

**General Cargo, RO**

**- RO**  **$11,000 $37,000**  **$9,000 $17,000** 

**Container, 2500 TEU $11,000**  **$44,000 $9,000**  **$17,000**

**Bulker, Panamax $11,000**  **$56,000 $9,000**  **$17,000**

**Container, 8000 TEU $11,000**  **$82,000 $9,000**  **$17,000**

**Bulker, Cape Sized $11,000**  **$100,000 $9,000**  **$17,000**

**Tanker, TAPS Trade $11,000**  **$142,000 $9,000**  **$17,000**

**VLCC $11,000**  **$2 96**  **,000 $9,000**  **$17,000**

*** Includes f ixed annual costs**  **(e.g., BWTS maintenance**  **) as well as annual costs that vary with the amount**

**of BW treated. Filtration/Chemical system**  **cost estimates vary significantly by**  **ship type and by the** 

**amount of ballast treated because of the**  **the cost of consumables.**  **(e.g., chemica ls).** 



### Using life

**- cycle costs per metric ton of ballast treated, we estimate that Filtration/UV and**  **Electrolysis/Electrochlorination appear to be the least expensive solutions for most types/sizes (Table 8)**  **. For all ship types/sizes, not enough data were**  **found on Filtration, Deoxygenation an**  **d Cavitation systems to include this treatment system type in our analysis.** 

### 14 **Table 8**  **. Life Cycle Cost per**  **MT of BW treated (Based on an expected 25**

**- year life cycle).** 

**Type of Ship Filtration and**  **UV Light Filtration and** 

**Chemical Deoxygenation** 

**and Cavitation Electrolysis** 

**and Electro**

  ** chlorination**

**Bulker Cape Sized $0.14** 

**- 0.15**  **$0.3 6** 

**- 0.3**  **8 $0.27** 

**- 0.28**  **$0.14**

**- 0.16** 

**Bulker Panamax $0.25** 

**- 0.29**  **$0. 51** 

**- 0.5**  **5 $0.36** 

**- 0.39**  **$0.27**

**- 0.30** 

**Container 2500 TEU $0.34** 

**- 0.39**  **$0. 61** 

**- 0.**  **67 $0.44** 

**- 0.47**  **$0.32**

**- 0.37** 

**Container 8000 TEU $0.15** 

**- 0.17**  **$0. 38** 

**- 0.**  **41 $0.29** 

**- 0.31**  **$0.14**

**- 0.16**  **General Cargo**

**Breakbulk $0.67** 

**- 0.75**  **$ 1.00** 

**- 1.**  **12 $0.70** 

**- 0.77**  **$0.65**

**- 0.74** 

**General Cargo RO**

**- RO**  **$0.45**

**- 0.51**  **$0.7 4** 

**- 0.8**  **3 $0.53** 

**- 0.59**  **$0.44**

**- 0.51** 

**Tanker TAPS Trade $0.10** 

**- 0.11**  **$0. 31** 

**- 0.3**  **3 $0.24** 

**- 0.25**  **$0.11**

**- 0.12** 

**Tanker VLCC $0.07** 

**- 0.08**  **$0.2 8** 

**- 0.2**  **9 $0.22** 

**- 0.23**  **$0.08**

**- 0.09** 

**Not enough data found on Filtration, Deoxygenation & Cavitation Systems to include** 



### Our preliminary interviews suggest that there will be minimal or no lost revenue from retrofitting **a merchant ship with a BWTS as long as installation time fits within normal shipyard time. Hull painting is typically the critical path item in terms of shi**  **pyard capacity availability and usually requires a minimum of seven days, while preliminary interviews indicate that ballast water** 

**treatment retrofit should take fewer**  **than seven days to complete. With large, modern fleets in particular, ships may utilize**  **Underwater Inspection in Lieu of Drydocking (UWILD) to meet their periodic hull exam requirements. This would extend the time between dockings to once**  **every five to seven years**

**, which may make it more suitable for some ships to have BWTS** 

**installed while a ship is in service (at sea). While the cost of having a dedicated crew install a**  **BWTS while the ship is at sea is slightly more expensive than having the system installed at a shipyard** 

**, our research did not indicate that this would be a cost** 

**- prohibitive**  **option for most vessel types if BWT installation needs did not correspond with a routine shipyard visit. Our**  **interviews indicated that such installations have been successfully completed with no vessel**

**down**

**- time recorded.** 

**For most technologies our inter views and other research indicate that**  **annual fixed**  **operating**

**costs for maintenance of BWT systems would typically be in the $9,000 to $17,000 range,**  **depending on vessel type and size. The exception among approved technologies is for**  **filtration/chemical sy stems**  **which have a much wider range of annual operating costs** 

