‘Actors in the market have to set their own targets, and these targets should be more aggressive – more ambitious – than the ones that are being set by the regulators as we speak,’ said Tony Foster of Marine Capital on the second day of the ship energy summit. Lesley Bankes-Hughes writes more about this. Let us have a look at this.
Foster, CEO/CIO of Marine Capital
Foster, CEO/CIO of Marine Capital, was taking part in a session focused on financing shipping’s decarbonisation which was moderated by Mark Williams, MD of Shipping Strategy, and also included contributions from Paul Stuart-Smith, Executive Director of Zero Carbon Finance, and Klaus Schmidberger, Vice President of KfW IPEX-Bank.
Looking at the availability of finance for energy transition initiatives, Stuart-Smith said: ‘I often hear banks say that there is finance available for the right project.’
The world is awash with liquidity and interest rates
He noted that, at present, ‘the world is awash with liquidity and interest rates are at rock bottom,’ but he cautioned that ‘competition for capital in renewable energy will be fierce.’
Stuart-Smith highlighted the development of recommendations by the Task Force on Climate-related Financial Disclosures (TCFD), which focus on an organisation’s governance in relation to the climate-related risks associated with its business operations.
He suggested that ‘investors are probably not going to invest unless they understand how companies are addressing this risk.’
Tony Foster also said that owners may have to step up their efforts on regulatory compliance.
‘When owners look at regulation and the expectation of regulation, the way that the market has tended to work is that shipowners wait for regulatory change and then tend to comply.’
Greatest respect to the banks
He continued: ‘With the greatest respect to the banks, the Poseidon Principles is a bit of the same thing.
‘It’s saying, here’s a trajectory and this is guided by IMO changes, and as long as we are doing a bit better than this line our sustainability report will be satisfactory.’
However, Norton suggested that the ‘ultimate regulators’ that sit behind the banks, such as the European Union, may want to push for faster action on approaches to sustainability.
Klaus Schmidberger of KfW IPEX-Bank said that industry players would prefer clear regulation ‘sooner rather than later’, and he suggested that one reason why the vessel order book is currently low is this uncertainty on regulation.
Decarbonisation strategies
Mark Williams then turned to how the decarbonisation strategies of institutional investors could impact on shipping.
‘Institutional investors around the world are now saying that we are going to decarbonise our portfolios and shipping will eventually fall under that spotlight – so how quickly do you think the pressure from the financial institutions will ratchet up?’ he asked.
Type of investment being considered and the institution
Foster said it was important to distinguish between the type of investment being considered and the institution that may be making it.
‘If you recognise the institutional investment market is the ultimate investor, such as pension funds, sovereign wealth funds and some governments…then I would say the pressure from these institutions is increasing by the month,’ he commented.
Similarly, institutional asset managers are also aware that this pressure is building, said Norton, but ‘we think that the shipping market and the typical shipowner are far less aware of what is coming, and they need to get wise quite quickly – at least in terms of trying to understand what the effect is going to be.’
Having fewer shipping companies
He continued: ‘One of the questions we are all going to face is whether we are going to have a lot fewer shipping companies because it is only the big corporates who are going to be able to satisfy the requirements?’
Williams picked up this thread and asked if the regulatory hurdle is going to be too great for independent shipowners to handle.
Stuart-Smith suggested that it was too early to tell but he did note that if trade becomes less global and more regional, then this could play to the advantage of the small players in shipping.
R&D for new fuels
The discussion then turned to how R&D for new fuels and technologies can be funded. Foster said he was in favour of a fuel tax or possibly the freebate system which has been proposed by Trafigura.
This a more ‘carrot and stick’ approach – where a benchmark for the CO2 intensity of bunker fuel will be set in accordance with the IMO’s 2030 and 2050 targets and then adjusted as shipping moves towards these goals. Emissions above this benchmark would be subject to a levy; those that fall below would receive a subsidy.
However, while broadly supportive of a fuel tax approach, Norton said ‘the idea of a $5 or $10 [per tonne] tax is a waste of everybody’s time’.
Cost of shipping’s energy transition
While the ‘cost’ of shipping’s energy transition will eventually filter through to the end user, Norton also said it is important to consider where this cost burden may fall initially – and for how long.
‘What happens before the domino effect is completely executed and somebody in the chain bears all the cost? That somebody is normally the shipowner,’ he commented.
The participants then considered a carbon price for shipping. Stuart-Smith noted that a CO2e price per tonne would translate to an additional $300 per metric tonne on bunker fuel, while a levy of $250-$300 per metric tonne of CO2e on marine fuel (as Trafigura has discussed) could hike the price of bunker fuel by as much as $750 per metric tonne.
But, carbon pricing for shipping is ‘certainly coming,’ said Stuart Smith, whether it is coordinated by the IMO or the EU.
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Source: Bunker Spot
