One of the most frustrating things about the continuing discussions about emissions, greenhouse gases and the environment in general, at least as far as shipping is concerned, is the ignorance of those who would wish to legislate for us. This ignorance is widespread, and is a blessing and a curse. It is a blessing because good intentions become confused ideas, and rarely leave the drawing board. It is a curse because sometimes these ideas, no less confused, make it off the drawing board and become laws, conventions and regulations which turn about to be severely damaging to the shipping industry as a whole without having the effect that was originally desired. The road to hell, as the proverb goes, is paved with good intentions. There are many examples of this, including IMO 2020 and ballast water treatment systems, where the industry complies with the rules and invests millions in new equipment and systems only to find out that the rules change, or the equipment doesn’t do what it is supposed to do.
If this sounds cynical, then it is. I hate to repeat myself, but I feel I have to. I am not a climate change denier, and I believe in the science that has measured this change, and the causes of it. I just don’t trust those who pretend to have all the solutions, or who meet reasoned resistance to their ideas with cries of ‘heresy’!
When I first meet new students – in my spare time I lecture at the Institute of Chartered Shipbrokers, as well as being a guest lecturer at the University of Piraeus, the Athens University of Economics and Business and City University London – I ask them for a simple definition of the shipping industry, preferably in once sentence. After much fumbling around in the dark, grasping esoteric concepts like trade, supply and demand, cargo, and so on I put them out of their misery. My definition, for what it is worth, is simple:
The employment of ships in exchange for payment.
I think that this covers most things, from offshore to tankers, ferries to LNG. At some point someone is paying someone else to move ships around and not even always that, storage contracts for crude oil being a case in point. From that definition flows everything else, the contracts of employment, liner terms, and so on, so that liabilities and risks, obligations and rights can be divided up between who provides the ships, and who provides the employment.
So who is responsible for the emissions that ships produce? It is easy for an NGO to have an article pointing at shipowners as being the cause of 2.5% of global greenhouse gas emissions, usually illustrated with a photo of a ship belching black smoke from its funnel. Leaving aside the equally boring fact that shipping is the most environmentally friendly form of transport, full stop, it is worth asking the question, who should pay for it?
The commonly accepted practice is to apply the ‘polluter pays’ principle, where pollution is defined as contamination of the land water or air by harmful or potentially harmful substances. Who exactly is the polluter? The shipowner? The employer of the ship? The producer of the energy that propels the ship? The owner of the goods or cargo that the ship carries? This question has been neatly sidestepped for a long time, but now a new organisation has made a new step in tackling this question:
The Sea Cargo Charter establishes a framework for assessing and disclosing the climate alignment of ship chartering activities around the globe. It sets a benchmark for what it means to be a responsible charterer in the maritime sector and provides actionable guidance on how to achieve this.
The Sea Cargo Charter is consistent with the policies and ambitions of the International Maritime Organization (IMO), including its ambition for greenhouse gas emissions to peak as soon as possible and to reduce shipping’s total annual GHG emissions by at least 50% by 2050.
As a result, the Sea Cargo Charter will enable cargo-owners and shipowners to align their chartering activities with responsible environmental behavior and incentivize international shipping’s decarbonization – to shape a better future for maritime shipping and society.
Yes! At last the charterers are being responsible in shipping, and not just passing the buck to the owners. The signatories are not fringe players either: ADM, Norden, Total and Trafigura. And in fact Trafigura, an oil trader no less (amongst other things) wrote an op-ed piece in the Financial Times proposing a levy on carbon-intensive shipping fuels, and subsidise low- and zero-carbon fuels:
We propose a self-financing system where a levy is charged on the use of fuels with a CO2-equivalent intensity above an agreed benchmark level, and a subsidy is provided for fuels with a CO2-equivalent profile below that level.
It is now time to put a price on carbon emissions in the shipping industry Our own in-depth analysis and commissioned independent research indicates that the levy should be between $250-$300 per tonne of CO2-equivalent.
Talk about turkeys demanding Christmas comes early. But they are clear:
The initial levy of between $250-$300 per tonne of CO2 equivalent may sound high, but we believe it is necessary. As one of the world’s largest charterers of vessels, responsible for more than 4,000 voyages each year, we recognise that a carbon levy will have an immediate effect on shipping costs which companies — including ours — would bear. This increase in operational costs will spur charterers to change behaviour to reduce emissions, charter more efficient ships and switch to lower carbon fuels.
This seems very sensible to me: the polluter pays. Maybe I am missing something. To my mind the demand for shipping is derived from the demand for the cargoes themselves, and it is the charterers, in whatever form they are, that pay for the stuff to be moved around. Why shouldn’t they be the ones to take responsibility and initiate change? The International Chamber of Shipping doesn’t seem to think so. Guy Platten, secretary general said:
The initiative has some interesting ideas but we believe that it would have a better chance of success if it was to be aligned with the reporting requirements set out by governments and even the Poseidon Principles, to be agreed at the IMO following significant consultation and review, to ensure that the reporting requirements are as efficient as possible.
Someone has stolen their toys. The International Chamber of Shipping, based in the same building as the Baltic Exchange in London, also has consultative status at the IMO. They seem to have been blindsided by the intervention, and are dismayed that their role has been usurped by the charterers. They have been disrupted, and I for one do not have much sympathy. Their efforts have not done much for most of my shipowner clients in the last few years.
The answer to why the charterers have taken the initiative here is fairly simple. They are the consumer facing organisations that have to raise money from banks to keep them going. If the banks are now being pressurised by their shareholders to do something about climate change, then they have to show they are doing something. It is perhaps not a coincidence that Trafigura announced that they will be investing US$ 2 bill in renewables a couple of days after they wrote the above article.
And I am sure that it was also not a coincidence that all this followed the decision by the European Parliament (EP) to insist that maritime transport should be included in the EU Emissions Trading System (EUETS):
Parliament wants maritime transport to be more ambitious and believes ships of 5000 gross tonnage and above should be included… However, MEPs say that market-based emissions reduction policies are not enough and request that shipping companies reduce their annual average CO2 emissions per transport unit for all their ships by at least 40% by 2030.
Now this is not yet written in stone: the EP guides the European Commission (EC) on what legislation it wants, and it is then up to the EC to discuss with member states and come up with practicable legislation that can then be ratified. This will take some time. But the implications are clear.
The EUETS is going to see a lot of action, and the shippers of cargoes, and the charterers of ships, will want access to it to continue to trade in and out of the EU. Sensible shipowners will be following this with concern and interest, and wondering how their ships will be chartered in the future, and by whom. Shipyards will have to think about what new designs they can come up with to meet the charterers’ demands. Main engine manufacturers will have to come up with realistic and timely solutions. If you want another reason why not to order newbuildings right now, here you have it.
I think that this is a major game changer, a slow burning one, but one with the ability to completely change the economics and shape of the shipping market as we know it. It takes the discussions about what is the fuel of the future away from the first adopters and developers, and puts it in the hands of the industry itself. Shipping is a service industry serving the needs of their clients. If their clients not only want change but demand it, then the service provider needs to change. I almost think this will be a transition similar to that from sail to steam, but I don’t want to get too carried away. However now it is being driven by market players, and the dynamics of the markets themselves, real change seem not only possible but inevitable. It’s about time we woke up to that fact as soon as possible and look for ways to take advantage of it. We may also contribute to making the planet a less worse place than it could be, which would also be a much welcome change.