**-- an**  **estimated $31,000 to $2**  **96 ,000** 

**-- b**  **ecause of the use of consumables (chemicals) that will vary widely based**  **on vessel type and size**

**.**

**For each vessel type/size, operating costs were estimated t o amount to two to five cents per**  **metric ton of ballast water treated. The exception is for deoxygenation/cavitation systems, which we estimated to cost 19 to 20 cents per metric ton due to fuel costs.** 

**For all ship types analyzed, our analysis indicated that the installation of BWTS during new ship**  **construction, on average, is about $100,000 lower than the cost of a comparable retrofit. Due to variations in individual ships, shipyard labor rates, new construction price guarantees, and**  **shipyard volume pri ce incentives, this number will vary widely. Subsequent interviews suggest**  **that this estimate of $100,000 in cost savings associated with new builds is probably low.**

### 15 **From a supply perspective, our interviews and**  **analysis indicates that the biggest potenti**  **al bottleneck in response to the IMO timetable will most likely be related to production of**  **systems and the availability**  **of engineers to design and oversee installation**

**, not from insufficient capacity**  **in shipyards to install them. In Figure 1, we describe some of the issues other than costs that**  **shipowners will be considering when they choose which types of BWTS to install and how to**

**install them** 

**.**

### 16 **Figure 1. Ballast Water Treatment T**  **echnology Installation Checklist**

 **How/where will systems be installed (i.e., dry dock, in water, during a voyage)?** 

 **How long will installation take?**

 **What are the dimensions (in particular the footprint) of the required equipment?**

 **Are there any restrictions on where the required equipment should be placed?**

 **Are there any restr ictions on the location of different parts of the equipment and their** 

**location relative to other parts of the installation?**

 **Are any alterations to existing ship equipment required beyond installation of the treatment**

**system, i.e., to plumbing or electrica l systems?** 

 **Is the system scalable**  **to allow for different flow rates and different vessel configurations?**

 **What lead times should be expected for receipt of the system?**

 **What kinds of man**

**- hours, material, and equipment**  **are estimate**  **d for installation ?** 

 **Are t here any physical or environmental conditions that might limit or reduce the** 

**effectiveness of the treatment (e.g., turbidity/sediments, temperature, vessel service)?**

 **If chemicals are used, what is the anticipated amount of chemicals required per 1000m 3**  

### of

**ballast treated. What, if any, storage requirements and cargo**

**- segregation of the active**  **ingredient is needed to allow for safe operation of the vessel?**

 **What types of spares would be required to be maintained onboard for 180 days of continuous**

**operation of the vessel?** 

 **Are there any shoreside storage requirements, i.e., for chemicals or filter replacements, at**

**each load port?**

 **Who provides spare parts and shore**

**- based equipment repairs, and how extensive is their local** 

**service network?**

 **Who provides on**

**- s**  **ite service support and telephone support for maintenance and onboard**

**repairs of the units? How extensive is their technical service network?**

 **Are there special crew or vessel safety requirements when operating the equipment or**

**handling associated material s?** 

 **Are there special environmental safety requirements relating to the equipment or supporting**

**materials? (i.e., active ingredient getting wet, humidity, etc.)?**

 **Do storage, use and handling of active ingredients**  **require special training ?** 

 **What method/s wi ll be used to monitor performance and report**  **about compliance?**

 **Does any similar equipment onboa**  **rd have common spares and operating procedures?** 

 **What salinity water is expected during the service life of the vessel?**

 **Does the equipment contain proprietary equipment or closed** 

**- source system architecture or** 

**does the system use an open source platform?**

 **What is the expected service life of the vessel?**

 **What are the operational requirements restricting ballast exchange or retention of all ballast**

**onboard?**

 **What pen alties may be expected due to non** 

**- compliance with the regulations?** 

 **How much training is required for crewmembers to successfully operate, maintain and**

**conduct routine repairs to the system?**

### 17 

# Part 3: **Pattern of Global Market Development**

**In this section, w e develop estimates**  **of how the global market for ballast water treatment** 

**systems is likely to develop**  **through 2020. These estimates are bas ed on the following**  **assumptions : (1)**  **t he IMO Conve**  **ntion will be ratified in 2011, and**  **be enforced**  **by IMO member**

**nations one year later**  **, starting in 2012; (2)**  **u pon ratification, vessels will begin to comply with**  **IMO BW treatment guidelines starting**  **in 2011 ; and (3)**  **a ll ships required to comply with IMO**  **regulations will comply by proposed IMO deadlines**

