Sailing to the Emerald City—Alternative fuels and the need for a robust compensation regime

Not yet old enough for Dorothy and Glinda, my daughter and I read about Peter, Pamela and Percy—three African penguins who find themselves far from their homes after the spilling of 1,300 tonnes of bunker fuel from the MV Treasure when it sank off the coast of Cape Town—a picture book based on a true story. [1]

It’s an endearing tale (not least because one of the penguins dons a delightful tartan waist coat). We cheer as the trio are cleaned by volunteers in red gum boots (toddler fashion choice du jour) and make their way back from Port Elizabeth, dodging great whites, because there’s no place like home.

It was, by all accounts, an incredible effort to save the penguins.

However, much as I love the story, its rhythmic tones almost lull you into believing that this was just a blip in the penguin’s life: a grand adventure if you will. The extent and cost of the clean-up, as well as the hurdles in obtaining adequate compensation, go undocumented, detracting as they do from the feel-good vibes.

Likewise, as we face the wicked witch that is climate change, there can be a tendency to herald alternative fuels as some kind of maritime wizard, without examining their risks. For instance, as recently as 22 November 2024, the World Economic Forum published an article celebrating the switch to alternative fuels in the shipping industry [2] (and yes it should be celebrated). However, the same article neglected to mention that, just like other means of propulsion, alternative fuels can pose harm in the event of a maritime emergency.

Compounding the issue, there is currently no targeted international convention providing an established avenue for redress in the event of an incident (much like Dorothy’s disappointment when she finally reaches the Emerald City and meets the Wizard). It is for this reason that the Comité Maritime International has been analysing the gaps in existing civil liability regimes and considering the best way forward, publishing a Gothenburg discussion paper on alternative fuels on 4 June 2024. [3]

Drawing from that work, this article begins with an examination of the impetus for alternative fuels and the options available. It then looks at the current convention framework, the meaning of justice therein, and the lacuna that would arise if an incident occurred, focusing on the parties that would be most vulnerable.

I should stress that, despite the inherent risks of the proposed alternative fuels, it is not my position that the transition to their use should be abandoned – their adoption is imperative and necessary – but rather that change should be coupled with an appropriate compensation regime, lest in ameliorating one problem, another is created in its stead.

Impetus for change

It is trite to say that the world relies on shipping, but this is borne out by a number of fun facts. For instance, 80% of global trade is by sea, with 11.08 billion tonnes of goods transported in 2019. [4]

But many less-fun facts abound. Shipping is responsible for 3% of global greenhouse gas emissions [5] and, if it were a country, would be in the top 10 largest polluters globally. [6] If the status quo continues, those emissions could increase by between 50% and 250% by 2050. [7]

To mitigate the impacts of shipping, on 7 July 2023, the International Maritime Organisation (IMO) set an enhanced common ambition to:

1. reduce CO2 emissions by an average of 40% across international shipping by 2030,
2. increase the uptake of zero or near zero greenhouse gas (GHG) emission technologies, fuels and/or energy sources by 10% of the energy used by 2030, and
3. reach net zero GHG emissions by 2050.

Alternative fuels for ships [8]

‘The significant difference between alternative fuels and mineral oil bunkers is the greater risks of injury, death and property damage from alternative fuels, due to their higher toxicity and/or flammability. Whilst there are still serious environmental risks in the event of a spill of alternative fuels, based on current evidence these would appear to be lesser than those posed by bunker oil. This brings into focus the need for a civil liability regime which reflects the potentially greater ‘human losses’ and the need for adequate and guaranteed compensation for the victims of such an incident.’ [9]

The key ‘green’ contenders for adoption as alternative fuels are ammonia, methanol, hydrogen, biofuels and LNG.

The relative risks and benefits (which are in addition to lower emissions) of the proposed alternative fuels are as follows:

Each fuel has its supporters and detractors.

For instance, one major carrier has ambitions to reach net zero by 2040 through propulsion by green methanol, while another does not see a future in this fuel source and is focusing on ammonia to power its shipping and mining fleet.

