The Marine Department and Environmental Protection Department are finalising details of how the scheme will be implemented, but these issues should be resolved quickly and the first payments made in two or three months, he said.

Under the scheme, which will cost the government HK$260 million over three years, shipping companies using low-sulphur fuel will be entitled to a 50 per cent cut in port and light dues charged on ocean-going vessels while berthed in Hong Kong. The scheme was included in the financial secretary's budget proposals approved by legislators last Thursday.

Seventeen global shipping giants, including Cosco Container Lines, Orient Overseas Container Line, Maersk and CMA CGM, signed the Fair Winds Charter in October 2010 to voluntarily switch to fuel with a sulphur content of 0.5 per cent or less while berthed in Hong Kong. The sulphur content of normal marine fuel is between 2.8 and 4.5 per cent.

The two-year charter was launched by the shipping industry in January last year to give time for the government, in co-operation with authorities in the Pearl River Delta, to introduce laws outlawing the use of fuel with a high sulphur content.

But while lawmakers support the plan and officials from the Environmental Protection Department have been in discussions with their counterparts in Guangdong, there has been little progress.

This is despite the government saying vessels had become 'one of the major local air pollution sources ... and the second largest sulphur dioxide and nitrogen oxide emitter after power plants' in a briefing paper to legislators.

Veronica Booth, senior project manager at Civic Exchange, said the fact the subsidy was for three years gave a rough indication when government thought regulations on ship pollution could be introduced. Civic Exchange is a public-policy think tank that helped to draw up the charter with the Hong Kong Liner Shipping Association.

Senior shipping executives said the cut in port dues covered between 30 and 50 per cent of the extra cost of switching to low-sulphur fuel but the higher cost of the fuel put them at a competitive disadvantage with non-signatory carriers.

Roberto Giannetta, secretary of the liner shipping association, said the higher price of low-sulphur fuel cost each shipping line an extra US$600,000 to US$800,000 a year.

'In an environment where lines have suffered a dismal financial year and still are seeing many services running at below profit-levels, all shipping lines must look at cost-cutting measures. The prospect of them voluntarily agreeing to an add-on extra cost, even if it is only 50 to 70 per cent of the true fuel switch cost, is going to be a tough decision,' he said.

Tim Smith, Maersk Line chief executive for north Asia, said: 'It's good the government has recognised the issue and put some money on the table. But I'm worried that at this level the subsidy won't be enough to encourage those lines that don't switch to do so. We may see some existing charter members drop out after expiration of the original two-year commitment at the end of 2012.'

Michael Britton, general manager for Asia at Hamburg Sud, said: 'We'd certainly like to see it continue, but it is a challenge to continue to do so.'

3,500

The maximum permissible sulphur content of diesel oil for road traffic in the EU is 3,500 times less than that allowed for global shipping