**. We then estimated**  **that the percentage of**  **ships in each IMO designated BW capacity category that**  **will comply each year prior to the**  **proposed IMO deadline will be as shown in Table 9 until all ships**  **in all categories have** 

**com plied.** 

**Table 9**

**. Assumed complia**  **nce scheduling**

**BW Capacity 2011**  **2012 2013**  **2014 2015** 
**<1,500 m**  **3** 

### 5% **10% 10%**  **25% 50%** 
**1,500**

**- 5,000**  **m 3**  

### 15% **35% 50%**  **0% 0%** 
**>5,000 m**  **3** 

### 5% **10% 10%**  **25% 50%** 

**Our estimates of the n**  **umbers of vessels built in 2009 or**  **before are based**  **Lloyd's Fairplay Database, November 2009**  **. The e stimated numbers of vessels built from 2010 through 2020**  **are based**  **on the average number of**  **new vessels delivered per year from 2005 through 2009**  **(datasource: Lloyd's Fairplay Database, November 2009**  **)**

**.**

### 18 **Figure 2. BWTS Installation 2011** 

**- 2020.** 

**0 5,000**  **10,000 15,000**  **20,000 25,000**  **30,000 35,000** 



### 2011 **2012 2013**  **2014 2015**  **2016 2017**  **2018 2019**  **2020 # of Vessels** 



### Year **New Builds**

**Retrofits**

### 19 **Figure 3. BWTS Retrofits and New Builds 2011** 

**- 2020.** 

**Annual Dollar Value of the**  **Global BWTS Market**

**Based on the equipment and installation cost estimates developed in Part 2 of this report and the** 

**detailed cost ana lysis presented in a MERC report titled: “Preliminary Analysis of Ballast Water** 

**Treatment Costs” (**  **available at http://www.maritime** 

**- enviro.org/reports/Reports.html**  **) we**  **determined that for g eneral planning purposes**  **it is reasonable to project t**  **hat the “typical” cost**  **per ship of purchasing and installing**  **a BWTS will be about $**  **1 million . Based on the number of**  **ships in various ballast water capacity and age categories described above, and the assumptions listed above regarding when ships in those categories are likely to comply**  **with the tiered IMO implementation schedule** 

**, we estimate th**  **e annual value of the global BWTS market to follow the**  **pattern as shown in Figure 4.**

**The market is expected to spike**  **in 2015 with annual equipment and installation costs for existing ships and new builds in all ship categories totaling**  **more than $28 billi on**  **. In 2016**

**, when the**  **0 5,000**  **10,000 15,000**  **20,000 25,000**  **30,000 35,000** 



### 2011 **2012 2013**  **2014 2015**  **2016 2017**  **2018 2019**  **2020 # of Vessels** 



### Year **Vehicle Carriers**

**Livestock Carriers**

**Ro-Ro Cargo Ships**

**Refrigerated Cargo Ships**

**Passenger Ships**

**Passenger -Passenger/Cargo (Ro-Ro) Ships**

**Passenger (Cruise) Ships**

**OSVs**

**LPG Tankers**

**LNG Tankers**

**Fishing Vessels**

**General Cargo Ships**

**Chemical/Oil Products Tankers**

**Chemical Tankers**

**Crude Oil Tankers**

**Container Ships**

**Bulk Carriers**

**Barges**

### 20 **above analysis results in all existing ships having installed BWTS**

**, the global BWTS market is**  **then expected to drop to about $2 billion per year and to remain at that level until 2020 and, presumably, beyond.** 

**Figure 4. Estimated Va**  **lue of Global BWTS Market: 2011** 

**- 2020.** 

**$0 $5**  **$10 $15**  **$20 $25**  **$30 $35** 



### 2011 **2012 2013**  **2014 2015**  **2016 2017**  **2018 2019**  **2020 Purchase/ Installation Costs** **Billions**



### Year **New Builds**

**Retrofits**

### 21 

# P **art 4**  **: Affects of Enforcement/Compliance on**

**E merging**  **BWTS M**  **arkets**

**The sizable global market for ballast water treatment technologies described in the previous section demonstrates the large opportunity for ballast treatment technology vendors. These**  **vendors will be competing with each other to claim a share in this new global market. However,**  **they will also be competing against another factor: ship owners and operators who choose not to comply with regulations, or who delay compliance. In this regulation** 

**- driven market, we**  **highlight some significant enforcement issues t hat regulators in IMO member nations and**  **suppliers of BWTS will face as the ballast water convention comes into force between now and**

**2016.**

**There are a number of long**

**- term questions with regard to liability once a BWTS is installed and**  **is operational and pumping water. All of these technologies are in their relative infancy, so the**  **question remains, what if it turns out an approved system doesn’t work over time? At least two systems have been running on ships since 2006 or earlier.**  **However**

