What forces can be brought to bear and who is best placed to accelerate investment in decarbonisation-friendly assets within the freight transport sector?
A University College London Energy Institute-led event posed the knotty question to panellists representing trade associations and an environmental non-governmental organisation to gather insight and help propel the decarbonisation dialogue forward.
The event’s hosts, a project called Decarbonising UK Freight Transport, have put out research showing that near-term asset investment decisions will be critical in meeting decarbonisation deadlines. They estimate that between US$1-1.5Trn in investment between 2030-2050 is required to meet IMO’s decarbonisation goals.
Many alternative low- and no-carbon fuels and technologies require further development and scaling to be viable, and the funding is needed to kick-start the drive to decarbonisation.
However, attitudes toward risk featured prominently from all sides in the discussion over how best to fund decarbonisation.
At the event, industry representatives repeatedly invoked the fear of ‘stranded assets’. In maritime, an example would be unprofitable investments in vessels with a limited useful life due to regulatory and market shifts.
“The stranded asset risk is a serious one for us and our members,” said one.
“I think one area of concern that [we] share with shipowners is this point about stranded asset risk,” said another.
Faced with uncertain returns on investment, the industry representatives pointed to external forces – namely, public sentiment and government regulators – as the ‘stakeholders’ responsible for an initial move toward the sector’s decarbonisation.
While it is understandable that business works to protect profits, it is clear that industry cannot duck its responsibility.
Industrial emissions – including those from shipping – have played a big part in turning up the heat on our planet. Failing to take immediate action to move away from polluting technologies is making the situation worse.
The World Meteorological Organisation (WMO) says the 2010s were the warmest decade and 2015-2019 were the five hottest years since records began in 1880. And January 2020 set yet another record as the warmest January on record.
The pace of climate change is such that the Paris Agreement’s goal of holding global average temperatures within 2°C above pre-industrial levels – agreed just over four years ago – is under serious threat.
The US’ National Oceanic and Atmospheric Administration (NOAA) has calculated an average temperature increase of 0.18°C per decade over the last four decades. Combined with average increases of 0.07°C per decade during the hundred years from 1880-1980, the planet is already more than 1.4°C warmer than pre-industrial levels.
At the current rate of temperature rise, we could just sneak in below the 2°C limit if we manage to halt all further warming by 2050.
As IMO delegates from more than 170 countries recognised in 2018 in passing a decision to at least halve shipping emissions by 2050, when addressing climate change, what makes sense for the shipping industry, the general public, governments and the future of the planet is moving away from business as usual.
There is clearly no time for handwringing over whose responsibility it is to take the first steps. The responsibility is collective.
Where do we begin?
Shipping does have options in its fight to decarbonise, some of which EDF director Aoife O’Leary discussed at the Decarbonising UK Freight Transport event. Ms O’Leary works to influence climate change policy in shipping and aviation, and her organisation has developed a theory of change for the shipping industry.
Transparency, she said, is a key element that is currently lacking in CO2 emissions reporting.
Asked what kind of information was required to aid owners and financiers in understanding broader perspectives on decarbonisation, Ms O’Leary took the shipping industry to task for its stubborn unwillingness to be transparent.
“The industry lobbied very, very hard to make [records of CO2 emissions] non-transparent, and all the information essentially sits in a little black box at IMO and no one has access to it,” she said.
The importance of transparency lies in getting a better understanding of emissions levels in order to take steps to abate them. Keeping emissions data locked away makes it look like the industry is hiding from public scrutiny and trying to delay further abatement measures.
Calling for government support in the decarbonisation effort, Maritime London chief executive Jos Standerwick pointed out that shipowners – as “a small cog in a much wider supply chain” – have few drivers for, and little agency to change. Ultimately, he said, it will be counterparties in the supply chain – investors, charterers and insurers driven by internal environmental, social and governance criteria – who will push the decarbonisation agenda.
“[Shipowners] are trying to do one very simple thing and that is to move goods from A to B in a very competitive market within the regulatory framework that already exists,” he said.
In an historically stingy lending climate for shipowners, Mr Standerwick said there is a role for government to play in “providing certainty to investments” and encouraging uptake of new decarbonisation technologies.
“That would support investors coming into the market and support shipowners investing in new technology – not only new tonnage but also those additional features such as Flettner rotors that would support the trajectory towards decarbonisation – and which, right now are not getting a fair go of it in the industry simply because investors and shipowners cannot adequately speak to the ability for that technology to realise the investment.”
As a method for change that could avoid the need for government subsidies, Ms O’Leary said carbon pricing is an “obvious solution” both for forcing change upon an entrenched market and for boosting innovation.
“If you put in a proper carbon price, then what you will see is the market and the industry will start to actually make decisions on the basis of that. And they will go out and find that data that they need,” to choose technologies and fuels that work for their individual asset investments, she said.
Ms O’Leary said an ancillary benefit of carbon pricing would be the creation of a dedicated “pot of money” for developing new and existing decarbonisation technologies.
Comparing today’s shipping industry to the beginnings of the renewables industry, Ms O’Leary said maritime needs the funding pot to reduce risk for investors.
“If you think about the first windfarms being built 20 years ago, they were eye-wateringly expensive per tonne of CO2 they reduced. And the only reason they got built was because there were subsidies that derisked them for those investors. And you are going to see the same in shipping,” she said.
“As [Mr Standerwick] was saying, [shipowners are] just moving their goods from one place to another. They do not have the capital to be worrying about building the ship of the future. So, we are going to need some kind of innovation funding. That will be the thing that will change the industry and drive decarbonisation, ultimately.”
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