This lack of uniformity is a concern given the response to an alternative fuel spill will depend on the nature of the spill; each fuel will require specific training in the event of a clean-up, with salvors also exposed to greater risk. [11]

While the IMO Green Voyage 2050 Global Industry Alliance to Support Low Carbon Shipping [12] is currently conducting a regulatory mapping analysis of safety guidelines (and it is beyond the scope of this article to comment on that), the reality is that ‘even if the most stringent safety standards are applied, experience shows that accidents cannot always be prevented … it is equally necessary and important to be prepared for unexpected eventualities.’ [13]

While it is, of course, open to domestic governments to enact their own legislation dealing with liability for an alternative fuel incident, experience with oil pollution claims has shown that a proactive, uniform response (or as close thereto) is preferable to disparate reactive measures.

Convention framework – the lacuna

Article 235 of the 1982 United Nations Convention on the Law of the Sea (UNCLOS) requires member states to ensure recourse is available ‘for prompt and adequate compensation or other relief in respect of damage caused by pollution of the marine environment by natural or juridical persons under their jurisdiction’.

Presently, liability for oil pollution incidents is addressed specifically by the International Convention on Civil Liability for Oil Pollution Damage (1992) (CLC), its associated Fund Convention (paying compensation once the shipowner’s liability has been exhausted), and the International Convention on Civil Liability for Bunker Oil Pollution Damage (2001) (Bunker Convention). The definition of oil within each of these conventions does not extend to alternative fuels.

The International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea (1996) (HNS Convention) has not yet received sufficient ratification to enter into force. The HNS Convention would cover pollution arising from the carriage of hazardous and noxious substances, [14] meaning if it came into effect on its present terms, it would not cover pollution damage arising from the spill of an alternative fuel that is powering a vessel (pending any amendment by way of protocol). Like the CLC, the HNS Convention has provision for an HNS Fund.

As it stands, however, there is nothing that specifically addresses how claims for liability for a spill of alternative fuels would be managed.

In the absence of anything more targeted, the Convention on Limitation of Liability for Maritime Claims (1976) (LLMC) has been called upon by shipowners to limit their liability in connection with pollution damage arising from the spill of hazardous cargoes. It has been posited that the LLMC might have some work to do in connection with an incident arising from the use of alternative fuels. However, the absence of compulsory insurance under the LLMC, coupled with the lack of direct action against an insurer and prescribed limits of liability, [15] arguably make this an undesirable option.

Why conventions matter

While each international convention addresses a different pollution risk, there are fundamental tenets shared by each of them in that liability for incidents is channelled exclusively to the shipowner, [16] who is strictly liable, though the amount of compensation they are required to pay is limited and dependent upon the size of the ship and the amount of special drawing rights (SDRs) prescribed by each convention. Importantly, each of the CLC, Bunker and HNS Conventions stipulate that a shipowner must take out compulsory insurance to meet the limit of its liability under the conventions.

At first blush, the convention framework may not seem the most suitable way to address the risks to person and property from large-scale pollution incidents. Criticisms have manifested over the years as to how a convention with limitation of liability at its core can be compatible with adequate compensation, and what deterrent effect can be achieved through channelling liability to a shipowner, thereby effectively absolving a more liable party of any fault.

However, adequate compensation does not necessarily mean full compensation, the International Law Commission’s position being that ‘[a]s long as compensation given is not arbitrary and grossly disproportionate to the damage actually suffered, even if it is less than full, it can be regarded as adequate.’ [17] From Lord Denning’s perspective, limitation exists as a rule of public policy, ‘with its origin in history and its justification in convenience’ rather than in justice'. [18]

Putting aside what the conventions are designed to deliver, their real strength lies in uniformity, and the efficiency that creates.

Channelling is favoured on the basis of achieving economic efficiency; it is said to benefit claimants who do not have to perform costly liability investigations to identify the liable party, and the certainty of an identified liable party has enabled insurers to more accurately underwrite risks. Likewise, an understanding of what member states will compensate parties for in the event of a spill assists in the underwriting process and is preferable to indemnifying for litigation against an array of parties at the mercy of local laws. [19]

To the contrary, in the current alternative fuel lacuna, ‘a party that suffered damage would need to establish that a ship-interested party was liable for the incident (ie that the party was at least negligent), in the relevant jurisdiction under the relevant law. This may not be straightforward.’ [20] In fact, such an exercise might be cost prohibitive and serve as a disincentive to potential claimants. Further, in the absence of compulsory insurance, it may transpire that there is no viable party to proceed against.