**, should one**  **of these system s**  **or one used on another ship be**  **found not to be operating properly, will a port regulator ’**  **s**

**response be to prohibit a ship from discharging ballast? Our interviews indicate that, within the**  **industry, there is little if any questioning of t he “magic box” approach to monitoring compliance** 

**— if the equipment is turned on and functioning** 

**, it should be sufficient evidence that the ship**  **meets regulatory requirements. At this time there is little regulation developed to establish**  **the long** 

**- term rel**  **iability of systems or methodologies for determining the continued effectiveness of a system. In time, this will likely change and a metric will have to be developed to verify the**  **continued function of an installed system.**

**In this sense, there is an an alogy to the experience with implementation of oil/water** 

**- separator**  **regulations in the 1980s. Experience showed that the separators were initially un**  **reliable, but as long as a device passed a standard test** 

**, it was considered acceptable. Both technology an**  **d enforcement regimes for oil/water separators have evolved since that time, and now there are**  **requirements for more stringent testing as well as requirements for off**

**- site calibration of the oil**  **content sensing equipment. These changes and improvements of the technologies** 

**, as well as**  **more meaningful penalties for non**

**- compliance have caused numerous older vessels to be**  **retrofitted with newer oil/water separators even though their existing older units were still functional and may have been considered accept**  **able under older regulations.**

**For each of the technologies other than ultraviolet filters, there appears to be a straightforward way to measure effectiveness, such as water temperature or the percentage of chemical in the**  **water. But for UV filters, it is difficult to determine when a filter is not working or has not been**  **working. Is there a method to analyze when a new filter is needed without having to test the BW**  **discharge water? Most importantly, how can a ship owner/operator prove compliance with th e**  **IMO guidelines to regulatory inspectors and flag**

**- state officials during routine inspections?** 

**The USCG proposed rulemaking notes that for its proposed (stricter) Phase Two standards, there is not currently a testing protocol capable of establishing that**  **a given technology consistently meets the standard. Because of this uncertainty, USCG has proposed a practicability review to** 

### 22 **determine whether technology can in fact meet the Phase Two standard, which is potentially 1,000 times more strict than Phase One**  **standards. The USCG proposed rules suggest that an initial review be completed by 2013.** 

**The USCG proposed rules also suggest that a five**

**- year grandfather clause be instituted for those**  **vessels adopting Phase One treatment technologies on schedule. Ou r initial analysis of the**  **global merchant fleet suggests that this will have little impact (either positively or negatively) on adoption of Phase One technologies.** 

**A key challenge for enforcement of ballast water treatment regulations will be the cost and technical problems that may be associated with verifying compliance. King and Tamburri**  **(2009) assessed the challenges involved with verifying compliance with proposed U.S. ballast water regulations, and applied an economic deterrence model to BW regulati**  **ons. 9** 


### Noncompliance with U.S ballast water regulations involves discharging ballast water into U.S. **waters that does not meet U.S. discharge standards. Assessing enforcement deterrence in this case involves comparing the expected benefits and expected co**  **sts of noncompliance under various enforcement regimes, where** 

**Expected Cost =**  

# C **=** 

# a **x** 

# b **x** 

# c **x** 

# d **x** 

# e

**where:**



# a **= Probability**  **that a discharge violation will be detected** 


# b **= Probability of**  **a detection resulting in a citation** 



# c **= Probability of a cited violation being prosecuted and**  **resulting in a penalty** 


# d **= Average**  **assessed or schedule**

**- based**  **penalty for a**  **violation**



# e **= Average**  **“final settlement” amount expressed as the % of the**  **average “assessed or**

**schedule**

**- based penalty” the s**  **hip owner/operator expects to pay.**

**Expected Benefits =**  

# B **= cost savings of not properly installing, operating, and maintaining a** 

**certified BWTS.**

**So, for example, if someone had a...**

 **50% probability that a discharge violation would be detected**

 **and a 50% probability of an enforcement action, if in fact the violation is detected** 

 **and a 50% probability of prosecution, if there is an enforcement action for a detected**

**violation**

 **and a 50% probability of conviction, if the detected violation is prosecuted...**

**...then the probability of conviction, if there is a violation, would be .0625 (.50 x .50 x .50 x**  **.50). If the expected penalty is $10,000, then the cost of not complying would be $10,000 x .0625, or $625. If the individual can expect a delay between initial de**  **tection and payment of penalty, the $625 cost of not complying could be discounted further.** 

**There is a big gap between proving that ballast water treatment technologies work in the laboratory and in field trials and are "certified," and having full** 

