GCMD dives into legal and financing considerations for maritime decarbonisation

The Global Centre for Maritime Decarbonisation (GCMD) on Tuesday (23 January) shared perspectives of its Director of Research & Projects at GCMD, Shane Balani, during law firm Stephenson Harwood LLP’s final session of the Singapore Decarbonisation Series 2024.

Moderated by Jonathan Ward, the panel on “Shipbuilding, retrofits, batteries and financing”, delved into the complex legal and financing considerations for maritime decarbonisation.

With panellists intimately familiar with the challenges of financing the energy transition of shipping, the discussion emphasised the need to rethink existing approaches. Balani of GCMD gave his perspectives on the following issues: 

How can stakeholders of the value chain finance the energy transition of shipping?

We are seeing a growing traction in dual-fuelled vessels in the orderbook, each one culminating from careful consideration and optimisation of all the factors at play – safety, cost, long-term availability of alternative fuels, and GHG abatement – before landing on the exact fuel combinations.

With so many options still on the table, and no clear standard choice, financing of dual-fuelled vessels should not stop at the hull. Investments must broaden across the value chain, expand into the upstream to secure a long-term supply of affordable fuel for this growing class of fleet.

What are the challenges to installing EETs onboard existing and retrofitted vessels? 

Though several promising energy efficiency technologies (EETs), such as batteries, wind propulsion, are available, none will work as a standalone. Combined with retrofits, they may be effective in helping shipping to meet the IMO’s 2030 ambitions to reduce shipping emissions by 20 to 30%. 

Deployment of EETs through financial instruments like sustainability-linked loans comes with stringent borrowing requirements and quantification of performance to justify the payback for retrofitting the vessel fleets. Currently the variable operating conditions of vessels lead to uncertainties, making it difficult for shipowners, financiers, lawyers, classification societies to assess the actual impact of EETs. 

Also, as shipowners bear the upfront costs of retrofitting vessels, but the fuel savings and economic benefits flow instead to charterers, there is the problem of spilt incentive that discourages widespread adoption.

How can we scale the adoption of energy efficiency technologies?

Clear, verified, transparent data-sharing on the performance of retrofitted vessels is required to allow stakeholders to verify their fuel savings and attribute these to specific EETs deployed. The linkages, when proven, will open up opportunities to unlock financing mechanisms and release investments, scaling the mass adoption of energy efficiency technologies. 

Photo credit: Global Centre for Maritime Decarbonisation
Published: 23 January, 2024