At our recent webinars, special guest Prashanth Athipar, the Principal for Sustainability and Maritime Supply Chain Excellence at BHP, and speakers from Gard’s Charterers & Traders and Loss Prevention teams came together to discuss how GHG emissions reduction targets are being approached by regulators and the maritime industry, says an article published on gard website.
Question: CO2 emissions are forecast to jump this year by the second biggest annual rise in history, as global economies pour stimulus cash into fossil fuels in the recovery from the Covid-19 recession. Has this aspect been considered while planning the shipping forecast?
Greenhouse gas (GHG) reduction has been on the IMO’s agenda for over a decade now and the IMO’s vision with the 2018 GHG reduction strategy is to reduce GHG emissions from international shipping and, as a matter of urgency, aim to phase GHG out as soon as possible in this century.
In its current form, IMO’s GHG strategy aims to reduce CO2 emissions per transport work, i.e. carbon intensity, by at least 40% by 2030 and by 70% by 2050, and also reduce the total annual GHG emissions by at least 50% by 2050. These reduction rates are in reference to the 2008 emissions baseline.
Question: I would like to know if GHG ratings are solely rated by RightShip? Is there a universal rule to rate this?
In the current setup, Rightship’s GHG rating is the only known GHG vessel rating system for charterers and shipowners.
However, given the global focus on reducing GHG emissions, we expect to see the adoption of national rating systems for vessels calling certain countries or ports. Some of this is already in place with some ports giving subsidies on port dues for vessels that can demonstrate reduced GHG emissions, for example, the Port of Vancouver offers up to 50% discount on port fees for the most efficient vessels.
Question: How often will vessels be rated?
As decided by IMO in MEPC 76, the CII regulations take effect from 1 January 2023. Each year the attained CII will be calculated for every vessel and a rating from ‘A’ to ‘E’ assigned to it.
The ‘required CII’ will be reduced annually from 2023 till 2026. As for the reduction rates from 2026 till 2030, IMO will review these at a later date. It is worth commenting on RightShip’s bell curve like system for rating vessels, which we also addressed in our webinar.
The rating system is currently based on the design and technical parameters of the vessel and not its operational performance. There are 7 rating bands, ‘A’ to ‘G’ with ‘A’ representing the most efficient vessels and ‘G’ the least efficient vessels.
Question: What is the panel’s take on the multiple GHG vessel emission calculation criteria and will BHP and other charterers adopt IMO’s CII as the standard for a vessel’s carbon intensity, or will they use their own rating systems?
In addition to IMO’s CII rating system, there currently are a number of other initiatives which either rate vessels, set emission targets or standards for reporting emissions, such as RightShip, Sea Cargo Charter, Poseidon Principles, Environmental Ship Index (ESI), Science Based Targets Initiative and the GLEC (Global Logistics Emissions Council) Framework to mention a few.
Multiple rating criteria is likely to cause confusion for the vessel operators. We therefore support a more harmonized rating system incorporating not only the operational efficiency of the vessels but also their design.
RightShip has for a long time been the only platform or tool available for stakeholders to assess the environmental rating for a vessel. Our understanding is that RightShip is reviewing how best to incorporate the IMO rating scheme into its own vessel rating criteria.
BHP will closely monitor the GHG rating space as it is expected to evolve further and to supplement Rightship’s rating system, BHP is open to using other platforms or rating systems. As charterers we would of course also not like to have multiple rating systems in the market as it leads to complexities.
That being said, any rating system should not be based solely on operational performance of the vessel, such as CII but the design and technical parameters must also be factored in for charterers and other stakeholders to know how efficient a vessel is on the whole.
Question: How will the dual fuel option play out for charterers under the charter party?
As charterers, BHP is more than happy to sign long term charters for dual fueled vessels. As everyone will acknowledge, the real dilemma here is that no one can predict if the fuel of the future will be LNG or ammonia or something else entirely.
Some of the key considerations for BHP when looking to charter in dual fueled vessels in today’s market would be
- Whether it is a time charter or voyage charter, and the trading route.
