18 June, 2019
It's time to understand the commercial opportunities that proper management can bring
What you need to know
- Island Australia and its economy is dependent on ports and shipping, a sector that may be responsible for up to 17% of global CO2 emissions.
- Ports and State regulators have to date focused on air quality rather than greenhouse gas emissions. However, because CO2 emitted in the course of ports' operations can be measured, it can also be managed.
- Market forces are at work, coinciding with regulatory priorities. The convergence will drive faster change on the management of shipping greenhouse gas emissions.
What you need to do
- Greenhouse gas emissions from shipping should be on the board agenda for ports and for a range of businesses that depend on sea freight.Rather than being caught unawares, it is time to understand the emerging commercial opportunities that proper management of this issue can bring.
Commercial developments are manifesting which will prove more consequential for shipping, ports and trade than long range regulatory limits on emissions
There are indications that addressing the greenhouse gas (GHG) emissions of shipping and ports will become essential for reasons of competitive advantage. For example, consider the focus on fuel efficiency from:
Banks that are now conducting their own enquiries into the fuel efficiency of the ships they finance, as relevant to both asset value, projected income stream and corporate governance;
Major charterers – for whom ships with high fuel efficiency are in demand, and the converse is true – reinforcing fuel efficiency as a parameter of quality; and
Low sulphur fuel transition – compulsory low sulphur fuel by 1 January 2020 will boost this directional thinking.
Higher bunker fuel bills in the early stages of 2020 sulphur compliance will add financial pressure on owners of inefficient ships. Better managed ships are more likely to escape the predicted surge of fuel transition related delays, claims and losses – so strengthening their attraction for charterers.
Climate Change Alert: It's getting hot in here:
Ports are uniquely placed to encourage efficiency in the global shipping fleet
In this changing landscape, it will no longer suffice for ports to adopt the position that they are unable to control the ships that arrive in their waters and facilities. In fact there are opportunities for ports that recognise the changing context, and act first.
Electrification of wharf operations for noise, safety and emissions reasons offers immediate gains shared with the community. However, these changes may in turn foreshadow higher community expectations of ports, including to act on harmful air quality emissions and GHG emissions of visiting ships.
The European regulatory spotlight on air quality including from shipping emissions remains relentless, exposing poor compliance and reliably supplying newsfeeds to investor, business and community stakeholders – not just activists.
Britain recently included in a commitment to zero net carbon by 2050, to entirely replace conventional bunker fuel in all UK ports.
The priorities for Australian and Asian ports may need to change, as they already have in some European and American ports. For example, some Canadian ports have developed port incentive programs aimed at rewarding ships that emit less GHG emissions and air pollutants. These demonstrate that some forms of incentive charging can be accommodated within existing tariff models. Were ports to act collectively on incentives this would give greater stability to shipping lines and fleets, and intensify the impetus for change.
We now have access to reliable data on emissions
Reliable, detailed data is becoming more widely accessible. The International Maritime Organisation (IMO) regulate air pollution and GHG emissions from ships in varying degrees, but associated data is often not transparent or presented in useful ways that can influence future emissions.
For example, the GHG design efficiency of all new build ships (since 2014) must meet specified benchmarks of IMO's Energy Efficiency Design Index (EEDI). This has played a vital role in raising vessel efficiency standards of new builds but has limited application to many industry stakeholders such as charterers or ports and does not cover older vessels (pre 2014) which make up the bulk of the global fleet.
Maritime risk management company RightShip sought to address this gap. Their GHG Rating gives all cargo carrying vessels a relative efficiency rating (from A down to G), using the IMO regulation as a foundation. This has armed over 120 industry stakeholders with verified and meaningful information to compare and pick more efficient vessels. One application has been being able to better understand the spread of efficiency in chartered or port-calling vessels, develop incentive programs and demonstrate action to manage emissions to stakeholders.
Holistic ship emissions can also be reviewed with impressive sophistication based on vessel specifications, location data and adjusted for standard operating procedures. One such mechanism is the Maritime Emissions Portal (MEP) developed in partnership between RightShip, Oceaneering and The Australian Marine Environment Protection Association (AUSMEPA). This can gives users like ports air inventory data for carbon dioxide, nitrogen oxides, sulphur oxides, and particulate matter across defined areas.
Tools like the MEP provides the maritime industry a unique opportunity to define priority projects aimed at reducing ship-source emissions. Users are able to observe changing air patterns throughout a port and city over the course of a day, week, month or a year. Such innovations mean users can go beyond the standard approach of compiling historical air inventories.
Conclusions
A combination of the availability of data, with regulatory and commercial pressures, means that emissions from shipping and ports are now clearly visible on land.
Firms and corporations are increasingly recognising that if they rely on import or export freight supply chains, this dependency affects their own greenhouse gas reporting.
Large supply chain users wish to assure their customers of their environmental credentials including in procurement and delivery.
Ports as capital intensive businesses with attraction for superannuation investment portfolios will profile better if their operations match investors' environmental and social governance criteria.
It is a short step to conclude that the matter of ships' greenhouse gas emissions will appear on more board room agendas, sooner than we would think.
For more information on directors' duties aspects, please see our 21 May 2019 Climate Change Alert: It's getting hot in here: Company and director liability for climate change in Australia
For further information, please contact:
Robert Jamieson, Partner, Ashurst
robert.jamieson@ashurst.com
