As shipping homes in on its greenhouse gas responsibilities, the discussion about who pays for innovation and how is becoming increasingly important
As shipping homes in on its greenhouse gas responsibilities, the discussion about who pays for innovation and how is becoming increasingly important. The answer will determine how fast new technology comes to market. And with IMO targets in 2030 and 2050 already close, speed is of the essence.
The Zero Emissions Energy Distribution at Sea (ZEEDS) project was a good example of the innovative spirit flowing at Nor-Shipping this year. Ships could take on carbon-free fuel while on the move (via automated bunker vessels) from an offshore bunkering network producing and storing hydrogen and/or ammonia. The technology needed is available or already under development, but cost – with sites every 500 miles requiring around 75 turbines each – was correctly identified as a big barrier.
It was the same story at a forum of Japanese shipbuilders when Mitsubishi Heavy Industries presented its idea for a VLCC that uses wind-generated electricity and captured CO2 to create methane or methanol fuel. A clever concept, but no-one would expect an owner to fork out the US$50M on top of the cost of a conventional very large crude carrier – especially when the chance of a payback within 40 years depends on a US$200/tonne tax on carbon.
The question of cost is important for technology companies who are investing in research and development. Some of the biggest developments in shipping technology – including early projects in LNG, battery power and now hydrogen fuel cells – have been driven by local incentives including Norway’s famed NOx Fund. Government incentives are again being sought by the ZEEDS partners to make their proposed solution competitive.
Incentives may be a good way to help specific technologies to evolve, but there is no framework for applying them to cross-border deepsea shipping. So, while the German Government, for example, will fund LNG projects operating mainly within its national waters – even those using proven technologies on well-established applications – it would not support the pioneering retrofit of Hapag-Lloyd’s 14,000-TEU container ship Sajir. The project is helping to prove the viability of LNG retrofitting on big vessels, but the ship’s route from Europe to Asia means that Germany will not be the main environmental beneficiary.
Incentives are not needed if market forces can be relied on to drive the use of reduced carbon technologies. And there are signs that cargo owners and consumers could be willing to accept the additional cost. According to at least one banker at Nor-Shipping, the risk of ignoring climate factors is beginning to be calculated in the cost of borrowing. Buying your ship will be more expensive if you are not considering future environmental compliance. The conservative argument is being flipped on its head – not “how much does innovation cost” but “how much will it cost if we don’t innovate”?
The view that the market will reward the solutions it needs chimes with shipping precedent. When double-hull requirements were introduced for tankers over 5,000 dwt from July 1993, safety-conscious charterers drove the uptake of the new standards at a faster pace than regulators had decreed. Market forces, not financial or regulatory engineering, were the most effective levers of change.
The introduction of new technologies can be painfully slow. As ABS executive vice president Kirsi Tikka noted at the launch of the class society’s Low Carbon Shipping Outlook, it took a decade to build the LNG infrastructure needed to fuel just 1% of the global fleet. With zero-emission solutions needed on the market by the end of the next decade, it is too late to wait for handouts. It may require a leap of faith, but the time has come to let the market decide.