URSABLOG: Putting The World to Rights

A friend of mine visited Athens last week to attend the shipping ESG awards held on Monday. He was arriving on Sunday, so we arranged to have dinner together that evening at a venue to be confirmed. It was when I arrived at the market near where I live on Saturday morning that I realised that I didn’t have to book a restaurant; he was coming to mine for dinner. The large scorpion fish and small red mullets (σκορπίνες and μπαρμπουνάκια) looked so perfectly irresistible that they made the choice for me. We could sit on my balcony in the soft evening air, and I could have a further excuse to bring out some of my better wine, because good wine is better shared.
The fish (the mullet fried in olive oil, the scorpion fish cooked in a white wine soup with small tomatoes and saffron) was cooked – even if I say so myself – very well, but I think that was due to their quality rather than my skill. We enjoyed Greek and French white wine, and I even found an excuse to bring out the half bottle of Sauternes that I was saving for a special occasion. For those that are interested, it goes very well with κανταΐφι.

As usual, with good food and wine came excellent conversation. My friend and I have known each other for many years, and I deeply appreciate his wisdom. At some point – having explored many interesting conversational side-alleys and diversions – we started talking about the awards he was attending, and the ever-present topic of decarbonisation. He noted that I had stopped writing about green issues in this blog, and I explained that I felt I was boring people with the subject. There was little humour left to be wrung out of the subject, and it was depressingly easy to point out again (and again) the inconsistencies and ironies of various solutions trumpeted by companies, think tanks and NGOs. The issue was complicated, but too many people had become entrenched in one view or the other that little new could be said. In the end the market would decide.

He agreed with me, but nonetheless we shared between us some funny and stupid ‘solutions’ thought up by people that didn’t know better, or by those that should really know better. The trouble was that either people outside shipping suggested things that obviously couldn’t work, or that people inside shipping suggested things that went against the accepted orthodoxy of the decarbonisation agenda.
My friend felt that it needed – if people were really serious about it – a jolt to the system. It could be regulated into existence, not drip-feeding decarbonisation on an annual basis like CII, but by having a definite cut off point in the future.

“Imagine if you said that from 1st January 2030 you could no longer build ships that burn hydrocarbons, and all main engines had to be powered by non-carbon emitting fuels, and that all existing ships with hydrocarbon burning engines would have to be demolished before 2050. The market would be distorted for sure – the rush of ships being ordered before then would crash the market, if make shipyards very busy and profitable – but from then on the new ships would have to find their own way in the world, and economics would decide which was the best solution,” he suggested.

“That’s impossible,” I said. “World trade would collapse, it would put several areas of the world into severe poverty, and favour the very rich – shipowners and countries – and the extermination of the rest. And in any case the charterers would not co-operate because despite all their statements, they will never pay the premium the greener ships will need to survive. Charterers are like people, they want someone else to solve the problem without paying for it.”

“Oh I agree,” he replied, “But unless something like this happens those that say that they are serious about decarbonisation show that they are not, because world trade and the low cost of shipping is essentially more important than decarbonisation. Look at the trade in oil with Russia and the oil cap…”

And so we went on. I will not share the whole of the discussion, partly because it went all over the place, and would tax your patience, but also because we were on to the Sauternes by then, and my memory is a little hazy. It was a perfect evening.

I was reminded of this part of the conversation later in the week, when it was reported by the Financial Times that on 14th May this year, one American state generated 19.1 gigawatts of energy from solar farms, a new US record. Even more surprising was that this state was not California, as perhaps you might have guessed, but the fossil fuel rich state of Texas.

California, a progressive stronghold that has mandated strict clean energy targets for more than twenty years with huge amounts of utility-scale solar energy, has been beaten by Texas, a Republican-led fossil fuel powerhouse, governed by a serial obstructor of clean energy legislation. In fact, when the latest batch of solar plants come on-line, Texas will have added more solar capacity per capita in a single year than any US state and any country in the world, including China. The reason? Not legislation but economics.

It’s a real paradox. Texas is heavily reliant on gas, and in fact most Texans want to increase fossil fuel production and are more hostile than the average American to clean energy targets. Nonetheless, Texas is likely to extend its lead as it continues to build and connect new grid-scale solar much faster than California, or anywhere else. As the FT points out:

“Urban progressives in blue cities like Austin have been joined by rural west Texas conservatives who recognise that renewable energy is becoming a critical source of economic development for their communities.”

This is no longer a matter of people with a green conscience trying to appeal to others’ better natures, but a situation where people are investing in businesses where profits can be made within a legislative and practical framework where building and connecting new renewable projects is easier. This is what happens when business – and potential profits – trump the “something must be done, by somebody else” attitude of governments and NGOs.

Which brings me back to my conversation with my friend on Sunday night. Too much perhaps is made of what should be done; shipowners should want to have carbon free ships – even when none exist – and pay for them, in fact pay so much for them that today’s freight markets will never pay enough to make them break even, let alone make a profit. The knee-jerk reaction – and the one suggested by my friend – is to impose legislation on the market so that something has to be done, and then one way or another it will be.

Proponents of wind power suggest that the transition of sail to steam was because of the abundance of fossil fuel that made it more convenient than the cheaper resource of air moving quickly in the atmosphere. There may be some truth in this, but to my mind the deciding factor was that the market, and by this I mean the freight market, decided that it would pay more for those ships that could arrive on time, and carry more. Wind power enthusiasts today may have a point, but wind mitigates fuel costs – and by extension carbon emissions – rather than fundamentally lower them, and the savings are, like the wind, variable.

I am sure that someone, somewhere is working on a system or technology that will, after time, make non-carbon emitting energy available to propel ships at a cheaper cost than the current, very cheap, alternative. As with solar power however, it may take some time for the costs to come down as innovations and improvements are made, and production is scaled up. What will it be? I have no idea.

On a balmy evening in Athens, two people can – like many people around the world – put the world to rights over food and drink and come up with outlandish and far-fetched ideas on how to resolve the world’s problems, knowing that for that time at least they are free of the real world intervening with inconvenient truths. But I take two things from this dinner. The market – whatever market – always has to adapt to external forces beyond their control, whether it is climate change, politics or a change in fashion. But the market normally comes up with its own solutions where profits – that is when the income exceeds the costs – can be made. The risk is in how to get there.

It is not a bad thing – I can hear various NGOs shudder at this point – for people to want to make money. And if conservative farmers in the oil guzzling Lone Star state are now making money out of green solar farms because it makes money for them, and are promoting it, then it shows that economics can lead the politics – I can hear various politicians shudder at this point too – not the other way around.

The challenge for shipping is to find a cost effective and efficient alternative to fossil fuels that can make them money too, and be open minded enough to accept it, maybe even develop it. The challenge for the regulators is to create the environment for this to happen, and not just legislate in a vacuum of aspirations. ESG – environmental, social, governance – should never forget that it exists within a system – one that hopefully makes money – and is not a system in itself. But those promoting solutions should remember Texas too: as far as businesses are concerned, profits – past, present and future – are always a better incentive than good intentions.

Simon Ward