Thought Leadership
19
Peter Boyd, chief operating officer of Carbon
War Room, argues the economic and environmental case for carbon efficiencies in the shipping sector
T
it a sector we simply cannot ignore. Indeed, if current growth continues, shipping will contribute 18% of all global greenhouse gas emissions by 2050 (Source: IMO). The good news is that at least 60
he trillion-dollar shipping industry transports 90% of the world’s goods, becoming “one of the most profitable businesses in the world” according to celebrated maritime economist Dr Martin Stopford. The industry is both a lead indicator and a by-product of our economic times: in the last decade the Chinese economy has added a billion new freight tons to traded cargoes, and as consumption in developed and developing nations continues to grow, the shipping industry will inevitably power up to meet the demand. This engine of the global economy does not come without cost, however. Despite maritime transport being relatively much more efficient than other transport modes, its absolute size (over 1 billion tons of CO2
e annually) makes
“This is a sector we cannot afford to ignore”
also helping identify the best emerging technologies – a tool for both the demand and supply of shipping services. Armed with better information,
technologies combined with operational improvements could deliver 30% efficiency gains (or more, according to many insiders). Importantly, this represents a potential $70bn of annual savings on the current global fuel bill. Improving information in the market place is vital to economic and environmental transformation. There are many promising developments, but it’s currently too hard to incorporate vessel efficiency information in to day-to-day economic decision-making across the industry. When 70% of the industry fuel bill is passed on to the cargo owner by the operator, split-incentive issues hamper further progress. Initiatives such as
shippingefficiency.org among others could prove useful in not only highlighting relative vessel efficiency, but
WWW.CARBONWARROOM.COM
charterers can encourage improvements (as Cargill recently announced with SkySails); ports can incentivize cleaner ships (as Port of LA and others have started doing); and consumer brands can choose more efficient ‘A-grade’ fleets over less efficient alternatives. Over time, fleet owners will find it makes more sense to upgrade, and in turn the necessary capital will increasingly become available. Undoubtedly, there will be first-mover advantage for companies that embrace the change quickest. Cargo owners will be able to capture a disproportionate share of the ‘clean fleet’ before day rates more accurately capture the premium these vessels should command. Meanwhile, ship owners can position themselves well for future contract negotiations as times get tougher. Ports are uniquely positioned through all this change: a ‘demand signal’ that can incentivize ‘A-grade’ ships (also helping to achieve their clean-air goals); but also integral ‘supply side’ players in the global supply chain, tasked with reducing emissions across the system. Regulation will help, but in a more informed market, the industry innovators can and will move things to the next level
on their own: a few Maersks and TeeKays will create the pack to follow. Crucially, it will not need too many Nikes, Ikeas or Port of LAs to publicly demand efficiency information, and act according to the ratings provided. It will also not need many brokers and financiers to trade second-hand ‘A-grade’ vessels at a premium. With many profitable retrofit opportunities available on current policy and available technology, the industry can respond quickly. At Carbon War Room we are confident,
after many discussions, that finance will follow the innovators’ lead and make the required capital available. New mechanisms and new thinking may still be required to unleash all the necessary funds; adapted risk- and benefit- sharing models (potentially gleaned from other industries), and carbon finance may also have a role to play. To conclude, there are positive economic
returns, which will drive positive returns for the planet. Please consider this a call to action – the most progressive charterers, the most forward-thinking brands, the pioneering ports, and the innovative owner-operators – you stand to benefit from first-mover economic advantage, while also steering a strong economic and environmental course for the rest of the industry to follow. ||||
• To read our Shipping Technology for Investors focus turn to page 21. Our Shipping Special Report can be found on page 26
With 60 technologies out there with the potential to deliver 30% efficiency, not to mention $70bn-worth of fuel savings per year, the potential for improvement is compelling
ISSUE 02. JUNE 2011
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