A New Kind of Luxury Tax?

Yacht builders fear that incoming IMO diesel emissions regulations will prevent them from building and exporting their boats
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If IMO Tier III regulations go through, Viking says it may not be able to build its 92- and 93-foot models, which could mean hundreds of job cuts.

If IMO Tier III regulations go through, Viking says it may not be able to build its 92- and 93-foot models, which could mean hundreds of job cuts.

At the Fort Lauderdale International Boat Show, Pat Healey, the president and CEO of Viking Yacht Co., warned that pending International Maritime Organization Tier III emissions regulations are the “greatest threat to the marine industry since the luxury tax days.”

The regulations would require diesel yachts with a minimum load-line length of 78 feet to meet NOx emissions requirements that are 75 percent more stringent than the Tier II rules established in 2011. A boat with a load-line length of 78 feet is basically a 90-foot boat. The new regulations were introduced in January 2016 and are scheduled to take effect Jan. 1, 2021. They apply to any vessel in North America, the Caribbean, the Baltic Sea, the North Sea and “all future NOx emission control areas.” If a boat passes through these areas, it must produce the clean emissions. If a keel is laid before the end of 2020, the boat can still be built and finished in 2021 without meeting the regulations.

Last year, the International Council of Marine Industry Associations attempted to delay the implementation of the regulations beyond 2021 but was unsuccessful. Member states, including Norway, Germany and Canada, voted against the extension. There is an appeals process, and builders are planning to use it to try again for the extension at the IMO MEPC 75 meeting scheduled for March 30 through April 3, but Healey isn’t optimistic.

“We’re up against the majority of the E.U. and Canada,” he says. “They’ve blocked the extension of the exemption.” Healey says an extension would give boatbuilders and engine manufacturers more time to develop compatible systems for their yachts.

MAN’s Selective Catalytic Reduction system and additional equipment will be nearly the same size as the engine with which it works. 

MAN’s Selective Catalytic Reduction system and additional equipment will be nearly the same size as the engine with which it works. 

The problem isn’t that the technology for reducing the emissions doesn’t exist. MTU, MAN, Volvo Penta and Cummins all have what are called Selective Catalytic Reduction systems, and they are in use on commercial vessels. The problem on a recreational vessel is that the equipment would take up a large amount of space in an engine compartment while adding significant costs to the boat. MAN’s SCR system, for instance, can be as large as the engine that it will service. Another concern is that SCR systems require a chemical called urea. Urea has to be stored in a separate tank and must remain at a cooler temperature, so it likely couldn’t be in the boat’s engine compartment.

“We don’t have the room to install the systems,” Healey says. “If we install the systems, we have no room to work on the engines. It’s just an ill-conceived regulatory system.

”Viking says proponents of the regulations are taking the wrong approach by simply saying that large-yacht buyers can afford to make the vessels compliant, and dismissing any other arguments against the regulations. The company says that if an extension isn’t granted, it won’t be able to build its 92-foot Convertible and 93-foot Yacht for the export market. If orders for those boats dwindle, it may have to lay off the 300 employees who build them.

“This is a jobs issue,” Healey says. “The regulators didn’t consider the people building the engines, the people taking care of the engines, and the people building the boats.”

In correspondence with Soundings Trade Only sister magazine Yachts International, Hatteras/Cabo Yachts, another U.S. manufacturer that builds boats in the size range that would be affected, says it has researched SCR implications and has been working with Caterpillar, MTU and industry experts.

“We have the latest SCR systems’ drawings in hand and understand the implications for both unit installations and requirements for the urea tanks, as well,” said Ward Setzer, Hatteras/Cabo chief product officer. “The overall impact on vessel offerings such as our own may, indeed, be complicated, if not inconvenient.

Engines in yachts in the size ranges that would be impacted already take up significant space, so there are concerns about adding more equipment. 

Engines in yachts in the size ranges that would be impacted already take up significant space, so there are concerns about adding more equipment. 

“It would be nice to have a bit more time to adjust for these both large and complicated units,” he continued. “However, the commercial world has already adopted the applications, and we will soon be required to do the same on projects over 24 meters and of a certain horsepower, but we also should take this as a warning for the next levels of requirements that may soon address vessels under this size range, having far-ranging impacts on many builders of luxury yachts.”

European builders that will be affected include the Ferretti Group, Azimut, Sunseeker, Princess, Sanlorenzo and others.

“Most of the European manufacturers say they’re going to push back against it,” says Sean Robertson, sales and marketing director for Sunseeker International. “However, they are proactively planning that the regulations will take effect and new models will be designed around accommodating them.”

Sunseeker’s 116 Yacht has been redesigned to accommodate an SCR system, and Robertson says that it will primarily impact the engine compartment and garage. The company is working with engine maker MTU on an SCR system.