- Charterparty clauses such as for vessel’s performance (speed and consumption), off hire etc., and how these fit into BHP’s commercial mandate.
- The bunkering infrastructure and the potential deviation there including the time taken for bunkering. If it results in the ships performing lesser voyages in a given period of time than what they usually did, then it could lead to commercial losses in the form of deviation costs and production losses.
- The specifications of LNG fuel.
- Crew competency would be a core issue. The engines and fuel will be different for most of the crew and their lack of training would present a risk for us.
From a time charterer’s perspective, in addition to the limited infrastructure for bunkering, there are other issues to consider. This is by no means exhaustive, but parties should consider these in detail:
- The mechanism in the charterparty on when to switch fuel and the effect on the speed of the vessel, and the corresponding warranties. They will need to balance a technically realistic statement of the vessel’s abilities, with a warranty that is sufficiently certain to enable the charterer to assess the value of the vessel and be able to market her once chartered.
- The different fuel options may also affect the calculation of off-hire. Which fuel should be burned during off-hire? Is it in charterers’ option, or owners’? If cheaper fuel is used during off-hire which causes an increase in the fuel cost for the rest of the voyage, who is responsible for the extra cost?
- The price of the different fuels will change over time, and not always with a positive correlation. So it is also important to consider charterers’ duty to supply which type of fuel during the course of the charterparty, and the type of fuel on board on delivery and redelivery and how to calculate any shortfall upon redelivery.
- Who as between owners/charterers bears the risk of regulations changing so as to prohibit the use (and possibly even carriage) of alternative fuels? Do owners warrant that both will always be capable of being consumed as/when charterers instruct?
- The different fuels may have different impacts on carbon taxes if/when they are introduced. Do the tax clauses cover what is needed?
Question: My understanding is that amount of cargo carried affects the vessel’s CII rating. Would owners be in breach if they minimize cargo intake for a particular voyage?
Once CII regulations are in force, the vessel operators will have to manage a balance between environmental compliance, contractual obligations and the commercial viability of the vessel.
The CII rating will use the vessel capacity (GT or DWT) in the denominator instead of cargo carried, and theoretically speaking vessels might be able to improve their CII rating or prevent it from dropping if volume of cargo carried is restricted as the vessel will then be sailing at a shallower draft and consume comparatively less fuel.
Operationally, it is open to owners to either reduce speed or cargo intake, in order to reduce the actual emissions for a voyage. It could also be a combination of both, depending on the owners’ calculation. If owners choose to reduce the cargo intake, then there is a possibility of being in breach of the duty to ensure that the whole reach of the vessel is made available under a time charter or perhaps the quantity of cargo to be carried under a voyage charter.
Owners may face some practical difficulty as it is likely to be difficult to predict the aggregated emissions and monitor how the vessel’s trading pattern and the cargo it carries affects the aggregated emissions. Aggregated emissions are calculated at the end of the year and it compares the total emissions from the vessel over the year against the cargo carried and distance travelled.
Further, a drop in the CII rating does not necessarily mean that owners are not compliant with the regulations, even where corrective measures may need to be taken by owners. There could therefore be a degree of difficulty in establishing cause and effect, i.e. that the voyage instructions will cause owners to breach their obligations under international law and therefore owner are entitled to not comply with the same.
Question: Filtering out poor GHG vessels is a good step but what plans does a large trader like BHP have to facilitate development of cross trades to reduce the need for full-blown ballast legs thereby instantly reducing the ton-mile CO2 emissions?
It is still early days for BHP and I am sure it is the same for many other organizations too. This goes to the root of vessel sourcing strategy. It is currently commercially driven – there has to be a demand for our products for us to charter in tonnage.
For vessels on voyage charter it is up to the owners to fix the vessel to go to a nearby port to load the next cargo with another charterer, rather than doing a long ballast leg.
