The big clean-up on shipping’s GHG emissions is going to come with a hefty bill. While the different alternative fuels that might get shipping to low or zero carbon emissions are being actively and loudly promoted by their respective advocates, producing the ‘perfect’ or even the ‘good enough for now’ fuel at scale – and building the ships’ engines that can run on it – is a big and expensive ask.
Industry stakeholders have already called on the IMO to set up a $5 billion fund for research into alternative fuels and technologies and the EU has its own ideas about a maritime fund but this will be just a drop in the ocean in terms of what is going to be needed. UMAS, for one, has put a price on the scale of investment required – around $1 trillion+ – and in September commodities giant Trafigura put forward its own proposal to the IMO for a carbon levy of $250-$300 per tonne of CO2 equivalent on shipping fuels to raise investment for zero and low carbon fuels. But let’s not forget, all these proposals are just that – proposals – and may take years to come into effect, if they make the cut at all
Certainly, for the newbuilds or retrofitted ships that are going to be sailing towards the mid-century’s decarbonisation horizon, the financial institutions are going to have to: a) come on side pretty quickly with the green shipping idea and b) dig deep to come up with the billions of dollars that will be required to follow the ambition through.
The Poseidon Principles have done much to create a template for banks to follow in funding more efficient and cleaner ships, and this week saw Seaspan’s announcement that it had closed a sustainability-linked $200 million loan – the first of its kind in the containership leasing sector. Underwritten by Societe Generale and BNP Paribas, the loan is fully aligned with the Poseidon Principles and the pricing is adjusted based on Seaspan’s achievements measured against two key performance indicators (KPIs).
The first ‘aims at measuring the alignment of the carbon intensity of the collateral vessels with the IMO’s 2050 decarbonisation trajectory’. While the second focuses on ‘fostering cooperation with charterers in order to advance the decarbonisation agenda, by seeking to include sustainability-linked provisions in future charter contracts, hence creating an innovative value chain approach to decarbonisation’.
This second KPI is interesting, and is an issue also highlighted by Theodore Jadick, President and CEO of DNB Markets, during a one-to-one with Shell’s Grahaeme Henderson last week at the Capital Link NY forum.
Jadick commented: ‘There need to be some incentives for the shipowner to make the investment decisions [on clean shipping] – I believe the customer plays an important role in creating that potential.
‘For most shipping companies, the customer is the charterer and so I do think a collaboration between shipowners and charterers will be a critical element here.’
He also pointed to: ‘A growing trend or consensus in the capital markets that doing the right thing when it comes to issues like sustainability and ESG do create value and returns over time.’
According to Jadick, a longer term perspective on financing shipping may be consistent with ‘stakeholder capitalism as opposed to shareholder capitalism’.
Hold that thought.