**- blown m**  **arkets emerge that will**

### 23 **allow these technologies to be purchased, installed, and employed on vessels in sufficient**  **numbers to meet regulatory timetables or have any significant impact on ballast water management problems.** 

**While it is too early to fully ass ess and compare the costs and risks associated with implementing**  **available technologies under various circumstances, it is not too early to consider the one treatment option with which all technology vendors are competing: no treatment.**  **To succeed,**

**marke ts**  **for ballast water treatment technologies, like all other markets, require only two things: willing buyers and willing sellers.**  **However, markets for these technologies are regulation** 

**** **driven**

**, and the nuances of when and how the regulations are written,**  **implemented, and enforced determines when there will be willing buyers and whether willing sellers will be able to** 

**accommodate them.**

**In the previous section, we outlined the likely pattern of demand over time for ballast water treatment technologies under**  **the assumption that all ships will comply with IMO regulations, once ratified by a sufficient number of countries and percentage of the world’s fleet.**  **However, this would require that these regulations be fully implemented, enforced and, most critically,**  **that enforcement provisions provide penalties and/or sanctions that are certain enough and**  **meaningful enough to provide incentives for shippers to comply. What kinds of penalties do we**  **expect, and who will pay?**



## Role of Protection and Indemnification (P& **I) Clubs**

**The demand**

**- side may also be complicated because of the way shipowners deal with liability**  **issues. An estimated 95% of the global shipping fleet is insured through protection and indemnity, or “P&I” clubs, which are associations of shipowners who**  **share each other’s liabilities. In effect, the members of P&I clubs are both the insurers and the insured. There are**  **currently 13 P&I clubs, mostly based in the United Kingdom and Norway. 10**  

### How will liability **for penalties for violating IMO BW regulation s be distributed across the fleet?**  **How will P&I clubs discipline shippers and/or ship owners and/or ship operators or ship engineers who are**  **responsible for a ship failing to comply with ballast water regulations?**

**The “mutual” nature of P&I Clubs suggests that there is a joint interest among members in**  **working toward risk minimization, such as a high rate of compliance with ballast water treatment regulations. If something with safety and environmental benefits**  **also has economic self**

**- interest**  **benefits for**  **the members, this makes sense. 11** 



### Owners reluctant to comply with international regulations are less likely to be allowed to join **P&I Clubs, and there is reduced incentive to switch clubs because the 13 major clubs also belong to the International Group of**  **P&I Clubs, which spreads the risk among the 13 clubs for larger claims. An agreement between these clubs limits competition by not undercutting rates for a full**  **year after switching from one club to another.**

**However, the rise of Asian shipping and newly**  **emerging Asian P&I clubs suggests that there**  **might be an incentive for London or Norway**

**- based P&I Clubs to keep these shipowners in the**  **fold by lowering premiums, rather than having new P&I Clubs established in Asia** 

**. 12**  

### We

### 24 **estimated the number of ships by flag of vessel that are likely to be subject to IMO ballast water**  **treatment regulations and found that seven of the top eleven flag countries are Asian, representing more than 25% of the vessels we consider to be subject to the regulations (See** 

**Table 1b**  **).**

**Despite the role that P&I Clubs might play in risk minimization, or high compliance with health and safety regulations, some observers have argued that these clubs may play a strong role in the**  **opposite direction in the case of ballast water regulations by spreading the deterrent effect of**  **fines imposed for lack of compliance. A persistent offender of these regulations, for example, might find his “calls” (premiums) rise as a P&I Club member. However, the increase in these**  **“calls” may not be enough to s erve as a significant deterrent.**  **13** 

### If this is the case, chronic **noncompliance could be the least cost solution for some ship owners and ship operators to deal with ballast water regulations.** 

**This could be a particular problem if ballast water regulators ha ve difficulty distinguishing**  **between violations that are accidental and those that are intentional. P&I Clubs are unlikely to spread risk of fines for violating regulations, but if a discharge is considered “accidental,” the** 

**cost of a fine could be covere d under some club risk sharing arrangements unless there is**  **evidence of gross negligence. If the “magic box” doesn’t work, then blame would be included in an inspection report where a decision will need to be made about how blame should be shared**  **among th e vessel owner, the ship master, the responsible crewmember, or the manufacturer or**  **company hired to service the BWTS. If the crew and owner have acted in good faith, but the unit is found to have lost effectiveness, who will bear the cost of repairs or r**  **eplacement? Additionally, what penalties will be levied against a vessel or owner who does not knowingly**  **violate the standards, but has a unit that is faulty? Of course, competition means that it is still possible for substandard ships to obtain coverage**  **from less discriminating clubs/insurers, but the central question remains: how will P&I Clubs evaluate and share the risks associated with new**  **IMO ballast water regulations.**

