The article ‘Will Carbon Credits Advance Sustainable Shipping?’ was published on Issue 3 of the Singapore Maritime Week 2022 Show Dallies; it has been reproduced in its entirety on Singapore bunkering publication Manifold Times with permission from The Nutgraf and the Maritime and Port Authority of Singapore:
By Derek Wong
Worldwide, there is a march towards net zero emissions, with 193 signatory countries participating in the Paris Agreement and about 5,000 companies committed to net zero targets as part of the global Climate Ambition Alliance.
Building on efforts from the 1970s, the International Maritime Organization (IMO) set out strategies in June 2021 to control air pollution from ships. Among such measures is the establishment of a formal energy efficiency rating for ships. However, to meet the IMO’s goal to cut carbon intensity of all ships by at least 40 per cent by 2030 (compared to the 2008 baseline), much work remains to be done.
One possible way? Carbon credits. Buying carbon credits (or offsets), which are currently voluntary in the shipping industry, allows owners to emit a certain amount of carbon dioxide or greenhouse gases (GHGs) in exchange for a reduction somewhere else. The credits can be traded on marketplaces – the value of traded global carbon credit markets grew by 164 per cent to US$851 billion last year, according to Reuters.
Much of this increase came from the European Union’s Emissions Trading System (EU ETS), the world’s most established carbon market. The region could be the first in the world to require shipowners to buy permits covering their emissions.
That said, the carbon credit debate remains divisive in the maritime sector. While the system could theoretically ensure a net zero outcome, it may be a short-term solution. Will companies simply pay to continue their polluting ways? Other challenges remain, such as the difficulty of enforcing and regulating a global carbon credit market for shipping.
AN INTERIM SOLUTION?
The shipping industry has dipped its toes in carbon credits before, with AkzoNobel’s marine coatings business working with The Gold Standard Foundation in 2014 to formulate the first approved carbon credit methodology in the sector. Shipowners who invested in the company’s sustainable hull coatings were awarded carbon credits based on the amount of carbon dioxide reduced due to lower drag and improved fuel efficiency.
Each of the 16 vessels included in the first issue achieved savings of over 1,250 tonnes of fuel, preventing 4,000 tonnes of emissions yearly – earning about US$500,000 worth of carbon credits in total. However, despite the promise of the model, it has not caught on or been scaled throughout the industry.
Still, it showed that companies can be incentivised to act to save the environment if it makes economic sense. This could be the calling card of carbon credits as the transition to green fuels for the maritime sector is an expensive one.
“Carbon credits are an intermediary solution to bridge the higher cost of lower-emission solutions,” said Joshua Politis, Deputy Managing Partner at Transport Capital, an international transportation investment management and advisory firm.
However, he added that credits should be used as a last resort rather than as a “free pass” to continue emitting as normal. “Carbon credits should only be used for those emissions which cannot be abated with current technologies at a reasonable cost.”
ARE THE CREDITS CREDIBLE?
Perhaps the largest concern over a voluntary carbon credit market is whether it is a form of greenwashing, especially when low-quality credits are used. As the voluntary market is neither legally mandated nor enforced, this is a legitimate concern.
“It is possible for a company to claim they buy more credits than they emit,” said Kevin Milla, Consultant and Carbon Specialist at Paia Consulting, which specialises in sustainability issues. “Companies have complete discretion in the voluntary carbon market.”
There is also the issue of who should purchase the credits. Should it be the shipowner or charterer, for instance? Such disagreements have emerged in light of the shipping industry’s impending addition to the EU ETS.
Another overriding question is who should enforce the carbon credit system, should it be set up. The IMO has indicated that regulations on GHG emissions should be global, in contrast to the EU’s approach, due to concerns that developing countries may be disproportionately affected.
Finally, while carbon credits may be a useful short-term incentive for companies transitioning to alternative fuels, there remain doubts over its efficacy in addressing the world’s climate crisis.
Instead, carbon credits may be more effective when used in tandem with other tools, such as levies on bunker purchases that can pay for decarbonisation research, or carbon pricing to make carbon-based fuels more expensive.
“For reputational purposes and perhaps stakeholder and employee satisfaction, the purchase of carbon credits can be a key part of a maritime company’s sustainability plan,” said Mr Milla. “However, it is less effective towards global climate change goals if it is the sole plan.”
Program introduces periodic assessments, mass flow metering data analysis, and regular training for relevant key personnel to better handle the MFMS to ensure a high level of continuous operational competency.
U.S. Claims Register Summary recorded a total USD 833 million claim from a total 180 creditors against O.W. Bunker USA, according to the creditor list seen by Singapore bunkering publication Manifold Times.
Glencore purchased fuel through Straits Pinnacle which contracted supply from Unicious Energy. Contaminated HSFO was loaded at Khor Fakkan port and shipped to a FSU in Tanjong Pelepas, Malaysia to be further blended.
Individuals were employees of surveying companies engaged by Shell to inspect the volume of oil loaded onto the vessels which Shell supplied oil to; they allegedly accepted bribes totalling at least USD 213,000.
MPA preliminary investigations revealed that the affected marine fuel was supplied by Glencore Singapore Pte Ltd who later sold part of the same cargo to PetroChina International (Singapore) Pte Ltd.
‘MPA had immediately contacted the relevant bunker suppliers to take necessary steps to ensure that the relevant batch of fuel was no longer supplied. Further investigations are currently on-going,’ it informs.