Question: Has BHP looked into introducing a ’Just in time’ clauses (a clause entitling a charter to order reduced sailing speed where the discharge port is congested), and if not is this because it is currently not possible to join the line up at the discharge port until you are an arrived ship?
Ships spending more time at anchorage whilst waiting for a berth is certainly not good for the environment. It also increases operational risk for the vessel and certainly has cost implications for stakeholders. Over the past few years, BHP has been able to reduce the average staying time at anchorage for its chartered vessels by a few days.
When it comes to JIT clauses, the inconvenient truth or rather the challenge for charterers such as BHP is that they do not operate the port and therefore do not have much influence on the line-up of the vessels. BHP has already engaged with ports/terminals to better streamline the process and is more than happy to have similar discussions with its clients and, the shipowners.
Question: To comply with EEXI, an owner may choose Engine Power Limitation (EPL) as a solution. However, RightShip does not accept such a deep reducing engine power for GHG Evaluation. In such a case how can an owner clear both EEXI and GHG Rating, i.e. better than F rating?
RightShip has an acceptance criteria for EPLs which can be found here. The acceptance criteria remain in place, and the reason we limit the EPL is to drive innovation in the market, rather than shipowners and operators relying solely on EPLs, which is basically the premise of EEXI.
RightShip’s aim is to work with the market to unlock innovative measures to drive down CO2, rather than EPL being seen as the ‘only mechanism’. Since we introduced the EPL criteria we have seen a huge shift towards other types of energy saving equipment, as opposed to EPLs, such as wind power, Mewis Duct, PBCF, etc.
Question: To comply with your mandate regarding greenhouse gas emissions do you foresee BHP’s operating costs increasing?
BHP does not believe that the drive for decarbonization will result in an increase in the operating costs for them. Taking the example of an LNG fueled vessel, there is no doubt an increase in CAPEX (capital expenditure) but it is balanced by a reduction in OPEX (operating costs) and if it is a high pressure engine then along with the consumption, GHG emissions is much lower.
Question: I am curious to know if the BHP scope 3 emission goal is mainly based on technical advances or a combination of carbon-offset and technical progress in the design and operation of new tonnages.
Scope 3 emissions occur outside of our operated assets and are emissions over which we do not have operational control, although we can influence some aspects of it. The bulk of our scope 3 emissions come from the processing and use of our products, in particular steel making, and emissions by ships transporting our products forms a very small percentage.
BHP is committed to reducing the actual emissions across the whole supply chain and when it comes to chartered in tonnage, BHP looks at both the design and machinery of the vessel along with voyage optimization.
It is worth mentioning that BHP is also taking steps to test alternative fuels, such as bio-fuels and LNG in cooperation with the ship owners and has also actively participated in setting up a maritime decarbonization centre in Singapore along with MPA and other organizations to further explore the solutions to achieve carbon reduction.
Question: Does BHP agree to increase the price paid to shipowner to compensate for the cost of upgrades?
As we had said in our key takeaways during the webinar, no business model will be sustainable unless it is socially responsible and commercially viable. Shipowners who are not considering investing in newer technologies and fuels to reduce carbon and other greenhouse gasses, would definitely lose out on business in the coming years.
BHP’s thinking is that sustainability and commercial operations have to go hand in hand. As of today, perhaps greener vessels are being treated as a premium product but in a few years’ time that will not be the case.
Summary
- At our recent webinars, special guest Prashanth Athipar, and Maritime Supply Chain Excellence at BHP, and speakers from Gard’s Charterers & Traders and Loss Prevention teams came together to discuss how GHG emissions reduction targets are being approached by regulators and the maritime industry.
- Greenhouse gas (GHG) reduction has been on the IMO’s agenda for over a decade now and the IMO’s vision with the 2018 GHG reduction strategy is to reduce GHG emissions.
- RightShip’s aim is to work with the market to unlock innovative measures to drive down CO2, rather than EPL being seen as the ‘only mechanism’.
- As of today, perhaps greener vessels are being treated as a premium product but in a few years’ time that will not be the case.
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Source: gard