**Despite these caveats, our assessment is that P&I Clubs are positioned to be a po sitive force for**  **supporting the development of healthy BWTS markets and widespread compliance with IMO ballast water regulations.** 

**Figure 4**  **outlines some of the possible players involved with compliance with international, national, and state ballast water**  **treatment regulations. 14**  

### Penalties for non

**- compliance can be**  **expected to be imposed on shipowners and masters, unless it can be demonstrated that there is specific fault assigned to a crew member (who would have little reason to risk such penalties). If** 

**t here is any incentive to cut corners, it would be by the vessel Master or Chief Engineer who**  **may be looking for cost savings when compared to other ships in his company’s fleet.**

### 25 **Figure 4** 

**. Ballast Water Liability and Enforcement:**  **Possible Players 15** 



###  **Ship owners and Operators** 

 **Charterers and Cargo Owners**

 **Masters**

 **P&I Clubs**

 **Other Marine and Specialty Insurers**

 **Classification Societies (IACS)**

 **Flag States and Open Registries (“flags of convenience”)**

 **IMO**

 **National enforcement (USCG, EPA)**

 **State enforcement (i.e.,**  **California, Great Lakes states)**

 **Individual Ports**

 **Trade associations, i.e., Intertanko**

 **Databases for tracking compliance (i.e., Globallast, Equasis, NBIC)**



## Role of Classification Societies

**Classification societies are likely to have a significant inspect ion role in implementing the**  **regulations, particularly through enforcement of the flag**

**- state and IMO requirements. Similar to**  **the P&I club discussion above, most classification societies belong to the International**

**Association of Classification Societies (IACS) which helps eliminate the advantages of ship**  **owners shifting between Societies to avoid regulations. The largest class societies form a more stringent group, colloquially known as “Super IACS”, which insures that calls for strict**  **compliance with in ternational standards are uniformly applied across the IACS members.** 

**Regardless of which entity has inspection responsibility, the addition of ballast water treatment technology inspections potentially compounds a problem at times for ship crew distract**  **ed by multiple inspections (from insurers, classification societies, ports, etc.).**  **16** 

### Another open question **is the extent to which state and national regulators will be sufficiently staffed to handle inspection regimes that would be required. Sensor techno**  **logies may provide the answer to that question.** 

**Flag States will play an important role as well. With open registries (“flags of convenience”) financially dependent on foreign ships registering under their flags** 

**, they have little incentive to**  **enforce pol lution regulations. Similarly, individual ports, even within nations, compete with one**  **another for shipping business. This also may affect their willingness to enforce new ballast water regulations** 



## Trade Associations

**Trade associations, i.e., Intertank o, have a possible role in helping members decide which**  **technology to use. With regard to enforcement questions, their members will simply want to know about the easiest way to be in compliance.** 

### 26 **Explicit inclusion of ballast water treatment information i n global databases might also play an**  **important role in encouraging compliance. Other compliance information on the Equasis website, for example, can be searched not only by ship** 

**, but also by fleet manager or operator,**  **which helps the insurer evaluate bot h the quality of the operator and of the ship.**  **17**



## Alternative Verification Approaches

**King and Tamburri (2009) outline three basic alternatives for validating that ballast water meets**  **discharge standards: reporting, monitoring, and measurement. These alternatives have different costs and will result in different levels of confidence that discharge violati**  **ons are being detected. Their preliminary analysis of alternative verification approaches suggests that verification based**  **on mandatory reporting and/or inspection**  **alone will not achieve acceptable levels of confidence that regulations are meeting their g**  **oals. Verification based on direct measurements (sampling of ballast water) requires sampling a high enough volume of water to provide an acceptable level of**  **confidence; but it appears that for this option to provide acceptable levels of confidence the**

**am ount of ballast water sampling will be prohibitively costly. Verification based on indirect**  **monitoring using sensors appears to be the best alternative, because it has the potential to provide a high level of confidence at a far lower cost than even the l**  **owest**

**- cost, least** 

**- reliable biological**  **sampling strategies. The key to this option, of course, is the development of accurate, reliable sensors that can meet enforcement goals and pass, what the USCG is calling a “practicability”** 

**test.**

**Ultimately, the su ccess of any monitoring, reporting, and verification regime will depend on**  **whether detected violations result in penalties and sanctions that are certain and meaningful, and how these sanctions are shared by ship operators, ship owners, equipment vendors,**  **insurance companies and clubs, and other factors.** 



## Conclusions and Recommendations

**The global market for ballast water treatment technologies is at a critical juncture. If Panama ratifies the International Maritime Organization regulations, sufficient o**  **ther countries are likely**

