HFO ban could lead to big Arctic price increases, Transport Canada says

Nunavut could see annual price hikes averaging up to $1,400 per household

A loader operated by Nunavut Eastern Arctic Shipping offloads cargo from a barge at the Iqaluit sealift beach last summer. Transport Canada says new fuel regulations will lead to higher costs for shipping firms and higher prices for Arctic residents. (Photo by Jim Bell)

By Jim Bell

New rules for marine fuels used by Arctic sealift vessels will lead to big price hikes for food and other commodities in Nunavut this year, and even greater increases if a proposed ban on all heavy fuel oils goes into effect in the future, Transport Canada said in a report to the International Maritime Organization last December.

The impact assessment report finds that the combined effects of a low-sulphur fuel regulation that kicked in this Jan. 1, plus a proposed future ban on all HFO fuels in the Canadian Arctic, could cost each Nunavut household up to $1,400 per year.

“This could include direct and indirect effects on the health and quality of life of Indigenous and Inuit peoples living in the Arctic,” the report said.

This image shows the method that Transport Canada used to calculate the price impact of an HFO ban in the Arctic.

As of Jan. 1, under the IMO’s Polar Code, all vessels operating in the Arctic must start using low-sulphur fuels, with a sulphur content no greater than 0.5 per cent.

That rule, aimed at reducing air pollution, applies to all vessels, including sealift cargo vessels operating in Arctic waters or in the waters of Hudson Bay, James Bay or Ungava Bay, the regulations state.

Vessel operators who install scrubbers onto their ships’ exhaust systems are exempt; all others must start using low-sulphur fuel this year.

Most Arctic cargo vessels aren’t likely to use scrubbers, and will move instead to more expensive low-sulphur or distillate fuels this year, which will lead to an immediate impact on Arctic food prices, the report said.

In its report, the federal government says the new measures, current or proposed, are nevertheless good for the environment, reducing air pollution and black carbon, a major contributor to climate change.

Possible damage to Inuit well-being

But at the same time, they may damage the well-being of Inuit and other Arctic peoples.

That’s because Canadian Arctic shipping companies will pay between nine per cent and 12 per cent more for the legally mandated low-sulphur fuels this year.

For example, a 20-foot sealift container that cost $5,000 to ship last year will now cost between $5,450 and $5,600 to ship this summer.

It’s also possible that, in time, those prices could come down due to market forces, especially if lower sulphur fuels become more available in the future, the Transport Canada report says.

But if a total ban on heavy fuel oils is put in place on top of the low-sulphur regime, prices could rise even higher.

The report calculates an HFO ban could increase the cost of community resupply by a further four per cent to 11 per cent.

The sealift firms will pass those costs on to their customers, which means Arctic residents will pay higher prices for food and other commodities, the report said.

The low-sulphur cap will increase Nunavut food prices by up to 1.9 per cent, with an estimated $6.1 million increase in prices for consumers.

For the average Nunavut household, that means they’ll have to spend between $535 and $713 more to buy what they need this year.

This table shows the estimated economic impact of the new regulation that mandates low-sulphur fuels.

But in the future, a total ban on HFOs could raise prices even more, by 0.7 per cent to 1.9 per cent, with an annual per household impact of between $248 and $679.

So in a worst-case scenario, the combined impact of the two measures means a $1,392 annual hit to the average Nunavut household.

The table shows the additional potential impact of a future ban on HFOs.

That, in turn, would disproportionately affect Inuit and other Indigenous peoples, who in general have lower average total incomes than non-Indigenous people.

“As an example, the median income for Nunavut Inuit aged 15 years and over was CAD $24,768 compared with CAD $84,139 for non-Inuit living in Nunavut and CAD $53,625 for the average Canadian,” the report said.

NTI, ICC support HFO ban

Nunavut Tunngavik Inc. passed a resolution last October calling for a total ban on HFOs, and the Inuit Circumpolar Council also supports such a ban.

It’s not clear, though, whether NTI delegates were provided information about the potential economic impacts of an HFO ban when they voted in support of it last fall.

The Transport Canada report points out that Canadian Arctic regions are already suffering from a food insecurity crisis, caused by high living costs, lower incomes and higher unemployment.

And the report quotes Statistic Canada’s finding that 55 per cent of all adults in Nunavut and Nunavik over the age of 25 live in households experiencing food insecurity.

For the Nunatsiavut and Inuvialuit regions, that food insecurity figure drops to 42 per cent and 33 per cent respectively.

“Any increase in consumer goods costs, even as low as 4 per cent, will impact the purchasing power of already vulnerable communities,” the report said.

The list of harmful economic impacts also includes the following:

• More expensive household items, such as furniture, refrigerators and stoves.

• Higher costs for equipment used in food harvesting, such as firearms, ammunition, fuel and camping supplies.

• Increased housing costs, due to increased costs in construction materials, leading to a reduction in the number of housing projects.

• Increased costs for territorial governments, which import medical supplies and other goods into communities.

• Higher costs for perishable foods delivered by air cargo, since perishable foods rely on the cost of refrigerators, generators and low-sulphur diesel.

Environmental benefits

The Transport Canada study also says reducing or eliminating HFOs will bring significant environmental benefits. For example, the new low-sulphur rule is expected to reduce airborne sulphur oxides, reducing air pollution and the risk of acid rain.

And a ban on HFOs in the Arctic could lead to a reduction in black carbon, a major contributor to climate change.

Although black carbon, contained in soot and other exhaust emissions, doesn’t remain in the atmosphere as long as carbon dioxide, it can have a major effect on the rate of climate change in the Arctic.

It’s estimated that black soot that settles on snow and ice causes greater absorption of warm sunlight, leading to higher rates of melting.

