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Ships are generally considered to be one of the cleanest forms of long-haul transportation. Despite the fact that ships carry more than 90% of the world’s imports and exports and yet only produce 3% of the world’s greenhouse gas emissions. However, it has come to light that these statistics may be somewhat misleading.
Freight ships burn heavy fuel oil which means that they emit more oxides of nitrogen and sulfur gas than all of the world’s cars combined – and the environment is beginning to feel the strain. In order to combat the problem, The International Maritime Organisation, the UN’s regulatory agency for shipping has put the wheels in motion for a cap on sulfur emissions from ships which will come into force in 2020. However, it looks as though the plan may already be in troubled waters.
Since the global financial crisis of 2008, the shipping industry has experienced significant financial problems. At this current time, the industry is swamped with a monumental amount of debt and owes around $400 billion located all over the world. The potential expense of the upgrades to green technology is expected to run into tens of billions of dollars. For an industry already struggling to manage their existing debt, the mandatory upgrades could prove crippling.
According to Gust Biesbroeck, the head of transportation finance at the Dutch bank ABN AMRO, there is also a serious problem of incentives to make green upgrades to shipping vehicles. Biesbroeck says that the ship owners, who are ordinarily the parties who borrow money to make upgrades do not benefit from lowered bills. These benefits are enjoyed by the companies which charter the vessels. However, they normally take out contracts with the owners of the ships which are far too short to allow them to reap the full benefits of green upgrades. On average, a retrofit will begin to make paybacks in a time period of three years. However, the vast majority of contracts are for two years or less.
But there may be a potential solution on the horizon. An NGO named the Sustainable Shipping Initiative has launched a new project called ‘Save as you Sail’ which will allow the ship owners and the charterers to share the fuel savings over a long contract. It is hoped that this will incentivise both parties to make the new green upgrades. Banks are also getting on board with this kind of project. The European Investment Bank has announced €250m ($282m) in funding for such retrofits, and it is hoped that other big banks will follow their lead.
If these kinds of projects prove to be a success, then the banks and NGOs may consider applying the schemed to the airline industry and the train industry in the future.