Solving the green finance conundrum

Negotiating an industry to take a path from which there is no return is a delicate balance of demand, finance and will power, according to the Global Maritime Environment Congress (gmec) panel on green investments.

It is clear that ship operators cannot operate on expensive fuels when their competitors do not; particularly as shipping is a price sensitive business.

Demand for green fuels is being generated, however, by cargo owners through an initiative known as Zero Emission Maritime Buyers Association (ZEMBA) which is an initiative that brings shippers together to buy low carbon transportation.

ZEMBA CEO Ingrid Irigoyen explained that the group’s initial look at maritime revealed a lack of commitment to green solutions.

“Shipping lines were always struggling to get customers to pay their premium, and customers were unsure of what the premium was for, what the emissions reduction was, every company had a different carbon calculator that spits out very different results, and there were struggles to report on those emissions reductions,” explained Irigoyen.

There was an inconsistent approach to emissions reduction calculation and recording. And the willingness to pay was “scattered across the globe, across carriers and networks,” this situation was not having much of an impact.

ZEMBA has introduced a system which allows shippers to buy the environmental attributes of a carrier.

“Environmental Attributes Certificates (EAC) for scope three reductions are essentially buying the environmental attributes of a cleaner shipping service, and we’re enabling that through book and claim systems,” said Irigoyen.

So that means if a shipper wants to buy emission reductions from carrier A because it is offering the best fuel at the best premium price for emissions reduction, then they “can buy that emissions reduction from the carrier whether he’s moving freight with that carrier or not.”

Essentially the EAC system has decoupled demand, or the willingness to pay, from where, when and how green fuels are being deployed.

“So, it doesn’t matter that a shipper is moving coffee beans to Europe from the Americas, if he is able to buy into the best possible price on green fuel, moving from Shanghai to Los Angeles, that’s fine the planet doesn’t care,” said Irigoyen.

Asked by moderator Nick Chubb who will pay for the green transition, Torsten Holst Pedersen, COO at Seaspan Corporation, responded “All of us will pay, consumers will pay for decarbonisation.”

That was a sentiment that all four gmec panellists accepted, but for Pedersen the problem is still getting the finance he needs to invest in the high-cost technology that will allow that transition.

Demand from customers will help to generate the ambition for shipowners to invest in green tech. That is why Pedersen responded to Irigoyen’s aside that ZEMBA’s second tender is soon.

“ZEMBA is a fantastic initiative, and I told Ingrid I want to win next time,” he quipped.

But Pedersen, also explained Seaspan’s modus operandi: “We make investment decisions based on the longevity of the vessel and whether there’s a risk of technological obsolescence, [if so] then we don’t do it, or we include modifications or improvements in the business case.”

As an owner Seaspan responds to the chartering customers’ requirements, prompting Pedersen to say: “We are ready to use all fuels. Everything we are building now uses some form of alternative fuel.”

Even so the shipowner is attempting to partially derisk its orderbook by leaving options open, because there have been no decisions on what the final fuel, or fuels, will be.

“For some of our first LNG dual fuel ships we have used green financing, for us it’s not cheaper, which of course will be a driver for many, we looked at it as an alternative cash pool that you otherwise can’t access,” said Pedersen.

It was a point that was addressed by Nils-Christian Hanke, VP at KfW IPEX-Bank: “In the long-run green financing will come with lower prices, but I must emphasise this is in the long-run.”

Volatility and insecurity in the market around which fuels to use and their availability, means “in the beginning it [green financing] comes with higher costs for sure,” said Hanke.

But even Hanke’s view that non-operating owners may have “a little more flexibility” was not a temptation for Pedersen: “Even if I get a 0% loan, if I don’t have a contract at the other end, I’m not going to build the ship.”

“The ZEMBA initiatives are fantastic, the green financing is a great pool of cash to tap into,” concluded Pedersen, however, he said these initiatives will not help. “The only thing that will solve it [the green transition] is that there is someone that is willing to pay to have an alternative fuel vessel.”