Green finance, alternative fuels and regulation on the agenda at ABS Sustainability Summit

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Leaders from across the maritime industry shared their views on decarbonization, alternative fuels, sustainable finance and the role of regulation at the recent ABS Sustainability Summit.

Providing a curtain-raiser to SMM 2022, the summit brought together high-level industry participants with the institutions whose work will shape shipping’s energy transition.

Focussing initially on the challenges facing the industry, the first panel discussed short and longer-term goals. At present shipping looks likely to still be emitting high levels of CO2 by 2050 and action is needed on several fronts.

These include improving access to future fuels, improving technology onboard ship to smooth the adoption process, changes to customer behavior and a willingness to pay for cleaner fuels. Regulation is needed to support this process and sustainable finance must be available to help first movers.

For alternative fuels to fully emerge, some require regulatory support while all need some level of technology implementation. How difficult the process will depend in part on which fuel is considered – some are still many years from mainstream availability in either conventional or renewable forms.

The industry has experience with cryogenic fuels through LNG, but the changes needed to adopt hydrogen as fuel will be considerable, the summit heard. The technology will need to be developed for the marine environment and a supply chain constructed to meet demand.

Owners will need an increasing level of support to make the necessary retrofits to bring down emissions from existing vessels but by 2050 the global fleet should be refreshed and the opportunity is to focus on how to design ships to adopt cleaner fuels and reduce emissions further.

The availability of sustainability alternatives is clearly a major factor in their uptake. Challenges include the regulatory landscape, which is still evolving in terms of how sustainability is measured across the fuel lifecycle.

Though both regional and global regulators share a direction of travel towards lower emissions, the paths by which they get there diverge; some regulations consider the complete fuel lifecycle, others do not and some instruments measure these contributions differently.

The willingness to pay for the energy transition will be fundamentally affected by the addition of shipping to the European Union’s Emissions Trading Scheme, since this will affect all ships calling at EU ports.

While it offers an apparently simple operating model, the ETS will also radically alter the competitive landscape for some owners but the ultimate goal – eliminating carbon emissions – means that at some point the system will have made itself redundant.

For operators, the baseline is clearly higher efficiency operations but the owners at the summit expressed the view that a clearer regulatory framework is needed, to support them when the new fuels begin to become available.

Existing ships – even those operated at high-efficiency levels – may struggle to attract refinancing when the time comes – and may not be able to obtain sustainable finance which rewards their efforts to cut emissions with a more attractive interest rate.

Ship finance providers are certainly under pressure to improve transparency and meet goals for investment based on Environment Sustainability and Governance goals. This means negotiating multiple regimes and systems.

Nonetheless, the summit heard that sustainable finance is moving into a concrete phase and bankers are looking to create value while balancing risk and reward, something that depends on the data which is more available now.

Despite differences of view about the means of achieving it, there was consensus about the scale of the challenge presented by shipping’s process of decarbonization. The priorities are well understood; with the support of class, operators, finance and technology providers as well as regulators can focus on how to best achieve it.