If you can slog through all the abbreviations and acronyms, the story from the International Maritime Organization (the “IMO”) is quite compelling- and, dare I say, “uplifting”. Indeed, an upcoming Capital Link webinar will highlight recent decarbonization actions by its Marine Environmental Protection Committee (MEPC), including those dealing with existing vessels.
In a now finished virtual session dubbed as MEPC 75, participants wrestled with the idea of a Research and Development (R & D) that would raise $5 Billion over a 10 year period- to be funded by a $2/ton surcharge on marine fuel to be plowed into something called the International Maritime Research Fund (“IMRF”). Proponents of the IMRF said that the entity that it would support “…. will create the technological and investment certainty to spur innovators, engineers, energy companies, shipyards, financial institutions, and engine manufacturers to accelerate the R&D effort required to decarbonise shipping,”
The IMO “member states” (which number 170+) were clearly intrigued, though no gauntlets were thrown down, or mandates given. The discussions looked at the optimal structure, whether the IMO could actually operate such a fund, and how the actual mechanics of a not yet created entity for promulgating research on alternative fuels, and the like, would actually work. The International Chamber of Shipping, a big proponent of the R & D fund, said, in a press release: “Governments have also raised a number of legitimate issues which the IMO will need to carefully address” Indeed they did- this idea has a long way to go, stay tuned for the next MEPC meeting- which I think will be held (perhaps in person? One can hope) in June 2021, when it will receive further discussion.
The just-ended meeting also provided a hint of what is to come- discussions of “Market Based Measures” (MBMs) which, just like the name suggests, would include marketplaces and other mechanisms for buying and selling carbon credits. Importantly, these exist in a financial universe, not in a regulatory setting. They are already starting to happen, prompting the question of what, exactly, the IMO will be contributing to “decarbonization” over a longer term, R & D notwithstanding. Perhaps the IMRF might finance innovations which can be passed on to the private sector and made available to shipowners?
At this juncture, the trading of carbon by shipping companies is limited and bespoke. The few shipping entities that have taken the baby steps towards MBM are, in essence, paying for their carbon emissions. The payments provide payoffs, a “return on investment” if you will, for non-shipping entities that have previously made investments in lowering a carbon footprint. An early November example had the Hong Kong based shipowner Wah Kwong buying credits, generated by windfarms (located in India and presumably onshore) operated by an Asian utility CLP. In the States, SCF Marine Inc., a subsidiary of SEACOR Holdings Inc. had said (in late June) that its container on barge service on the Mississippi River, operated by SEACOR AMH, will be participating in a 12-month “accredited U.S.-based carbon offset program”. The seller was unspecified but I am guessing it’s someone like 3Degrees- which has dealt with the transport sector.
MBM’s could become part of the shipping landscape very quickly if the European Union has its way, and goes on to include shipping participants in a broader more formalized Emissions Trading System (ETS). Not surprisingly, MBMs are likely to see intense discussion at the next MEPC meeting- which could be held around late Spring/ early Summer of 2021.
And, at some point, when I can figure out all the acronyms and formulae, I will ponder the impacts on shipping companies who are carbon offset buyers (or might be), but have assets financed by banks that have signed up for the Poseidon Principles- where debt on vessels emitting more carbon is priced higher than that for vessels with less carbon intensity, or have their vessels chartered to entities in the Sea Cargo Charter (where cargo interests will pay more for ships with lower carbon footprints). I am hoping for a dreary chilly day to stay inside and compute all of those arbitrages.
