World Shipping Council on Decarbonization- Industry out in front of the Regulators

“The industry is out in front of the IMO.” “The IMO needs to get moving.” “The practical needs to get in front of the political.” These sound like some reprised quotes from articles that have appeared here in my Capital Link column. But, actually these are quotes from top industry executives who participated in a virtual press conference hosted by the World Shipping Council (WSC). The WSC represents somewhere north of 90% of containership capacity (I don’t know the exact number but their membership includes any container carrier that you’ve ever heard of, plus a few lesser-known niche players and also operators of roll-on, roll-off vessels).

The WSC’s virtual conference, which drew participants from the Asia, Europe and the Americas, coincided with the organization submitting a paper to the International Maritime Organization (IMO) with the boring title of “REDUCTION OF GHG EMISSIONS FROM SHIPS: An Examination of Regulatory and Economic Elements Critical to IMO’s GHG Strategy”. The timing gives IMO delegates a chance to absorb its contents in advance of the MEPC78 meeting; it is presently scheduled for the first half of June. With some luck, and the lack of new variants, the meeting might happen in person.

The title does not really do justice to its content. With baseball season beginning before too long, I can say that the WSC document, and the online presentation that goes along with it “Knocks it out of the park.” Sports fans will remind me about the upcoming Superbowl (U.S.A. football)- but baseball has better metaphors. The liner sector is acutely aware of its exposure to the consumer goods sector, where algorithms already on the drawing board will enable a buyer of something or other at Ikea to what vessel that the item traveled on, and, through some data-basing that we’ve already seen glimmers of, to indicate whether then carbon intensity of that ship was good, or maybe not so good. So, there is a huge sensitivity to such things, possibly more so than in dry or liquid bulk sectors- moving raw or semi-finished materials that may be unrecognizable when they are finally in the grasp of real consumers- built deep into some product.

The recommendations cover a multitude of items, but perhaps the most relevant for Capital Link readers are the WSC’s thoughts on carbon pricing. They note: “Virtually all studies undertaken to date conclude that low and zero GHG fuels will cost  substantially more than conventional fuel oil. If we consider those zero GHG fuels that can be produced with little or no production of GHG gases through renewable energy sources (e.g., solar, wind, and hydro power), the differential in cost of these fuels can be expected to be three to five times the cost of conventional fuel oil for a significant period of time.”

Continuing, in their submission, they point out: “Considering these cost differentials, the ability of companies to put zero GHG ships on the water and to operate them competitively (among a fleet of ships with dramatically lower fuel costs) requires establishment of a carbon price that effectively levels the playing field among newer low and zero GHG ships and the tens of thousands of ships that will still be burning fuels with significant GHG emissions. Alternatively, or in combination with an established carbon price, programmes that explicitly ‘buy-down’ the cost of specific zero GHG fuels will likely be necessary. These programmes should not be ad-hoc or dependent on voluntary funding sources because a dependable and broad-based programme will be necessary to be effective.”

Finally, WSC concludes: “Significant efforts over the last decade have been made by this Committee, working groups, and expert groups discussing the pros and cons of a GHG levy and emissions trading.

While significant pros and cons exist for both approaches, the most important objective is to establish a carbon-price that is applied at a global scale. Consequently, WSC is open-minded to what approach (levy, ETS, or a hybrid) is taken. The important outcome is agreement on a market-based measure that provides the necessary financial conditions where companies can build and operate zero GHG ships and still remain competitive in the marketplace.”

So, the WSC is advocating a global set of “Market based measures” that will level the playing field- think about owners of a modern scrubber fitted vessel (which could be trading well into the late 2030’s) buying less expensive heavy fuel footing some of the cost of another owner burning an alternative fuel with the very costly inchoate (for awhile) distribution infrastructure that goes with it.

There is a lot to unpack in the WSC proposals- which offer very practical steps (political animals watch out here, the market always wins out) towards implementation (some of which may require fundamental changes in vessels’ trading patterns), and future articles will seek to do exactly that.