Leading the Charge

Udo Kleinitz, secretary general of the International Council of Marine Industry Associations, says that his organization has been trying to show the impracticality of the regulations since they were first discussed in 2008. Kleinitz, who negotiated the extension in 2016 to 2021, remains part of the appeals effort.

“We have been trying to show the difficulty and disproportionate measure and how it impacts yachts,” Kleinitz says. “It’s not a European or American issue. We want them to understand the job losses, the effect to the companies and loss of sales. That’s one of the legs we want to stand on. The other is the space you need to create this system in the boat. It creates big problems.”

Kleinitz says there is a political element, too, because officials need to demonstrate that they are addressing the issue of emissions, even in cases where the solutions do not make sense. Because the regulations are a United Nations treaty that can’t be revoked, pressuring elected officials won’t produce many results. That’s why the extension is the most practical approach.

“We are assembling our arguments now. We will only go forward if we know we have a good case and if we have support,” Klein­itz says, adding that a member state of IMO needs to propose the appeal for it go forward.

Cummins’ SCR system has been used in commercial 
applications, but not on yachts.

Cummins’ SCR system has been used in commercial applications, but not on yachts.

Impractical for Yachts

Healey and Kleinitz both acknowledge that the technology exists to produce the required NOx emissions numbers, but that it is impractical for yachts.

The primary problem is the size of the equipment needed to clean up the exhaust. It’s installed inline abaft the turbochargers, and it requires the tankage for urea, or diesel exhaust fluid. Simply put, the equipment cleans the exhaust prior to it leaving the boat. On freighters, it’s sometimes referred to as a scrubber.

In an email to Soundings Trade Only, Capt. Jennifer McQuilken, marketing communications leader for marine, oil and gas for Cummins, estimated that an SCR system including urea tankage, pumps, after-treatment equipment and related plumbing is about 75 percent to 80 percent the size of the engine it cleans. Axel St. Aubin, program manager for off-road engines and emissions certification for MAN, says that for a V-12 or V-16 diesel, the SCR system is “roughly the same size as the engine.”

The base engines for the Viking 92 Convertible are twin Caterpillar C32As, which measure 89.9 inches long by 60.17 inches wide by 62.5 inches tall. One system is required for each engine in a boat, so on a boat the size of the Viking 92C, it’s basically taking up the space of a guest stateroom or crew quarters. Tankage for the urea should be 10 percent of the boat’s fuel capacity.

St. Aubin estimates that an SCR system also adds about 10 to 20 percent to the price of an engine. McQuilken says the number is closer to 40 to 50 percent.

Because the aftertreatment works much like a catalytic converter on a gasoline engine, it’s possible that the most dangerous hurdle to overcome in an enclosed area like an engine compartment is the heat generated by the cleaning process.

St. Aubin says MAN’s system starts injecting the diesel exhaust fluid at about 400 F, just ahead of the catalyst. When the temperature reaches about 480 degrees, the system goes to closed loop to monitor NOx-in concentrations and NOx-out concentrations.

“We’re able to achieve a very high conversion efficiency of the NOx to nitrogen and water,” St. Aubin says. Regarding heat, he adds, “You can insulate and vent the engine compartment; about 30 percent of your engine energy is expelled through your exhaust heat.”

In addition to heat, creating excessive backpressure is a concern. Using too much urea also is an issue because it turns into ammonia.

Healey says the unknown factors are going to be an issue. “It’s trial by error, and the boatbuilders have no control over how they’re going to operate,” he says. “The problem is the as-yet-unknown problems that will be associated with this.”

Pat Healey fought the 1990s luxury tax and is prepared to battle the emissions regulations.

Pat Healey fought the 1990s luxury tax and is prepared to battle the emissions regulations.

When it comes to the hope that the systems will get smaller, St. Aubin says, “I can’t see a whole lot of potential for downsizing SCR systems. You need that catalytic reactive surface to get to the conversion efficiencies to get to the lower NOx emissions.”

ICOMIA’s Kleinitz says that if diesel fuel with a lower sulfur content were being used on a more global level, there would be a greater possibility of the equipment getting smaller.

While tankage needs for urea is one concern, availability is another. Yachts would have to go to commercial facilities to take on urea or have it delivered, which isn’t a hardship for larger vessels, but the owner of a 90-foot yacht expects to be able to take on fuel at a consumer facility like Florida’s Lauderdale Marina, which didn’t have urea as of early December. “We anticipate this changing as demand for urea increases and becomes a common supply at ports of call for larger pleasure yachts,” Cummins’ McQuilken says.

Healey and Setzer both say they hope the size of the treatment systems can be reduced to make them more viable for pleasure use.

Kleinitz says he is “trying to keep expectations low,” adding, “At the moment, the message on these regs is, ‘They’re coming.’ ”

While Healey admits that he might be waging an uphill fight, he isn’t ready to throw in the towel. “We’ve fought this battle without being in the public eye,” he says. “But now we have to get the word out. We have one more bite at the apple.” 

This article originally appeared in the January 2020 issue.

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