Danish Maritime sees sustainability challenges for the maritime sector as commercial rather than technical. Solutions are available either in the market or as proven pilot projects, but wide implementation is lagging due to split incentives and delays in legislation, argues Jenny Braat.
The coming years will see a number of transitions, some potentially very disruptive. The first of these will be the installation of ballast water management systems, which will require thousands of ships to retrofit this type of equipment, beginning in September of this year. At the turn of the year the global Sulphur limit will enter into force, which will require retrofitting for those ships whose Ship Implementation Plan shows that either a scrubber or arrangements for new or multiple fuels will be necessary. Simultaneously, in the IMO, this year will see the first implementation proposals under the IMO greenhouse gas strategy.
The ‘Maritime Industry’ of the title consists of many types of businesses. The focus here will be on ship owning, ship management and maritime manufacturing, including ship building.
Previously sustainability was taken for granted – the oceans seemed to absorb most emissions with little effect. Now environmental requirements are increasingly being introduced. Originally oil spills and other accidental impacts were the centre of interest, but lately the environmental impacts of normal operation have come into focus.
[smlsubform prepend=”GET THE SAFETY4SEA IN YOUR INBOX!” showname=false emailtxt=”” emailholder=”Enter your email address” showsubmit=true submittxt=”Submit” jsthanks=false thankyou=”Thank you for subscribing to our mailing list”]
Usually the practical solution has been delayed, even after it has been identified. What is the problem?
In the case of Sulphur, the health problem and the damage have been publicly debated since the 60-ies, and technology to remove Sulphur from exhaust gasses or from fuel have been developed for non-maritime use for decades. In shipping the commonly used fuel is a so-called ‘residual ‘ fuel. This, Heavy Fuel Oil, is what is left when all the lighter and more valuable components have been extracted. Moving away from that to cleaner, refined products or installing scrubbers on ships to remove the pollutants, increases costs, and requires adapting existing technologies to maritime use and developing procedures on board, and training of crews. This will obviously incur costs.
These costs are, however, negligible compared to the overall cost of transport. It has been calculated that If the transportation costs should double for carrying wine from New Zealand to the EU, the price of wine in a supermarket would only increase by about 1 percent, which might be 7 cents/bottle. For cheaper products in bulk, the price increase might be higher, and the effect of small changes could be measurable, but there is no competition from other modes of transport, so the end result would not be a significant change.
For other solutions the situation is much the same. Costs are either low or in many cases negative, since the investment may include an economic benefit. Reducing greenhouse gasses can be done by reducing fuel consumption. Since February 2009 Wartsila has had a “Energy Efficiency Catalogue” of non-proprietary generic technologies available online, which give examples of technologies that can reduce fuel consumption by from a few % (Propeller and rudder) over 10% (voyage planning) to 30% (Flettner rotor). The 2019 versions of these technologies will be even more efficient as the use of digital control make integration of several solutions possible. Continuous monitoring and feed-back now allow ships to operate at optimum condition continually, if they chose.
So, what are the barriers to making shipping sustainable by implementing these and other available solutions?
Spoilt for choice
Investing in any one of these technologies involves trade-offs and will exclude other options. Deciding which investment gives the highest return at the lowest risk is not necessarily easy. It may be that the best from an emissions point of view is the worst from an investment point of view. There may or may not be a return on the investment, and the costs and any return may be on different time-scales than the emission reduction. These factors will vary not only with the type of emission reduction but also over time. As a topical example, buying a scrubber to-day is far more expensive than it was a year ago, and the payback time depends crucially on the price difference between HFO and low sulphur fuel, and the availability of the low sulphur fuels. Many decisionmakers opt for delaying these types of decision until one option crystallises out as the best. There is a perception that 2nd generation technology is both better and cheaper than the first, contradicting the often touted first mover advantage. If early adoption is desired – or crucial – legislation is usually necessary.
Split incentives
Shipping is a highly competitive and split – even splintered – business. The small marginal cost of sustainable transport is not guaranteed to be paid by the consumer who drinks the wine. In fact, it is likely that the much larger total investment cost for a more sustainable ship will be borne by an owner whose income in the shape of the charter fee, cannot be increased correspondingly. There would then be no immediate added cost to the charterer and no reason to push such a cost on down the chain to the consumer. The owner would have no benefit and no way to recoup his investment.
If the cost is borne by the ship, the total added cost for a whole shipload of wine could be the determining factor in the choice of vessel by the freight forwarder or shipping agent. The more sustainable vessel may then be deselected even though the consumer would be willing to pay. Again, the incentive to invest is reduced.
Even in a situation where cost could be consistently transferred to consumers, who might not notice them, a later installation would advantage a late mover over the first mover. Here again legislation seems to be the only way around these barriers.
Delays in legislation
Legislation must be the right kind of legislation. It is not feasible to mandate particular technologies by law. Technical development is too fast, and it is almost never the case that ‘one size fits all’. But legislation can ensure that a choice is made. Legislation can show the desired result and fix a timeline but delays in implementing adopted legislation can also encourage postponement of decision. We have seen that a deferment can lead to the expectation that a deadline may again be extended. Unless there is a clear first mover advantage, this can lead to a ‘race to be second’. Even without postponement of entry into force, there is often crowding around a last cut-off date.
So, legislation should encourage first movers, and penalize those who gamble that delay will give them an economic advantage. In those cases where there is no – or not sufficient – economic benefit to sustainable technology, the first movers could be given another benefit, but this is not usually done. In the case of ballast water treatment shipowners will most likely all wish to install at the last possible date. Since this is linked to the certification status of the ship, the applicable date is not the same for everyone and a certain distribution is automatic. With the Sulphur limit the same date applies to all but since not everyone can install scrubbers (or make any structural changes) on the last day there will also be some distribution. In the absence of any incentive there is a risk that those who attempt to be the last will miss the deadline. Those who might gamble that the deadline will be postponed may also be late. It is not possible to envisage a system of fines implemented across all port states.
For consistent early implementation it is necessary that deadlines never shift, and that any lack of compliance after a deadline is prohibitively expensive for the ship. One way of ensuring this would be to link the validity of ships’ general certificates to compliance.
The views presented hereabove are only those of the author and not necessarily those of SAFETY4SEA and are for information sharing and discussion purposes only.
