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Shipping’s New ESG Rules Could Starve Millions

August 4, 2022
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By Paul Homewood

A shipping expert gives his views on the latest climate regulations for international shipping:

 

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A new report found that more than 75% of ships will not meet the International Maritime Organization’s (IMO) new Environmental social and corporate governance (ESG) index aimed at decarbonizing the industry. This means that many ship owners will be forced to slow ships down to reduce emissions but doing so could deepen the global food and energy crisis by reducing available ship capacity.

“IMO decarbonization targets will cause ships to slow down delaying food shipments and people will starve,” a global security analyst told gCaptain. “How many people will die as a result of the IMO’s ESG efforts is unknown at this time. I don’t think most shipowners even understand the severity of the EEXI threat but it could be millions of lives.”

IMO EEXI ESG INDEX

“Prior to any efficiency modifications, more than 75% of the fleet — including bulkers, tankers, and containerships — will not be compliant with the Energy Efficiency Existing Index (EEXI) that will enter into force next year,” said cargo analyst Joey Daly, in the new VesselsValue report.

The challenge of decarbonization will extend to all areas of shipping, and EEXI alone will present a myriad of challenges to owners, operators and financiers. Simon Hodgkinson, who heads loss prevention at West P&I, has suggested that the new rule could be one of the most significant new shipping regulations in years. He believes it has the potential to shift the entire industry.

The International Maritime Organization’s Energy Efficiency Existing Index is a voluntary, incentive-based system that encourages ships to improve their energy efficiency. The Index uses a vessel’s speed, cargo-carrying capacity, and other factors to calculate a numerical score. The higher the score, the more energy efficient the vessel. More specifically EEXI (Energy Efficiency Existing Ships Index) is a measure of a ship’s CO2 emissions per transport work. It is similar to the Energy Efficiency Design Index (EEDI), which has been in force since 2013, but applies to existing ships rather than new ones.

The Index is designed to motivate shipowners and operators to invest in energy efficiency measures that will reduce fuel consumption and greenhouse gas emissions.

Ships have to attain EEXI approval once in a lifetime, by the first periodical survey in 2023 at the latest.

Slow Steaming

Ship owners can meet the target by building new eco-friendly ships, investing in new decarbonization technology, and upgrading existing ships to burn cleaner fuels like LNG, or by slow steaming.

Slow steaming is a technique used by shippers to reduce fuel consumption and emissions by slowing down vessels. The process involves sailing at a slower speed, typically around 50% of the vessel’s maximum speed. This can be done by reducing the revolutions per minute (RPM) of the propellers.

While older ships can be retrofitted with devices to lower emissions and meet EEXI requirements, analysts say the fix most ship owners will take is just to go slower, with a 10% drop in cruising speeds slashing fuel usage by almost 30%, according to marine sector lender Danish Ship Finance.

“They’re basically being told to either improve the ship or slow down,” said Jan Dieleman, president of Cargill Ocean Transportation, the freight division of commodities trading house Cargill, which leases more than 600 vessels to ferry mainly food and energy products around the world.

This strategy also reduces the amount of wear and tear on the vessel, which can help extend the life of the ship. But there is one ancillary effect: a potentially massive reduction in fleet capacity.

Full story here.

As I understand it, the new regulations are voluntary, so will likely be ignored by many countries. However, shipping lines ignoring the diktat may find themselves punished by banks and insurers, operating to strict ESG rules:

“As the IMO prepares to rate the energy efficiency of ships on a EEXI scale of A to E, shipping companies will come under increasing pressure to meet these targets not just from regulators but also from banks.

In 2019, a group of banks committed to efforts to cut carbon emissions when lending to shipping companies. This group of banks established the Poseidon Principles, a global framework that is consistent with IMO policies on environmental grounds. As of today, 28 banks have signed on to the Poseidon Principles.

The Poseidon Principles are fairly new but are already having a ripple effect on finance and insurance, as banks and other lenders begin to factor in a company’s carbon emissions when making lending decisions.

What this means for shipowners is that even if they find a way around the IMO’s ESG regulations, steaming at normal speeds could increase their carbon scores and have a negative effect on financing options and stock prices”

This demented obsession with decarbonisation brings a painful dilemma:

Slow steaming means in effect less global shipping capacity, leading to a potential bottleneck on supplies. As the article explains:

“Is a reduction of capacity really a troubling problem? Yes.

Nobody is calculating the price of a good ESG score in terms of human lives,” said one global security analyst who wished to stay anonymous. “The question is no longer if people will starve to death because of IMO decarbonization targets. The question is how many?”

The most troubling fact from our conversations with global security analysts was that millions could die before famine even sets in. “

And longer shipping times mean higher journey costs, despite the savings on fuel, adding to the cost of everything we import.

The alternative, of course, is to simply build more ships to bring shipping capacity back into equilibrium. The building of these ships will, of course, carry an enormous carbon footprint of its own, eliminating any potential savings from fuel efficiency for many years to come.