In its report to the IMO, Transport Canada estimates a future HFO ban could reduce sulphur oxide emissions by 80 per cent, black carbon by another 23 per cent, and fine-particulate matter by 31 per cent.

“The impact assessment of the impact of an HFO ban on Canada’s Arctic communities and economies shows both positive and negative impacts,” the report said.

Meanwhile, a new European study shows that new low-sulphur fuels may actually cause an increase in black carbon emissions.

IMO_HFO_SUBMISSION_-_DECEMB... by NunatsiaqNews on Scribd

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(16) Comments:

  1. Posted by Affects Everyone on

    It seems to me that anyone living in the arctic regions will be affected by the change regardless of their ethnicity! Isn’t it about time we stopped separating people into neat little ethnic compartments to sell stories or make political statements! We all live here and we will all be affected by these new changes and regulations which is bad new for everyone across the board!!

    • Posted by Consistency on

      Yes it will impact everyone in the north however as Jim states the average Inuk makes less then the average non-inuk in the north. but all still need the same amount of food to live so the extra $700 means more to someone who only make $25,000 a year verises the $700 maters to someone that make $85,000 a year.

      • Posted by all in on

        isn’t this an average of $700 per YEAR per household? So that’s what, $58 per month…if you’re on the average. People with more traditional food sources may pay less, on average.

  2. Posted by pissed off on

    Very good article Jim as usual.
    It simply shows that it is nice to have great principles but that there is a cost to any of these.

    Broad changes are sometimes well intentioned but rarely have all the consequences by those who carry these battles.


  3. Posted by Putuguk on

    Greenpeace, WWF and Friends of the Earth (US) have lead the charge for a HFO Free Arctic. This is an unmentioned link between what an international regulatory body is now deciding to do and the real life consequences for anyone depending on the arctic sealift.

    IMO would not be looking at a HFO ban if it were not for pressure from a consortium of non-governmental environmental groups such as HFO-Free Arctic. The campaign was not to create a fund to support shippers to install scrubbers or build new fleets of converted freighters. It was also not to build the Trans Mountain pipeline so that Canadian distillates could get to tide water and into ship fuel tanks. No, it was ban HFOs – the sooner the better.

    Simply put, these groups put the environment before people. I can understand environmental groups thinking the way they do. They are being true to their objectives, their donors, and their world view.

    What I cannot understand is how NTI drank their kool-aid and went along with them to the obvious immediate detriment to its membership.

    There are some potential reasons for this, all troubling. First, NTI was ignorant of the consequences before it decided to support the ban. Second, NTI has been subverted by these groups. Third, NTI knew this would create hardship for Inuit and did not care. I wonder which reason it is?

    • Posted by Insider on

      Based on experience, the problem most likely was that NTI was oblivious to any potential issues. They have a history of going for the it sounds good headline without any depth of understanding of the issue.

      • Posted by Occams Razor on

        Interesting post, Putuguk. I’m going to guess they were largely ignorant.

  4. Posted by Alaskan on

    New research is showing that ultra-low sulphur fuel is increasing carbon black, not reducing it. Unintended consequences.

  5. Posted by bob on

    Good article. For such a significant change, it is to bad that Transport Canada did hold proper consultations with locals.

    It is like the consulted with the foreign groups, then got ICC on side, and ignored everybody else, including local communities, peoples, businesses, and Inuit groups.

    ICC did a bad job representing local Inuit on this issue; respectfully, Lisa lives in Montreal and this issue has no impact on her.

    Members of ICC Canada need to raise this issue and ask them to clarify their position. They should also confirm who is paying ICC travel and hospitality expenses on all those fancy trips to London, England for the IMO meetings.

    I hope the GN will stand up for communities here.

  6. Posted by Hiber Nate on

    Want to save the ENVIRONMENT? Get ready to pay more and more and more for the RIGHT to BREATHE and LIVE LIFE! We’re the only creatures on the Earth who MUST pay SOMEONE ELSE (Gov’t, Business) just to live!

    And if you don’t, then GRETA will haunt your dreams and her merry band of Environmentalists will SHAME you forever!


    • Posted by Chicken Little on

      We the people are going to become working poor in order save the planet .

  7. Posted by Jim on

    In looking at Wikipedia I see Heavy Fuel Oil (HFO) is a category of fuel oils of a tar-like consistency identified as a “worse case substance”. Also known as bunker fuel or residual fuel oil, HFO is the result or remnant from the distillation and cracking process of crude oil. Just crunching the #’s as to cost of groceries , etc. it seems like no one really knows what will happen. What about fluctuations in fuel prices? I wonder where things are with fuels other than dirty old oil?

  8. Posted by bob on

    HFO is best and most sustainable and environmentally responsible marine fuel option right now for Canadian shipping in Arctic waters.

    On top of cheaper, HFO is less toxic than distillates. A distillate spill creates a slick on top of the water and a small amount can cover thousands of square kilometers. And it does not easily break down in ice waters and along the floe edge. Distillate spills kill wildlife dead, about 100 times more toxic than HFO.

    HFO sticks together in spill and likely stays in the vessel or sinks. It is ugly but managable.

    To move to distillate marine fuels without local spill response and mitigation measures only will increase real toxic spill threats for communities. This is bad.

    No global elite tree huggers are worth increasing costs and toxic risks for Canadians, for no benefits in return. Life is hard enough already.


  9. Posted by tuktuborel on

    Well I guess those carbon off sets better increase many fold.
    Times are changing and we have to change too. Let the new tech reduce our impact on the environment and the increased costs (with generous support from the Feds). We are not going back.

  10. Posted by NTI beneficiary on

    This would be a good time to perhaps NTI to actually put the subsidy to Inuit for that fuel increase which will end up being relayed to us in one form or another for making the Resolution to ban cheaper fuel!

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