Fourteen U.S. Senate Republicans have warned that delaying enforcement of the International Maritime Organization’s (IMO) regulation to lower sulfur in marine fuels (known as IMO 2020) would be worse than the economic damage that could result from short-term fuel price increases.
In what some see as an effort to influence White House policy-makers before the Trump Administration starts weighing options that would undermine the regulation, the lawmakers sent a letter, led by Senator Bill Cassidy (R-Louisiana), to President Trump supporting the new marine fuel standards, scheduled to go into effect January 1, 2020.
“Any attempt by the United States to reverse course on IMO 2020 could create market uncertainty, cause harm to the U.S. energy industry, and potentially backfire on consumers,” they wrote in the April 29 letter.
They argued that the U.S. is in a position to benefit from the regulation – which lowers the sulfur content of the marine fuel that ships can legally burn from 3.5 percent to 0.5 percent worldwide – because the United States is the leading producer of low-sulfur fuel.
The lawmakers downplayed forecasts of fuel price spikes and availability problems by citing a recent short-term outlook from the U.S. Energy Information Administration, which estimated that after an initial “slight increase” in retail diesel prices, consumers will end up paying less at the pump in 2020 than 2018.
They also pointed to Congressional testimony earlier this year by Fatih Birol, executive director of the International Energy Agency, who also saw limited effects of the regulation after possible “temporary price spikes for diesel and jet fuels.”
The letter was supported by the Coalition for American Energy Security, a group organized earlier this year to educate policymakers on IMO 2020.
“After 12 years and $100 billion of planning and investments, the U.S. energy sector and American workers are prepared to meet demand for this low-sulfur fuel,” said the group’s spokesman, Ken Spain. “It’s encouraging to see senators from multiple states and committees united in support of these next-generation fuels.”
How much attention President Trump is paying attention to IMO 2020 at this point is not apparent, but his policy team is likely keeping close watch.
In its “Economic Report to the President” published in March, the Council of Economic Advisers noted that while the U.S. refining is “well-positioned” to benefit from an increase in demand for low-sulfur compliant marine fuels in 2020, “U.S. fuel consumers may pay higher prices in the medium-term as a result.” The Council also stated that a shortfall in compliant fuel “will likely trigger higher prices, though estimates of price shocks to fuels including diesel, gasoline and jet fuel vary substantially.”
President Trump’s options to offset these price shocks – something he may be particularly sensitive to in an election year – are limited. There is little sentiment among member states at the IMO for delaying the regulation – the current focus of the London-based group is on enforcing the measure. But some have speculated that President Trump could attempt to simply pull out of the accord, as he did with the Paris Climate Agreement.
Writing in Forbes in April, Dan Eberhart, CEO of oilfield services company Canary, speculated the Administration could also exercise an emergency Jones Act waiver in an attempt to lower transportation costs for fuel moving between U.S. ports.