Lack of regulatory framework ‘holding up’ decarbonisation investment

The lack of a clear regulatory framework on which shipowners and operators can base their investment decisions is holding up the energy transition and, as result, the shipping industry could lose control of its decarbonisation process.

This was one of the key concerns raised during a webinar staged jointly by Lloyd’s Register (LR) and the Environmental Defense Fund (EDF) on Thursday (18 February).

Trafigura’s Rasmus Bach Nielsen, who headed the trading house’s shipping operations until recently and is now Global Head of Fuel Decarbonisation, reiterated his company’s calls for a carbon levy.

As previously reported, in September 2020 Trafigura submitted a proposal to the International Maritime Organization (IMO) set out a carbon levy could work – and it’s not complicated, Nielsen told the webinar delegates.

The greenhouse gas and polluting emissions of every marine fuel would be assessed. Ships using more polluting fuels would be penalised and their charterers would have to pay a levy into a central fund. This money, held within the industry, would then be used to subsidise the cost of using more expensive low- or zero-carbon fuels.

‘We would need a firm regulatory framework, but it’s not that difficult to benchmark these fuels because there aren’t that many [of them]’ said Nielsen.

Tony Foster, CEO/CIO of Marine Capital, a marine asset manager which owns and operates ships on behalf institutional investors, noted that the industry faces ‘conflicting pressures’. On the one hand, he explained , the lack of a regulatory framework was potentially an incentive to owners to continue operating ‘old bangers’ because there is currently no certainty on which to base investment decisions.

On the other hand, said Foster, initiatives like the Poseidon Principles were to be welcomed, but the related financing criteria should be expected to tighten further. Indeed, he warned, it was not at all clear where the money would come from to fund new acquisitions or existing assets as financing terms became tighter.

Banks and finance houses were coming under increasing pressure from institutional investors and pension funds, he said, but it was by no means whether sources of ‘alternative capital’ would play a bigger role in financing existing and new assets and, if so, whether they would charge more for doing so.

Aoife O’Leary, Director, International Climate at EDF Europe, emphasised the importance of national and regional decarbonisation measures which, she said, should start to take effect and enable the IMO to copy and broaden them across global shipping as a whole. She stressed the importance of the entire supply chain in measuring the environmental impact of different fuels and said that IMO regulations should not focus solely on the ship, but must also take the production process into account.

To view a recording of the webinar – which was chaired by Katharine Palmer, LR’s Global Head of Sustainability – click here.

Ian Taylor

Ian Taylor

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