**to follow suit so that the “Phase One” treatment standards will enter into force between now and 2016. The United States of course is a critical player in this regard and with the comment period**  **for the U.S. Coast Guard proposed rulemaking having passed on December 4, 2009, the United**  **States moves one step closer to implementing its own regulations that largely mirror the IMO**

**standards.**

**Potential suppliers are positioning themselves to meet the high level of global demand for BWT S**  **that is expected to begin once IMO regulations are ratified and it becomes clear that they will be implemented and enforced on schedule by IMO member nations. We estimate that more than**  **68,000 ships will be subject to the IMO regulations between now and 2016. Many of these ships**  **are relatively small fishing vessels that are not likely to be in a financial position to adopt the technologies that have been approved by IMO or that are close to receiving approval. This**  **suggests that other technologies will be developed to meet this segment of the market. On the**  **other hand, many larger merchant ships will need to install more than one BWTS in order to treat**

### 27 **their large volume of ballast water and meet IMO ballast water discharge standards. Some** 

**observers a re placing the number of ships that will need to comply with IMO ballast water**  **regulations at around 50,000. 18**  

### This may mean that demand for BWTS will be significantly **higher than 50,000 units.**

**Assuming that the regulations receive 100% compliance, our re view of the Lloyds Fairplay**  **world merchant fleet database suggests that there will be a spike in demand for treatment systems as vessels attempt to meet Phase One standards for 2016**  **. Whether the system supply capacity will have been developed in time has**  **yet to be determined.**

**International success in achieving the goal of reducing the environmental and economic risks from harmful aquatic invasive species depend on three factors: 1) the limits regulations place on**  **allowable concentrations of living org anisms in ballast water discharge water; 2) the availability**  **of technologies to meet those limits; and 3) the willingness of ship operators to comply with the regulations. A major challenge in understanding the size of the ballast water treatment** 

**technolo gy global market is the extent to which regulators will meet their goal of 100%**  **compliance. In this sense, technology vendors are competing with each other, but also with a market share consisting of those shipowners who decide not to comply. Compliance**  **monitoring, measurement, and verification methods require further analysis and development to ensure that**  **the goals of international and national ballast water regulations are achieved.**

**If enforcement and penalties are significant enough to provide real i ncentives for shippers to**  **compete with each other to have BWTS installed in anticipation of implementation**

**, will demand**  **for BWTS be spread out enough to avoid supply bottlenecks? How are vendors and shipyards**  **likely to change their pricing strategies as d emand grows and begins to outstrip supply and**  **installation capacity? How will their pricing strategies be affected by the knowledge that a spike in demand by the existing fleet to meet Phase 1 standards will be followed by a crash in demand**  **as only newly**

**- built vessels need to install systems in subsequent years? Will the market be**  **driven by expectations of high demand, or of low supply; and will venture capitalists be willing to invest significantly in manufacturing capacity to satisfy a temporary rush i**  **n demand for equipment that is predicted based on expectations of strong political will to support a costly**  **international environmental program? If the regulations are successful, will the market crash after the global fleet is outfitted? These questions**  **merit further research, particularly in light of the proposed stricter “Phase Two” regulations anticipated after 2016.** 

### 28 **1 The U.S. Coast Guard Notice of Proposed Rulemaking, “Standards for Living Organisms in Ships’ Ballast Water**  **Discharged in U.S. Waters,” is available at http://openregs.com/regulations/view/99303/standards_for_living_organisms_in_ships_ballast_water_discharged_in** 

**_u.s._waters**

**2 Sources:**  **http://www.imo.org/TCD/ mainframe.asp?topic_id=247**  **http://www.imo.org/TCD/mainframe.asp?topic_id=248**

**Last reviewed November 23, 2009, 2009**

**The 18 countries are as follows: Albania, Antigua & Barbuda, Barbados, Egypt, France, Kenya, Kiribati, Liberia,**  **Maldives, Mexico, Nigeria, Norway, Saint Kitts & Nevis, Sierra Leone, South Africa, Spain, Syrian Arab Republic,**

**Tuvalu.**

**3 IMO Resolution A.1005(25) of November 29, 2007 delayed the compliance deadline for 2009** 

**- bu**  **ilt vessels until the vessel’s second annual survey, but no later than December 31, 2011. Source: California State Lands**  **Commission 2009. See also Ballast Water Treatment Technology: Current Status. Lloyds Register. September 2008; CSLC 2009; IMO Glo**  **ballast at http://globallast.imo.org/index.asp?page=mepc.htm**  **; and Silent Invaders (World Wildlife Fund 2009) for discussion of ratification timetables.** 