A divergence of approaches between member states would also make it very difficult for the insurance industry to effectively underwrite risks relating to alternative fuels. That in and of itself may present as a barrier to the adoption of alternative fuels. [21] This would also increase the temptation to forum shop to find the best possible result, which could ironically have the result of deepening inequality between injured parties.

Other questions that might arise in the absence of a specific convention for an alternative fuel spill include: ‘[i]s there a need to establish a compensation fund? If the environmental damage is enormous, is the flag state subject to supplementary liability? Does the coastal state have any responsibility for marine pollution from bunkering facilities?’ [22]

As noted above, recourse to the LLMC for an alternative fuel incident will not necessarily allay any of these concerns, because it does not mandate compulsory insurance, and does not have a supplementary fund.

While the arguments do tend towards the health of the insurance industry, it is the case that torts and insurance have evolved together, and one need only look at the public liability insurance crisis of the early 2000s to see that injured parties also suffer when damages outpace capacity. Ultimately, therefore, a system that works for both insurers and injured parties needs to be created, because the present lacuna leaves ‘victims of incidents at risk of inadequate or no compensation’. [23]

Vulnerable parties

A disaster involving alternative fuels could put any number of people on or in the vicinity of the vessel at risk, however, there are certain groups who are especially vulnerable, further compelling the need for an alternative fuel convention.

Seafarers

The Global Network for Human Rights and the Environment (GNHRE) has advocated for ‘more attention [to] be given to the dangers posed to the safety of seafarers serving on board ships which run on highly toxic fuels … From 1985 to 2019, there were approximately 71 accidents involving pure ammonia (the type envisaged for bunker fuel use) and the primary cause of deaths and injuries were identified as inhalation of the gas or fires’. [24]

Seafarers have also expressed concerns about the introduction of alternative fuels, with a survey by the Seafarers Charity finding that decarbonisation efforts are having a negative impact on the mental health of seafarers, for reasons including the increased workload, and the risk of accidents and complexities. [25] While these mental stressors would not be compensable under one of the proposed conventions, stress could ultimately be a factor in any incident. This is confounded by the fact that there is a risk of ‘increased criminalisation of seafarers when liability is not clearly stated’. [26]

Port staff

The GNHRE, ITOPF and IMO have all raised concerns about how port side risks might be more prevalent in ‘the Global South and Less Developed Countries [which] may have fewer opportunities to implement new technologies due to high costs and inaccessible technologies’. [27]

Likewise, compensation for port staff in these states may be wanting without the benefit of a strict liability regime, supported by compulsory insurance.

Conclusion

On current projections, without a concerted effort to reduce emissions, we will not be able to limit warming to the goal of 1.5°, and that will have dire consequences for our planet.

Recognising the impact of shipping, the IMO has set targets to work towards net zero by 2050, and large shipping companies are following suit by adopting alternative fuels.

While this is the correct approach for the health of our planet, the transition to alternative fuels cannot occur in isolation. It needs to be supported by a robust regime of safety regulations and a compensation scheme that is proactive rather than responsive.

While states are, of course, at liberty to enact their own legislation pertaining to vessel source pollution damage from alternative fuels, there is an associated risk of fragmentation and uncertainty if a global approach is not taken. [28] Though any convention will ultimately have limitation at its crux, this coupled with compulsory insurance and the channelling of strict liability to a shipowner (howsoever that might be defined) will deliver a degree of security that is presently lacking, particularly for those most vulnerable to the lacuna.

Failing this, the adoption of alternative fuels will take us down a yellow brick road to a mighty and powerful green alternative, with nothing to offer in the face of a maritime disaster.

Please note: This article first appeared in Precedent, the journal of the Australian Lawyers Alliance (ALA) issue 186, published in February 2025 (Sydney, Australia, ISSN 1449-7719).

