Craig Jallal speculates on how the announcement that Shell has bowed to pressure from the environmental lobby and agreed to link executive pay to carbon emissions will impact the tanker sector.
One of the most intriguing stories I covered last week was the news that Shell is to link executive pay to achievements toward meeting internal zero net carbon targets. Shell has introduced the measure under pressure from powerful lobby groups linked to significant investors in the oil major.
Having won this concession from Shell, it is likely that the same groups will eventually win the same concessions from the remaining oil majors and state-owned oil companies. By 2020 we might have the situation where the main suppliers of cargo to the tanker industry are being run by executive teams who have a very real and personal interest in reducing their businesses carbon footprint, and a quick and relatively easy way for the executives of oil majors to reduce the carbon footprint of the company would be to lean hard on the company’s suppliers and partners to reduce their carbon footprint and provide evidence this has happened.
This would introduce a different set of objectives into the tanker industry. By way of illustration, back in the late 1990s I visited the chartering department of an oil major to report on a new voyage costing system. It was run on a mainframe, and no doubt today would fit on a mobile phone. Over a long lunch, I asked the head of the chartering department what was his driving force behind introducing the new system: to reduce headcount in the chartering department, speed up decision-making? His candid reply was the purpose of the new system was to ensure as much as possible that he had achieved the lowest cost of freight compared to his rivals. At the end of the financial year, the new system would provide the ammunition he needed to justify his bonus.
Take the example above and switch freight for carbon footprint and suddenly there is an acute commercial need to be the tanker operator with the lowest carbon footprint in the sector to win the charters. This scenario would produce a quicker and more painful decarbonisation of the tanker industry than any IMO regulation.