‘We are of a very, very firm view that we need to introduce a carbon levy and we believe it is best done by the IMO as it is the global governing body for shipping,’ said Rasmus Bach Nielsen, Trafigura’s Global Head of Fuel Decarbonisation, at last week’s Decarbonisation and Shipping webinar hosted by the London Shipping Law Centre, in association with BIMCO.
The event was chaired by Grant Hunter, Head of Contracts and Clauses, BIMCO, and introduced by Rachel Hoyland, Senior Associate, Hill Dickinson, who noted that shipping ‘potentially stands to be the backbone in a completely new era of emissions neutral global trade.
‘The industry has the advantage of interconnectedness…and of doing business on new frontiers,’ she said.
‘If it can collaborate effectively, and if all stakeholders can play a part, it can rise to this challenge.’
Following an overview of the global regulatory picture in terms of shipping’s decarbonisation, given by Roel Hoenders, Head of Air Pollution and Energy Efficiency at the IMO, Trafigura’s Rasmus Bach Nielsen outlined the global commodity trader’s position on how shipping can best get to zero.
Last September, Trafigura set out its proposal that the IMO should introduce a carbon levy of between $250-$300 per metric tonne of CO2 equivalent on bunker fuels in order to make low and zero carbon fuels more economically viable and cost competitive versus conventional marine fuels.
How can we encourage investment, asked Nielsen. ‘If there is no levy on marine fuels – it would be hard for pension funds and others to invest into the renewable space,’ he said.
According to Trafigura’s proposition, a levy would be used to subsidise the uptake of low and zero carbon fuels. ‘If…you cost neutralise these fuels [this] means that shipowners are encouraged to change engines, and we know that the engines [for low/zero carbon fuels] are ready by 2024 and 2025,’ said Nielsen.
Investment in renewable fuels – including marine fuels – will run into billions of dollars but, as Nielsen highlighted, ‘in order to offtake these fuels on a 10-year basis then you need certainty in demand’.
He looked at the commercial case for ammonia. At present, on a forward basis, green ammonia costs between €450-€500 per metric tonne
‘With a calorific value 2.2 times less than existing fuels it is highly uneconomical, and companies will not be able to offtake these fuels in scale – and what we are talking about is scale and transition,’ he said.
Using a carbon levy to make new fuels more cost competitive is essential, said Nielsen, and ‘we don’t believe a significant amount of the funds should go to R&D.’
He suggested that a small part of the revenue from the levy should be directed towards small island states who could be significantly impacted by increased transportation costs as a result of shipping’s decarbonisation.
Nielsen highlighted green methanol and green ammonia as frontrunners in shipping’s future fuel ‘stakes’.
While green methanol probably rests on the ability to capture carbon, ‘we cannot say with certainty whether [the technology providers] will succeed in capturing carbon,’ he said, noting that ‘The cleanest fuel – in terms of the information we have today – definitely looks to be green ammonia.’
He emphasised that behavioural change is required from all stakeholders – including charterers – to deliver shipping’s energy transition.
‘But we need regulation,’ he emphasised. ‘When regulation happens then everything becomes so clear.
‘Shipowners have realised that this is what it takes for them not to be sitting with the buck and the bill – with regulation you have clarity.’
While there was some initial scepticism over Trafigura’s carbon levy proposal from some quarters, Nielsen says there are clear signs that sentiment has changed.
‘What we have achieved is a significant change in belief,’ he said.
‘I truly believe that decarbonisation will happen much faster than everybody believes – and COP 26 [in November] will be the complete gamechanger for this.’