And China?

Any discussion about international shipping must take into account the role of China, who are believed to control the world’s second-largest shipping fleet by gross tons and constructed over a third of the world’s vessels in 2019.

Will they follow these rules?

One of the reasons for their global dominance of shipping lies in a complicated and opaque system of formal and informal state support that is unrivalled in size and scope, and which includes subsidised finance from state banks, who are unlikely to be concerned with ESG.

While China may pay lip service to these new regulations, given their total disregard for ESG in other industries, I would strongly suspect that they will just carry on building up their shipping industry, taking advantage of the West’s weakness.

And the West’s economic dependence on China will grow ever more dangerous.

40 Comments leave one →
  1. rgpqwnj3vq permalink
    August 4, 2022 11:14 am

    They can simply re-register their ships in countries out of reach of these controlling bastards.
    Not a moment too soon !!

    • JapanT permalink
      August 4, 2022 2:53 pm

      ESG is spreading everywhere. But it need not. All that needs to be done is for the countries that all in for this is not let non ESG compliant ships enter port.

  2. Chris Davie permalink
    August 4, 2022 11:18 am

    Thought this might interest you

    http://www.washingtonpost.com/world/2022/08/04/great-barrier-reef-coral-recovery-climate-change/

    Thanks for all the good work.

    Chris

    • 2hmp permalink
      August 4, 2022 11:29 am

      Sad that two Professors, Robert Carter, and Peter Ridd, were sacked because they said the reef was recovering well from local bleaching. James Gook university should hang its head in shame.

    • ThinkingScientist permalink
      August 4, 2022 12:48 pm

      The headline of that article is just hilarious:

      “Great Barrier Reef has most coral in decades. Global warming could reverse it.”

      So the old story that climate change has damaged the reefs is gone because the facts say otherwise. But now climate change COULD damage them? Whatever happened to the “climate emergency” we are now in? Surely there must be SOME sign?

      Too stupid for words.

  3. Martin Brumby permalink
    August 4, 2022 11:19 am

    I am, by now, firmly of the opinion that we need to tell every one of these globalist, anti-human, venal, incompetent organisations, from the UN down to go forth and indulge in vigorous self coitus.

    There is not a scintilla of evidence that this latest go-slow shipping scheme will have any beneficial effect, rather than to the usual Billionaires and the CCP

    • August 4, 2022 9:52 pm

      I did wonder: “the potential to shift the entire industry.”, to what I ask? You have likely supplied the answer.

  4. August 4, 2022 11:22 am

    “Ship owners can meet the target by building new eco-friendly ships, investing in new decarbonization technology, and upgrading existing ships to burn cleaner fuels like LNG ….”

    There’s an irony that LNG carriers can be amongst the most eco-friendly vessels on the high seas.

    Most use boil-off natural gas via dual-fuel (oil/gas) engines. For many, there’ll only be liquified gas in their tanks during outward journeys. However, reserving some ‘cargo’ as their primary fuel will be easier for them than other bulk carriers.

    From 3 years ago:

    “While the value proposition of LNG varies across segments of the shipping sector, it is (perhaps unsurprisingly) most attractive as a fuel for the approximately 550 LNG carriers currently operating worldwide.2 We expect to see a rapid rise in adoption of LNG as a fuel in this segment, potentially increasing demand by nine million tons per annum (mtpa), or 3.0 percent of annual demand, over the next two years. Therefore, shipowners and operators in 2020 should consider switching to forced LNG boil-off gas (BOG).”

    https://www.mckinsey.com/industries/oil-and-gas/our-insights/forced-boil-off-gas-the-future-of-lng-as-a-fuel-for-lng-carriers

    • Phoenix44 permalink
      August 4, 2022 12:10 pm

      Wow, it’s almost as if ship owners have an incentive to find cheaper ways of doing stuff without being told what and how to to do it.

  5. dave permalink
    August 4, 2022 11:27 am

    “Will China follow these rules?”

    Ha-Ha!

    “Demented obsession with decarbonization.”

    When reading about “the flagellants” of the Middle Ages, I noticed that the powers-that-be of that time punished them ferociously as ignorant, superstitious, dangerous FOOLS Our powers-that-be are incomparably more foolish than those madmen of the Middle Ages ever were.

    How did our society get that way? It has to be more than disguised grabs for money and power by cynical elites. Whatever ‘they’ take will simply become worthless when the inevitable chaos develops and the ‘Reset Revolution’ eats generation after generation of its children

    That is so obvious.

