#12 Bridging the Gap - with Su Yin Anand

R: Good day, thank you for agreeing to this interview. I have some questions with regards to decarbonization.

SY: Thank you, I'm happy to discuss.

Less talk; less politics; more action.?

On Alternative Fuels:

R: When do you see alternative fuels like LNG, ammonia, or methanol becoming cost-competitive with traditional marine fuels?

SY: I wish I had a crystal ball on this. It could make me a very rich woman. From a purely economic perspective, these fuels will become cost competitive when the cost of production, and cost of transportation?is reduced. This usually happens with technological advancements, economies of scale, and competition within the industry which drives down prices.

Absent these conditions, the main driver will be a worldwide carbon tax. So, if I have to gamble, my opinion is that these alternative fuels will start becoming cost competitive in the next decade i.e. 2030 onwards.

R: What infrastructure investments are needed to support a widespread switch to these fuels (e.g., bunkering facilities, retrofitting existing vessels)?

SY: There are 2 parts to this question, I believe. The first is what infrastructure needs to be built. The second is how will we pay for the new infrastructure.

Dealing with the first question, to use ammonia, methanol, or hydrogen as fuel for ships will require a whole new supply chain. We will need to invest in everything from production, storage facilities, to pipelines and cargo handling facilities. It is a monumental task, and we need to ensure that this is done in a just manner. At the same time, we need to be pragmatic and accept that these new supplies chains will not be created solely to supply shipping demands. Demand should be driven by national grids. The maritime industry will need to work together with the fuel suppliers and national grids to co-create and co-invest in these new supply chains

The more interesting question, in my view, is financing. Alternative fuel infrastructures, is to some extent, a form of first of a kind investment. New technology, potentially new business models in new jurisdictions. All this means more risk, which means higher cost of capital. Without regulatory certainty, investments in such infrastructure today may be too risky for traditional financiers and project financiers, and too long of a pay back period for VCs. This presents a real funding gap, which needs to be filled. How do we fill this gap? What needs to be done in order to mitigate risks for funders?

I believe initial funding will need to come from public institutions, private institutions, and perhaps even philanthropic institutions in the form of grants, venture debt, and project financing. Again, we go back to collaboration. Use the research of think tanks to inform decisions on how things are moving. The ADB is raising a fund to support building of maritime infrastructure, and we are seeing a heightened level of curiosity on this issue from a number of different investors.?

R: While some alternative fuels offer emissions reductions, they may have other environmental drawbacks. How are you addressing these concerns and ensuring the overall environmental footprint is truly improved?

SY: Great question. I think we need to keep an open mind and keep learning about science of climate change. We need to understand the reasons why we need to decarbonise, and from there, decide which solutions really work for us. We need to focus not only on immediate emission reductions, but also on the life cycle emissions of various technologies.

We need to look at the data, and not rely on the self assured hubris of decarbonisation evangelicals. This is where I believe Artificial?Intelligence and digitalisation tools can really make a difference - in analysing the complex, unstructured emissions related data, to assist humans in making better decisions here.

R:?Which alternative fuels do you see being most suitable for different types of vessels and trade routes? What are the key factors influencing this choice?

SY: At this stage, it is still all about cost and availability. It is too early to say which alternative fuels will be suitable because we don't know what the supply chains for these alternative fuels will look like. However, at present, it seems that vessels trading on predictable, industrial trade routes, and those plying the green corridors would be most suitable to use alternative fuels.

On Technological Advancements:

R: Several clean technology solutions are in development. Which ones do you see having the most significant impact on decarbonization in the near future (e.g., wind propulsion, energy efficiency retrofits)?

SY: Most significant impact- nuclear. I'll say this. Nuclear is the only form of energy which is clean, and can help us meet our emission reduction targets.

R: What are the biggest challenges in scaling up these technologies across the industry?

SY: I see 3 main challenges.

