Timely IMO 2020 compliance benefits U.S. economy; delay does not: Study also concludes IMO 2020 will have negligible impact on the fuel market
Yesterday Charles River Associates (CRA) released a new economic analysis of the International Maritime Organization’s (IMO) 2020 fuel standards. The analysis, titled Economic Analysis of IMO 2020: The Benefits to the U.S. Economy of Full Participation and Compliance, evaluates the fuel price and macroeconomic impacts of significantly diminished IMO 2020 compliance, and found that it would not benefit the U.S. economy. In fact, non-compliance by the United States would likely benefit other global economies.
Notably, the research also found that petroleum product prices are far more sensitive to changes in crude market developments than to changes in IMO 2020 implementation levels. According to the research, compliance with IMO 2020 will have little impact on future gasoline prices, and the price effects on diesel are less than the monthly average change in diesel prices over the last four years.
“Global refiners and shippers have had many years to prepare, and it appears the industries are driving toward a transition with minimal price disruption or fuel availability issues,” CRA concluded. “The results of this economic analysis, which do not even include the expected environmental and health benefits, support U.S. compliance with IMO 2020.”
IMO 2020 will reduce the maximum sulfur content in marine fuels from 3.5 percent to 0.5 percent. With the United States already producing and using fuel that is five times more stringent, IMO 2020 will bring the rest of the world more in line with American standards. To achieve compliance, shippers can either install emissions-control devices known as “scrubbers” or exchange their high-sulfur fuel for a low-sulfur alternative such as liquefied natural gas or light, sweet crude—both of which are produced in the United States.
“The U.S. refiners are particularly well prepared for the shift as a result of significant investments to develop domestic complex refineries,” the report says.
The study employed both Charles River Associates’ EMR-IMO macroeconomic model and Baker and O’Brien’s PRISM refinery model. The EMR-IMO model evaluates fuel price responses, sector-level changes, and economy-wide impacts given the new regulations. The PRISM model explains responses by U.S. refiners based on fuel price changes determined using EMR-IMO. Both models were calibrated to the Energy Information Administration’s recently published forecasts of prices and quantities in 2020 under full IMO 2020 implementation.
The Coalition for American Energy Security launched earlier this year to educate policymakers on the benefits IMO 2020 offers to American energy security and competitiveness. “The data continue to confirm our fundamental claim—America is ready and will benefit from timely, global enforcement of the IMO 2020 standards,” said Ken Spain, spokesperson for the coalition. “We’ve seen studies of the job and environmental benefits to America, but this modeling makes it clear that any delay of the standards serves only to strengthen the economies of our global competitors.”
Members of the coalition include, among others, the American Fuel & Petrochemical Manufacturers, the World Shipping Council, the United Steel Workers, the American Petroleum Institute, the Center for Liquefied Natural Gas, the Domestic Energy Producers Alliance, the Independent Petroleum Association of America, American Exploration and Production Council, and several state oil and gas associations.CRA’s Economic Analysis of IMO 2020 [PDF]
Source: American Energy Security