**4 Sources:**  **http://www.imo.org/TCD/mainframe.asp?topic_id=247 http://www.imo.org/TCD/mainframe.asp?topic_id=248** 

**Last reviewed November 23, 2009, 200 9** 

**The 18 countries are as follows: Albania, Antigua & Barbuda, Barbados, Egypt, France, Kenya, Kiribati, Liberia, Maldives, Mexico, Nigeria, Norway, Saint Kitts & Nevis, Sierra Leone, South Africa, Spain, Syrian Arab Republic,** 

**Tuvalu.**

**Of the 35 flags of registration with the largest deadweight tonnage, representing 92% (chk) of the global fleet’s**  **deadweight tonnage, only Liberia, Antigua, Norway, France, and Spain had ratified the convention as of June 30,**

**2009.**

**5 See**  **Ballast Water Treatment Technology: Current Status**  **. Lloyds Register: September 2008.**

**6 Barges include the following subcategories: Barge, Barge Carrier, Cement Storage Barge, Container Barge,**  **Hopper Barge, Offshore Cargo Barge.**

**7 See King, Dennis M., Mark Riggio and Patrick T. Hagan.**  **2009. Preliminary Analysis of Cost of Ballast Water Treatment Systems for detailed preliminary purchase cost summaries. Available at**  **www.maritime**

  ** enviro.org/reports/Reports.html/** **. B ase and bulk prices for different types of units are calculated as averages of**  **quoted purchase prices for that type of system. For Filtration/UV Light, three quotes were received; for Filtration/Chemical, three quotes were received; for Deoxygenation/Cavi**  **tation, one quote was received; for Electrolysis/Electrochlorination, three quotes were received. The lowest quote received for purchase of any type of**  **system was $400,000, for one of the Filtration/Chemical systems; the highest quote was $1,670,000, for a Filtration**  **Chemical system from another vendor.**

### 29 **8 See**  **King, Dennis M., Mark Riggio and Patrick T. Hagan. 2009. Preliminary Analysis of Cost of Ballast Water Treatment Systems**  **for detailed installation**  **cost summaries of ballast treatment systems for these eight categories of** 

**vessels. Available at**  **www.maritime**

**- enviro.org/reports/Reports.html/** 

**9 King, Dennis M. and Mario Tamburri. 2010. Verifying Compliance with Ballast Water Dis**  **charge Regulations. Ocean Development & International Law, 1521** 

**- 0642, Volume 41, Issue 2, pages 152** 

**- 165.** 

**10 http://www.intertanko.com/pubupload/protection%20%20**  **indemnity%20HK%202002.pdf**

**11 For a discussion of cooperative self** 

**- regulation, or co** 

**- management, in safety and environmental regulation in the**  **shipping industry, see Bennett, Paul. 2000. Mutual risk: P&I clubs and maritime safety and environmental perfor**  **mance. Marine Policy 25 (2001) 13**

**- 21.** 

**12 See Bennett, Paul. 2000. Mutual risk: P&I clubs and maritime safety and environmental performance. Marine**  **Policy 25 (2001) 13**

**- 21** 

**.**

**13 See “Compliance with Victoria’s Ballast Water Management System” in Report on**  **Ballast Water and Hull Fouling in Victoria. Submitted to Parliament by the Environment and Natural Resources Committee. Web site last**  **updated March 1, 2002: http://www.parliament.vic.gov.au/enrc/inquiries/old/enrc/ballast/Ballast** 

**- 60.htm** 

**14 For a review of U.S. national and state ballast water regulations, see Read D. Porter and Jordan Diamond,**  **New Tools for Responsible Shipping in the Great Lakes: Using**  **Financial Responsibility Policies to Prevent Ballast**

  ** Borne Biological Pollution** **. Environmental Law Institute White Paper. July 2009.**

**15 For a detailed discussion of the actors in the regulation of vessel** 

**- source marine pollution, see Tan, Alan Khee Jin.** 

**2006. Vessel** 

**- Source Marine Pollution: The Law and Politics of International Regulation**  **. Cambridge: Cambridge University Press.** 

**16 See further discussion of this inspection issue in**  **The World Merchant Fleet in 2007: Statistics from Equasis**

**. https://extranet.emsa.europa.eu/index.php?option=com_docman** 

**17 Organisation for Economic Co** 

**- operation and Development. 2004.**  **Maritime Transport Committee Report on the Removal of Insuran**  **ce from Substandard Shipping.**

**18 See for example Frost and Sullivan report, which suggests a market size of 57,000 vessels or more**  **( http://www.frost.com/reg/file** 

**- get.do%3Fid%3D73927%26file%3D1).**