About 90 per cent of the world’s trade is carried by ships, slipping across the oceans far out of sight from land. The industry can claim to be truly international in a way few sectors can, which poses problems when trying to limit its environmental impact.
The OECD’s International Transport Forum says that from 2010 to 2050, international trade-related CO2 emissions are likely to quadruple, overtaking the output of passenger traffic, as larger volumes of goods funnel to new, more distant markets. While aviation emissions are predicted to see the biggest spike, sea freight emissions are still expected to see a 238 per cent increase to the middle of the century.
But attempts to address the rise in emissions have repeatedly run aground. Although discussions continue around using a market-based mechanism such as a tax on bunker fuel or an emissions trading scheme to tackle shipping emissions, painfully slow progress at the International Maritime Organisation (IMO) has been limited to a series of efficiency measures.
However, parts of the private sector are attempting to tackle the problem, driven as much by the demands of retailers and other companies to green their supply chains as by the looming threat of regulation.
One such initiative was quietly floated earlier this year: Liberia is handing out up to $53m of tax breaks to vessels in its registry that fit fuel-efficiency measures, as part of a deal brokered by Richard Branson’s Carbon War Room (CWR).
CWR has teamed up with EfficientShip Finance (ESF) and University College London to develop the Self-Financing Fuel-Saving Mechanism, a “no money down” financing model that pays for retrofits using money generated from the fuel savings that result, according to Jeff Erikson, director of global projects at CWR.
Liberia is not the first registry to implement a green shipping plan – Singapore has an existing scheme and the Isle of Man brought in discounts last year – but the difference with the new initiative is one of scale. The West African nation is the world’s second largest flag state for ships, hosting around 3,900 ships that could be eligible for a 50 per cent discount on annual tonnage tax in the first year and reductions of up to 25 per cent in the second and third years – a saving of up to $13,800 for a ship of 100,000 gross tons on top of reduced fuel costs – if they embrace efficiency measures.
“Essentially, [the agreement] says any ships retrofitted with ESF’s financing get a pretty significant discount on the taxes required for the registry,” Erikson says. “For us, this is one more signal to the market that says the industry is changing. We’re moving quickly to utilising more fuel efficient ships and in addition to the direct cost savings there are plenty of other reasons to be doing it as well.”
CWR has made a big splash in the shipping industry already through an A-G efficiency rating it developed with RightShip, which for the first time allowed charterers and shipping firms to identify the most energy efficient ships. Around a quarter of the non-container charter market now uses the ratings, phasing out F and G rated vessels, while three ports – Barbados and Prince Rupert Port Authority and Port Metro Vancouver in Canada – are offering discounted fees to the most efficient vessels.
However, the Liberia scheme is wider in scope and replicable in other registries, including Panama – the world’s largest. “We see the partnership with Liberia as a strong pathway to wider market acceptance of our unique financing offering,” says Oliver Petrakakos, ESF’s chief operating officer. “We trust Liberia’s leadership with this step will drive other quality registries to eventually make moves in this direction.”
Interestingly, in its press release announcing the deal, the Liberian Registry outlined its aim to “ensure Liberia remains the greenest fleet afloat” and emphasised how the approach would help its ship owners “keep their lead in an increasingly competitive environment”.
It is clear Liberia sees greener ships not as a nice-to-have, but as a true differentiator from its competition.
Moreover, environmental leadership is being demanded by stakeholders in the industry, including the end customers who are ultimately consuming the products that are shipped around the world.
“There’s this race to the top, not only in the registries but also among ports,” Erikson says. “Ports are now competing to position themselves as driving environmental improvements. The broader perspective is that companies that are using ships to transport, the ones that are retailers and customer-facing, they’re all trying to green their supply chain.
“All businesses want to be in control of their own destiny and they would much rather develop something internally to meet some of those policy goals rather than getting something imposed on them,” he adds. “So it’s part of a bigger trend we’ve seen going on for the last several years and continues to pick up steam.”
Erikson adds that CWR is in talks with several shipping companies who have dry docks scheduled in 2015 and 2016 and hopes to see “blowtorches on ships by the end of this year” as firms take the decision to upgrade their fleets.
This would be just in time for the UN climate change summit in Paris, where almost 200 countries are aiming to pen a global emissions reduction deal that could revive hopes of an international system of environmental taxation or carbon trading for ships. In the meantime, Liberia and Carbon War Room are providing yet another reminder that business-led solutions can often achieve far more than long-winded political processes.
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