At the end of 2015, international shipping emerged from COP 21 unscathed by any regulatory action to limit carbon emissions; despite the fact our industry already emits around one gigaton of greenhouse gas emissions per year and is on a path to increase these emissions between 50-250% by 2050.
Without any regulations the shipping industry could be responsible for 17% of global carbon dioxide emissions by 2050. While this projection is daunting, there are profitable opportunities for businesses to combat this and drive international shipping towards a low carbon future.
Technical and operational measures could deliver energy efficiency improvements of 25-75%. These efficiency gains, and the financial savings they afford, are being implemented through the IMO’s EEDI standards. These standards do not, however, apply to the vast majority of ships on the water. This is where efficiency retrofits provide an opportunity for the industry to profitably lower carbon emissions.
In 2010, Carbon War Room and RightShip made it possible for shipping to consciously improve fuel efficiency by making information about vessel design energy efficiency publicly available through their GHG Emissions Rating. The rating ranks vessels based on their design energy efficiency from A (most efficient) to G (least efficient). By making this information publicly available, the demand to improve vessel efficiency is increasing.
Charterers use the GHG Emissions Rating to select more efficient and cost-effective vessels. In December 2015, RightShip announced 35 charterers implemented a policy where they can refuse to charter inefficient vessels such as F and G-rated vessels. 26 of these companies, including Rio Tinto, BHP Billiton, Noble and Cargill, have publicly announced their use of such policies. Pressure is also coming from financiers to improve energy efficiency.
Several leading shipping banks, including HSH Nordbank and KfW IPEX-Bank indicated vessel efficiency rankings, such as the GHG Emissions Rating, are now an important part of their risk and return assessments. Not only do inefficient vessels fail to garner the same price premiums as their efficient counterparts, but they also risk losing their value prematurely, becoming a liability to investors.
In response to this demand, shipowners are looking to energy efficiency retrofits to ensure their vessels’ competitiveness in an oversupplied market. Some shipowners, such as Odfjell, recently retrofitted their vessels with a group of technologies at the same time, delivering greater savings. Odfjell’s retrofits demonstrated 20% energy savings. While many shipowners are able to complete these retrofits on balance sheet, this is not always an option.
This is why Carbon War Room, University College London Energy Institute and PwC developed the Self-Financing Fuel-Saving Mechanism in which the financier covers the upfront retrofit cost (when multiple technologies are applied) and is repaid by the shipowner through the fuel savings.
Carbon War Room also works with shipowners to access more regular loans and funding guarantees for retrofits. These opportunities enabled industry leaders to kick-start the transition to a low carbon future, even without regulation, so the rest of the industry can join to deliver effective cost and emissions reductions.
This guest blog was written by Phoebe Lewis, Carbon War Room. Find out more by emailing Phoebe at p[email protected].