Diane Gilpin, the founder of the Smart Green Shipping Alliance, makes the business case for change as delegates continue to debate shipping’s future at the Marine Environmental Protection Committee in London this week.
In geological time humankind is a relatively young species and we are coming of age. Just as teenagers must learn to stop demanding from family humanity can no longer keep drawing on natural capital with impunity. We can rage all we like against this reality, and we can try and delay the inevitable but there are some things we simply cannot deny.
We may choose not to believe in climate change but physics is an unswerving teacher. You can choose not to believe in gravity, but when you fall out of the tree you still crack your head. If you don’t believe in climate science you’ll still be impacted by it. And, as others have articulated in Splash recently, the time we need to deal with those impacts is fast running out.
But the good news is that, regardless of what economists might have you believe, economics is not a science. Humans designed it and so, we can re-design it. Our current economic system was designed in the pre-Victorian era back in the day when ships were still powered by wind.
If I were MD of the world reviewing trends in our global community’s annual accounts it would be clear that we are getting deeper and deeper in to debt, that our business of living as part of this world is unsustainable. The planet is not an infinite resource supply nor is it a bottomless sewer. Actions have consequences and, it turns out, economics is a wholly owned subsidiary of the environment. If we fail to live within planetary boundaries our species will end up as a mere blip in geological time.
Figuring out how to manage the transformational shift we need to make is enlightened self-interest.
The strategic business case for change depends on fresh thinking. As any investment proposal will warn you predicting the future based past experience is no guarantee of success. This is increasingly true in tumultuous times. The Stone Age didn’t end for lack of stones. As we head in to MEPC72, a critically important moment for the shipping industry to embrace opportunities presented by the global need for change, let’s examine the Business Case.
Customers, cargo-owners, are demanding that the way they shift freight changes, they want to buy clean shipping. As shipping is the last sector to sign-up to the Paris Agreement it means that pretty much everyone else, that is the people who buy shipping’s transport services, is committed to reducing emissions. Looking down the supply chain to make emissions savings is a natural commercial response to achieving that objective. I’m told over and over that shippers won’t pay a cent extra for ‘green’ shipping. Which means we have to think differently about how to serve the customers.
When other sectors are working hard addressing rapid emissions reductions if shipping fails to act its proportional emissions contribution will increase. In the spirit of enlightened self-interest shipping’s customers (aka the rest of the world) will find other ways of doing business – as fantastic as that may seem now – and they will continue to heap political pressure on the IMO to do its fair share.
Renewable energy is a great investment opportunity. We only need to glance ashore to see how transformative change is being underpinned by renewable energy. In 2016 there was record acquisition activity in the clean power sector, which rose 17% to $110.2 billion. According to Prof. Dr. Udo Steffens, president of Frankfurt School of Finance & Management, “Investor hunger…for wind and solar farms is a strong signal for the world to move to renewables.” According to that radical green publication, The Financial Times, cumulative global growth in renewables has risen 1226% since 1990. Back then a single wind turbine might be perched on a hill generating 45KW, now, driven by economic imperatives, conglomerates are collaborating to build fleets of 9MW turbines offshore.
The attractive economic attributes of primary renewable energies – wind and solar – are that they are free, abundant and exclusively available to the asset it powers. These qualities allow us to develop new business models. In the context of shipping we look towards increased operational and financial autonomy, improved opex predictability where primary renewable energies mitigate the risk of whatever motor fuel – fossil or bio – is also being used.
This increased economic resilience is further enhanced by knowing that assets are future-proofed against whatever emissions regulations are imposed, because, along with the economic benefits, primary renewable energies are clean.
The strategic case is largely understood but implementation is hampered by technical and engineering hurdles, how do we develop the tactics that actually deliver? The answer is in collaborating around the commercial imperative to adapt or die. Racing against time.
Engaging cargo owners in discussions at the outset creates new business opportunities. Long term predictable fuel savings have the potential to attract long term contracts of affreightment. Certainty begets certainty.
We might think about, in consultation with cargo-owners, designing for slower speeds, and then combining a suite of efficiency solutions to reduce overall propulsion requirements. Then we’d figure out how to deploy as much primary renewable energy solutions as we can now, and design to upgrade as new primary renewable technologies come to market. Consider the innovation curve – it shows how technologies rapidly evolve once their economic importance has been established. (I might re-remind here you of that extraordinarily rapid technological evolution in wind turbines).
Hydrogen, ammonia or biomass-based biofuels enable a 100% renewable powered ship. Paradoxically, production of these alternative fuels depends on cost-effective energy generated by primary renewables. I’m suggesting we cut out the middle-man and aim to maximise generation of on-board primary renewable energy to give greater cost certainty and operational autonomy, in combination with an alternative-fuel powered engine ensuring delivery deadlines are met using minimum commodity-priced fuel.
This ‘system of systems’ is predicated entirely on existing and near to market solutions. None of it is rocket science, but making it work financially does require new thinking. But now finance has joined the race team. Anxious about risks of stranded assets, around the volatility, cost and availability of fossil fuels, of supply chain resilience, finance has brought to the table their solutions for enabling the rapid development of renewables through cleantech leasing, power purchase agreements and other new business models.
Willing participants, focused on commercial solutions, work together to co-create solutions. It’s like working in the America’s Cup and Formula 1 combined and on steroids – and even more exciting. Also, the prizes are significantly greater for everyone – both economically and environmentally.
We bring together the brightest minds, the deepest thinkers, the best naval architects, marine engineers, materials designers, commercial and digital pioneers and we collaborate around the common goal to build 100% renewable powered commercially viable working ships.
This is the ultimate race – against time. We rise to the challenge.