Notes:

[1] Lulu and Tee, Peter, Pamela and Percy in the BIG SPILL, L Fellowes, African Penguin, 2008, based on the story of a ship that sank near Cape Town in 2000, the resulting oil slick, which harmed thousands of sea birds, and their rescue.

[2] S Torkington, These fuel producers are leading the switch to zero-emission fuels in the shipping industry, World Economic Forum (22 Nov 2024) .

[3] The Gothenburg Decarbonisa- tion Discussion Papers: Green Fuels Discussion Paper, Comité Maritime International (July 2024) .

[4] J van Leeuwen, J Monios, ‘Decarbonisation of the shipping sector – Time to ban fossil fuels?,’ ScienceDirect, Vol 146 (Decem- ber 2022) .

[5] Gothenburg, above note 3.

[6] JG Valencia and A Swift, The shipping industry won’t meet its decarbonization goals without investing more in low-carbon fuels, World Resources Institute (October 25, 2023) .

[7] 2023 IMO Strategy on Reduction of GHG Emissions from Ships, ‘Resolution MEPC.377(80)’ (Adopted on 7 July 2023), Annex 15.

[8] While the focus of this article is the use of alternate fuels, it bears mentioning that other solutions have been proffered to combat the environmental impacts of shipping, including a reduction in global fleet speed and improving efficiency through technology and maintenance. See for instance A Dumbrille and E Menezes, Navigating the Future: Bridging Shipping, Biodiversity, and Decarbonization, Equal Routes

[9] Gothenburg, above note 3, [4.9].

[10] J Ong Jie Hao, ‘Decarbonization of International Shipping: Importance of Alternative ‘Green’ Fuels,’ GNHRE (1 April 2024) < https://gnhre.org/?p=17962>.

[11] M Hand, ‘Is shipping ready to deal with an alternative fuel vessel accident?,’ Seatrade Maritime News (22 August 2024) .

[12] ‘Alternative marine fuels: Regulatory mapping,’ GreenVoyage2050.

[13] J Xu, D Testa, PK Mukherjee, ‘The Use of LNG as a Marine Fuel: Civil Liability Considerations from an International Perspec- tive,’ Journal of Environmental Law, 29(1), Oxford Academic, 2017, 129–153 .

[14] Including oils, other liquid substances defined as noxious or dangerous, liquefied gases, liquid substances with a flashpoint not exceeding 60°, dangerous, hazardous and harmful materials and substances carried in packed form or in containers, and solid bulk materials possessing chemical hazards.

[15] While there is no maximum SDR under the LLMC, the formula for cal- culating the SDR for even the largest cargo ship presently in service will not reach anywhere near 750 million SDR under the CLC Supplemen- tary Fund, let alone the 250 million under the HNS Supplementary Fund.

[16] Albeit the definition of shipowner differs between the conventions.

[17] United Nations, Draft principles on the allocation of loss in the case of transboundary harm arising out of hazardous activities, with commentar- ies, 2006, 78.

[18] The Bramley Moore [1963] 2 Lloyd’s Rep 429, 432.

[19] T Howse, T Castberg, How can liability regimes adapt to new fuels and new cargoes?, Gard (18 July 2024) .

[20] Gothenburg, above note 3, [5.5].

[21] Ibid.

[22] Q Wang et al, ‘The use of alternative fuels for maritime decarbonization: Special marine environ- mental risks and solutions from an international law perspective,’ Fron- tiers, Vol 9, 2022 .

[23] R Hjelm et al, A missing piece of the net-zero puzzle: Gaps in regulatory frameworks addressing the risks posed by alternative fuels, Global Maritime Forum (10 July 2024) .

[24] Hao, above note 10.

[25] ISWAN, The impact of maritime decarbonisation on wellbeing: Findings of an ISWAN survey of seafarers and shore-based staff < https://www.theseafarerscharity.org/assets/ uploads/logos/The-impact-of-maritime-decarbonisation-on-wellbeing-Findings-of-an-ISWAN-survey-of-seafarers.pdf>.

[26] Hjelm, above note 23.

[27] Hao, above note 10.

[28] Xu, above note 13.