By Alisdair Pettigrew, Managing Director
Despite the ‘Grey Guage’ hovering near to suicidal, a greener future might just prove a brighter one for shipping
A strange thing happened to me after the holiday period. On reading Michael Grey’s somewhat bleak prophecy for the year ahead in Lloyd’s List: Going forward in apprehension, January 4, I began to agree with a lot of what was written.
Acknowledging that Mr Grey rarely scribes if not to provoke response and notwithstanding his lexicon of stereotyped phrases that seemingly escape the tracked changes of Lloyd’s List’s editors — ‘nose-ringed activists’ (ship ‘recycling’ proponents), bossy industry-haters (seemingly anyone attending COP 21 that doesn’t work in shipping) and, my favourite, ‘the lunatics from Brussels’, which one assumes describes European politicians and not the terrorists that shut down the Belgium capital over New Year — I appreciate Lloyd’s List’s willingness to comment on the article and post some of my own future-gazing thoughts.
It’s hard to disagree with the ‘Grey Guage’ flickering near ‘suicidal’ levels for all but a few pockets of the shipping industry, as it has been for half a decade and more. And few would query that shipping is sleepwalking on newbuildings — beguiled by building large vessels — despite the fact that there is a metaphorical cliff edge straight ahead.
With shipping expected to spend between $4trn and $8trn on new ships over the next half-century — according to Martin Stopford, president of Clarkson Research Services — aligned with the Paris accord, surely now is the time to question the validity of the industry’s business model. “The existing business model of the industry is a ‘dead parrot’,” claimed Stopford at Nor Shipping, which for those not aux fait with Monty Python, means really not good.
Stopford’s diagnosis surmised that technology used in the industry was old and economies of scale had been taken to an extreme. It is on this point, in my view, where Mr Grey’s ‘bossy industry-haters’ come in and have the opportunity to positively impact shipping and change it for the better. However skeptical Mr Grey and others are about the outcomes in Paris and the ability of countries to meet 1.5°C or 2°C targets, one thing is clear: there are going to be tighter controls over carbon — raising the price of fossil fuels substantially and spelling the death knell for fossil fuel this century — that require fresh technological innovation in order to be met.
The IMF’s recent statement supporting a climate fund for shipping and aviation, raised through a tax on bunker fuel, offers a huge opportunity for shipping to resuscitate the parrot. Indeed, in the lead-up to the COP 21 climate talks, a carbon tax for shipping and more responsibility for the IMO were among the recommendations made in a policy brief published by the International Transport Forum (ITF). The brief argued that a carbon tax would be relatively easy to implement, and setting its value at around $25 per tonne of CO2 (equivalent to generating $2.5bn per annum from shipping alone) would have a marginal impact on maritime trade.
Crucially (and this is where there remains much conjecture within the IMO’s MEPC) there is the strongest mandate for funds to be pumped back into an industry given the huge latent efficiencies within it. Funding, in the form of low costs of credit and grants, would create jobs in R&D (especially around new, cleaner fuels), spawn a boom in clean technology innovation while negating the lack of credit and finance currently available for retrofits and refurbishments. It could even be used to mitigate ballast water treatment costs through bundling technology packages. Happily and coincidentally, initial studies show shipping offers a higher reduction in CO2 (and hence fuel consumption) per dollar invested than other investments such as solar power and automobile energy efficiency, for example.
Mr Grey’s questioning over whether climate change is the ‘world’s most urgent problem’ really doesn’t matter. The motives may be divergent, but it just might be that the bossy industry-haters and the shipping industry have shared goals and offer us a ticket out of cyclical doomsday shipping economics. With a little more open-mindedness, 2017’s New Year prophecy could be a little less apprehensive.
Originally published on Lloyd’s List: http://www.lloydslist.com/ll/sector/regulation/article477527.ece