The first is the misalignment of contractual and financial incentives along the charter chains. The owners own the ship, but time charterers pay for the fuel, and the vessel is ultimately carrying cargo for the voyage charterer. Owners don't want to invest in a new technology unless their time charterers are willing to pay for it. A charterers unwillingness to pay is often used as a reason for not proceeding. We need to resolve this Mexican standoff in order to proceed. In my view, this is a matter of changing mindsets, behaviours, and realigning incentives.

The second challenge is a scientific one. To the best of my knowledge, we are still unable to accurately model the impact of any one technology on a vessel's efficiency, much less a combination of technologies. This is not surprising giving that a ship operates in ever changing conditions, which means that it is likely almost impossible to model performance off set conditions. Conditions change by the micro second. This lack of data is making it difficult for innovators to prove the effectiveness of a product, and for owners to get assurance in the effectiveness of the product. We need to find a way to come up with model for this.

The last challenge is financing. Similar to energy transition infrastructure, there is a financing gap for hardware. Most VCs like digital technology because it is perceived as scalable and lower risk. Hardware is the late bloomer, ugly cousin. The long R&D cycles which result in a longer payback period is not attractive for VCs, and viewed as too high risk by traditional financiers. We need more universities and governments to start providing grants to hardware innovator.

R: Decarbonization requires significant investment in research and development. How can governments, shipping companies, and technology providers better collaborate to accelerate the development and adoption of clean technologies?

SY: It's all about de-risking, and sharing costs and incentives. As mentioned earlier, as a first step we need more universities and governments to start providing research grants to decarbonisation hardware innovators, and for there to be more sand boxes for experimentation.

R: What kind of regulatory framework or incentive programs do you believe would be most effective in driving the adoption of clean technologies and encouraging investment in decarbonization solutions?

SY: To start, I think that in the context of decarbonisation, we should all recognise that having imperfect regulation is better than not having any regulation.?So the CII, EU ETS, FuelEU etc. are all good starts. Now we need to work on harmonising these regulations to bring clarity and certainty to expectations. That is going to be a difficult job. I also believe that we need a global carbon tax regime, which prices in the cost of pollution, in order to really disrupt the industry when it comes to adoption of clean tech and fuels.

Broader Issues:

R: Decarbonization efforts cannot come at the expense of the industry's economic viability. How can we ensure a sustainable transition that is both environmentally responsible and economically feasible for shipping companies?

SY: Another great question to which there is no easy answer. Decarbonisation is unlike previous advancements in shipping which were driven largely by economically viable propositions. As the question highlights, decarbonisation at its current stage is a regulation driven cost, and one that is hard to pass through the supply chain. We need the technology to develop to such an extent as to bring down costs, and we need to rethink business models.

At the end of the day, we need to accept that we will all end up paying for the cost of decarbonisation. I would also add that I think the focus should not be on sustainable transition, but on just transition. The energy transition will likely result in new supply chains globally, and we need to ensure that this happens in a manner that is fair and responsible.

R: Automation and new technologies might change the nature of seafaring jobs. How is the industry preparing seafarers for these changes and ensuring they have the necessary skillsets?

SY: I don't think enough is being done here but things are moving. The traditional training requirements need to be relooked at. I also think AI has a big role to play here in identifying training gaps, and from there tailoring customised training for crew to ensure they are adequately upskilled. We also need to ensure that the voice of the crew is heard, and they understand why new technologies are being adopted.

R: Decarbonization is a global challenge. How can international cooperation between governments and maritime organizations be strengthened to achieve more effective emission reduction strategies?

SY: Less talk; less politics; more action.?

R: What is your perspective on the biggest challenges and opportunities you see on the road to a decarbonized maritime industry.

SY: I am a simple person. I look at this through a business lens and the biggest challenge is how to create an immediate business case for decarbonisation, because shipping businesses are not charities. If we can find a way for the cost of relevant technologies to be reduced and shared across the supply chain, I believe we will see a higher rate of adoption.

Every disruption brings opportunities. A decarbonised maritime industry will offer opportunities for people who are willing to rethink business models and products.?