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| Too many shipping operators are sailing blindly into a perfect storm of climate risks and emissions regulations. (Shutterstock Magnifier) |
So, for an industry that prides itself in carrying 90 percent of global trade, it seems reasonable to expect the same level of diligence from all of those at the rudder of the global shipping industry as we approach the onset of climate regulations, be they regional or global in their initial form. But, this is not what we see.
As 18 months of research from Carbon War Room and UMAS reveals with its concluding report
this week, top banks holding up to $400 billion of shipping debt are
steaming ahead without an understanding of these climate transition
risks or lending programs in place to keep assets competitive.
"Navigating
Decarbonisation" demonstrates for the first time that the financial
impacts of decarbonization are indeed material and will require
management. It also suggests that pragmatic enhancements of due
diligence by financiers, shipowners and shareholders can help ensure
that the first step of decarbonization is profitable and successful.
It may be
tempting to dismiss the urgency of managing these risks in the face of
truly challenging, unprecedented market conditions in much of the
shipping industry. This thinking should be questioned vociferously; a
new-build vessel financed today will very likely will be competing under
some form of a carbon price before its first dry-dock — a period of
scheduled maintenance when efficiency modifications also can be made.
Risks need to be assessed and managed today.
Amid the findings of this work, three key points stand out:
- Under carbon pricing, ships may have to operate at slower speeds or undergo expensive retrofits to remain competitive.
- Ships with high operating costs as a result of anticipated climate regulations could be vulnerable to asset devaluation or even illiquidity.
- There is little evidence that most financiers are assessing vessel efficiency, working to anticipate climate transition risks, or considering lending programs to keep assets competitive.
While
our conclusions don't support a future as negative as that suggested in
the first carbon bubble analysis by Carbon Tracker in 2011, there are
similarities.
Like the
fossil fuel sector, shipping is suffering from a glut in supply, which
is driving consolidation and inhibiting new investments. Last month
South Korea's government announced a $5.6 billion rescue package for the
nation's shipping industry. That wasn't enough to stop Hanjin Shipping
— which once accounted for 8 percent of U.S. maritime trade — from
declaring bankruptcy.
In addition to this, the industry is putting plans in place to comply with the hugely capital-intensive ballast water management
convention this year and a global sulfur cap in 2020. Research by KfW
IPEX bank suggests the combined effect of market conditions and the need
for capital expenditure may lead to the scrapping of 13 percent of the
merchant fleet.
It is no wonder that many industry
voices have said that now is not the time to add to their burden, but
even those voices have begun to wane. International shipping accounts
for 2.4 percent of global emissions and future regulation is certain.
In
October, at the U.N.'s International Maritime Organization (IMO) in
London, over 170 countries agreed to deliver a draft climate plan by
2018, ahead of a global strategy by 2023. As political discussions
stand today, shipping may enter into the European Union's ETS by 2023 if
the IMO is unable to deliver.
The Carbon War Room
wants to see the first step of decarbonization be a success. If
financiers, shipowners and shareholders act now to ensure that due
diligence practices look beyond the current crisis, decarbonization can
be more than successful. It can be an opportunity for innovation and
prosperity.
This story first appeared on: BusinessGreen
(Source: https://www.greenbiz.com/article/shippings-carbon-bubble-banks-need-climate-proof-400bn-shipping-debt)
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