    • Phoenix44 permalink
      August 4, 2022 12:17 pm

      Climate change succeeds because it offers something to everybody. For the Left it offers their salvation – capitalism really is evil after all. For the Messiah Complex politicians (more of those than there used to be) it allows them to Save the World. For the opportunists and rentiers it allows them to be come rich whilst appearing virtuous. For the scientists it allows them to bask in glory and prizes. For the upper classes it allows them to ban all the stuff they don’t like, plebs on cheap flights to places that should only be for the right sort of people for example. For the Waitrose middle classes it allows them to feel they are doing their bit. For the mad Greens, they can finally destroy the hated oil companies. For the neoRomantic fantasists they can believe they are going back to nature and we will all live in beauty and harmony.

      And who dares oppose “science”? Who wants to be a Denier? So most other people simply keep their heads down and go along with it.

      • Tones permalink
        August 5, 2022 11:37 am

        Phoenix. You’ve hit the nail on the head in one paragraph! The best explanation I’ve seen!

      • Realist permalink
        August 5, 2022 3:33 pm

        At least the opportunists and rentiers don’t hate everybody else, but what are they going to spend the money on? Everything is being banned or regulated and taxed out of existence by the other group.

  6. August 4, 2022 12:03 pm

    Wondering whether or not Bill Gates wrote the regulations?????

  7. Phoenix44 permalink
    August 4, 2022 12:19 pm

    Let’s make everything that goes by ship more expensive…

    Whats the total cost of this madness I wonder?

  8. Harry Passfield permalink
    August 4, 2022 12:26 pm

    Not sure I get ‘slow steaming’ to reduce emissions. If, for example, my ship emits 100 units of CO2 for a 50 day voyage, will it not, emitting half as as much at half power, still emit 100 units but over 100 days?

    • ThinkingScientist permalink
      August 4, 2022 12:49 pm

      Efficiency and drag I suspect.

      If I drive faster my mpg goes down. So the cost per journey goes up.

      • Chaswarnertoo permalink
        August 4, 2022 1:53 pm

        Add in the cost of your time. And the fact that IC engines are most efficient at peak torque.

      • catweazle666 permalink
        August 4, 2022 7:08 pm

        “If I drive faster my mpg goes down”

        Not strictly accurate.
        For example, in my last 3 litre BMW diesel which had an instantaneous fuel consumption readout, best MPG was at 87 MPH, at 40 MPH it dropped 20% or more because it was in a lower gear.

      • Realist permalink
        August 5, 2022 11:24 am

        It’s all the stopping and starting again that causes the most fuel consumption. The key is to find the optimum speed for travelling at least one hour at a constant speed.

      • catweazle666 permalink
        August 5, 2022 7:47 pm

        Most modern vehicles have fuel consumption computers.

    • It doesn't add up... permalink
      August 4, 2022 8:53 pm

      Fuel consumption escalates sharply with speed. This pair of curves (ballast and laden) for a typical VLCC give an idea.

      https://www.researchgate.net/figure/new-VLCC-tanker-fuel-consumption-speed-curves-2-HFO-bunker-price-range-400-600-800_fig11_288145632

      Smaller vessels consume much more fuel per tonne of cargo. Maximum ship sizes are constrained by canal lock sizes (Panamax, Suezmax) and safe drafts (Malaccamax) and ability to enter ports.

  9. Realist permalink
    August 4, 2022 12:39 pm

    This is very bad. It is effectively RETROSPECTIVE legislation

  10. Derek T permalink
    August 4, 2022 1:07 pm

    I would guess that a ship has to work a lot harder at higher speeds to overcome the resistance of the water, so lower speeds might save some emissions, but at a terrible cost to all of us as customers. While we are hobbled with all this self-inflicted regulation, the Chinese are laughing their socks off.

  11. Cheshire Red permalink
    August 4, 2022 1:13 pm

    There appears to be a running theme here; magically every new UN-led ‘initiative’ slows supply chains around the world, reducing food and energy availability while making life that bit harder for normal people.

    New policies which actually improve life for everyone are proving suspiciously elusive.

    It’s almost as if they’re revising everything to begin the process of reducing the world’s population, starting with the decadent West. I know, I know, it all sounds a bit tin-foil hat, doesn’t it?

    It’s a bit of a vote loser telling the electorate that they’re surplus to requirements and an officially sanctioned UN global cull would be a tricky sell come election time, so Saving the Planet for Your Own Good it is, then.

    • Mike Jackson permalink
      August 4, 2022 6:22 pm

      They don’t need to “reduce the world’s population”. According to the UN’s own figures the birth rate is already falling worldwide; population should stabilise around the end of the century and will start to decline post-2250.

      Of course if we no longer have engines and need to till the soil by hand we might soon find we need more children, especially if we no longer have the technology effectively to fight disease and therefore ……………

  12. Coeur de Lion permalink
    August 4, 2022 1:58 pm

    How do we make it widely known that ECS is low and doubling CO2 produces negligible warming?

    • Cheshire Red permalink
      August 4, 2022 2:32 pm

      Official response; ‘That would make you a climate denier, Coeur, and we don’t debate with deniers.’

    • