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Live from CMA Shipping 2021

Charterers need to pay for emission reductions

Arlie Sterling, President of Marsoft Inc, talks about the challenges of getting charters to pay for emissions reductions and opportunities for carbon trading.

Seatrade Maritime News: Do you think the shipping industry is doing enough to be able to meet its own targets for reducing its carbon footprint?

Arlie Sterling: I think the industry will meet the goals of decarbonisation. I think it's going to be a requirement that they do. Whether or not everyone is able to survive the large investments necessary to achieve that, that's another story to be told as it's a very expensive business. These are unfunded mandates, and we don't really know how to make sure that we're going to get to those goals. But yes, I'm certain we will.

Seatrade Maritime News: What would say the main challenges are for decarbonisation of the industry?

Arlie Sterling: The main challenge is that most shippers don't want to pay for reducing emissions. The charters are in an intensely competitive game and their only measure success typically is what they pay for the ship, not how much CO2 is emitted. That has to change, the charters have to become more sensitive and weigh the cost of CO2 in their chartering decisions. When that happens when they start doing long term charters that are that are sufficient to compensate for the investments required to reduce CO2 emissions, the industry will be on a path to reduce itself. Right now, the charters are the key in that step.

Seatrade Maritime News: What will be the costs to shipping and companies of not moving fast enough on this issue?

Arlie Sterling: There are two layers of costs involved, the industry is going to regulate certain standards. If a ship or a shipowner fails to meet those standards, the ship cannot trade. That'll be a binary decision and owners will respond specifically to that.

The other level of compliance is what the charters are prepared to pay for. And when charters are prepared to pay for not only the movement of cargo from A to B, but doing so in a way that has minimized the CO2 emissions, then they will proceed and then they will make the investments necessary to deliver the shipping services that the shipowners provide.

Seatrade Maritime News: How are banks accelerating the transition to a zero carbon future?

Arlie Sterling: I think the shipping industry and ship finance in particular is at the lead in identifying paths to decarbonisation. The shipping, the ship finance industry has taken key steps forwards with the Poseidon principles, public recording of their carbon footprint, and they're making lending decisions based on carbon emissions already. So this is a very apotent force. What we heard earlier today was a discussion about green finance, the public markets for bonds that are labeled green, I think there was a sense that they could offer a less expensive financing alternative for owners that could demonstrate that they are meeting higher than usual standards. I'm not sure the financial argument there is really compelling yet. I think that the green discount or that you get is still relatively small.

I think what is another new avenue for shipowners is the carbon market, particularly voluntary carbon market is where my company Marosoft has been spending a great deal of time finding a way to open the door to the carbon credits market to allow ship owners to issue carbon credits on the basis of the emissions reductions they achieve with their investments, and then sell those carbon credits into the voluntary market where and thus help to fund the investments.

Seatrade Maritime News: How do you think shipping can tap into the growth in demand for carbon trading and carbon offsetting?

Arlie Sterling: Carbon trading is taking off it's really exploding from an investment or investor perspective, certainly trading and regulatory regimes like the ETS, in California, that's that is a rapidly growing market. The market that we think is particularly interesting to provide new funding for shipowners is the voluntary carbon credit market. Voluntary carbon credit market is the market that companies that have decided to reduce their emissions below the regulatory requirements. They can go to that market and acquire carbon credits, emissions reductions that were obtained in other industries, like shipping. 

We've made our breakthrough literally this week that is going to start things moving forward at a much more rapid pace. That market is perceived by the United Nations and by others as vital to the success of decarbonisation of the global economy. It's not just shipping many, many other segments of the industry supposed to grow from $300 million two years ago, to $30 billion by the end of the decade. That kind of growth means there is going to be a tremendous opportunity for shipping to take advantage of the opportunities for funding that will emerge there. As long as shipping can satisfy the very demanding standards of the voluntary credit carbon credit model.

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