- Alternative Propulsion Technologies Gain Popularity Amid Lender Scrutiny.
- Parker Highlights IMO’s Crucial Role in Defining Alternative Fuels and Pricing Mechanisms.
- Shipping Industry Faces Price Gap Between Conventional and Sustainable Fuels.
In Michael Parker’s opinion, Chair of the Poseidon Principles, the cargo owners, along with the International Maritime Organization, can hold significant sway to accelerate the shipping industry’s transition towards decarbonization. That could be realized by offering a more significant share of incentives toward low-carbon bunker fuels while vessels that will be able to run on fuels other than oil begin to emerge on the horizon, reports S&P Global.
Increasing Concern over Alternative Fuels as Banks Get Tough on Financing
In fact, part of the impetus for increased interest among shipowners in alternative propulsion technologies is the banking sector, which is slowly beginning to factor climate performance into its financing decisions. But now, the concern is whether the banking sector will be supportive of the decarbonization of shipping, particularly against the backdrop of political pushback.
Defining Alternative Fuels and Pricing Mechanisms
With the IMO to finalize new decarbonization rules for maritime transportation later this year, expected to be implemented by 2027, Parker underlined that the role of the IMO would be much more important than that of ship financiers in achieving the low-carbon transition. He told S&P Global
Commodity Insights
“If it succeeds getting consensus around the definition of alternative fuels and the pricing mechanism, it’s going to change behavior [in bunker purchases].”
The IMO has been discussing proposals for setting a price on greenhouse gas emissions from marine energy use. Revenue generated from such a scheme could potentially be redistributed to fund low-carbon energy initiatives or help developing countries affected by the energy transition. Parker noted, “For the first time… we’ll actually have something much more significant globally. And I think that’s what’s relevant for shipping.”
Alternative Fuels and Their Impact on the Global Fleet
According to Clarksons, data from shipbrokers shows that half of all newbuild orders in gross tonnage are designed for alternative fuels. Over 20% of the global fleet in operation might be able to transition away from conventional oil-based bunkers by 2030. Challenges still arise with ensuring the actual bunkering of ships with sustainable fuels because of high prices and limited supply, which created an obstacle for shipowners to commit to long-term offtake contracts.
Price Difference Between Traditional and Green Fuels
As alternative fuels become increasingly adopted, one of the main challenges facing the fuel shift is the price differential. The average monthly price for 0.5% Sulfur Marine Fuel-the most common bunker type and also referred to as very low sulfur fuel oil-was recorded as $559/mt in Houston for last month. The price for 100% sustainable methanol stood at nearly $2,066/mt, or the equivalent of VLSFO.
Encouraging Cargo Owners to Pay More for Sustainable Freight
Parker also suggested that further development of the methodology for calculating supply-chain emissions could help cargo owners better understand the benefits of paying a premium for sustainable freight services. He said, “The definition of Scope 3 for shipping and for ports… needs to be agreed as soon as possible. People need a clear set of metrics and terminology.”
Zero Emission Maritime Buyers Alliance and Industry Engagement
The Zero Emission Maritime Buyers Alliance (ZEMBA), whose members include companies like Amazon and IKEA, has taken steps to cut supply-chain emissions by awarding its first tender to Hapag-Lloyd, a German shipping line. This contract will see the transport of 1.15 billion twenty-foot equivalent unit miles per year on ships powered by bio-LNG in 2025-26. Additionally, ZEMBA plans to award another tender for freight based on e-fuels starting in 2027. Parker remarked, “I think cargo owners, particularly in the container sector, will play a much more important role — and this is connected to Scope 3.”
Poseidon Principles and the Banking Sector’s Role in Shipping’s Decarbonization
Launched in 2019 by Citi, Societe Generale, and DNB, the Poseidon Principles are a voluntary framework for assessing and disclosing the climate alignment of financial institutions’ shipping portfolios with the IMO’s net-zero target for 2050. Although the 35 signatory banks control 80% of the global ship finance market, many have yet to explicitly commit to following the IMO’s decarbonization targets.
Parker explained, “The Poseidon Principles is merely a transparency initiative, just expressing an ambition to support the industry in its decarbonization efforts.” In September, the UCL Energy Institute indicated that lenders were evaluating loans to shipowners on a corporate level rather than based on individual assets, with ships having lower carbon intensity not receiving favorable margins.
Political Pushback and the Future of Green Finance
The push for green finance has encountered political resistance, particularly in the US. Republican state attorneys general have filed lawsuits attempting to pressure financial institutions to abandon policies that are seen as harmful to the fossil fuel industry. The political backlash against green finance is expected to intensify, particularly following the inauguration of President Donald Trump, who has promised to scale back low-carbon energy development.
Despite this, Parker does not foresee an impact on the Poseidon Principles, stating,
“We don’t see the Poseidon Principles being impacted by the NZBA situation. I do not expect any of the existing signatories to the Poseidon Principles to leave.” Parker, who also serves as Citi’s chairman for global shipping, logistics, and offshore, made these remarks in his capacity as chair of the Poseidon Principles.
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Source: S&P Global
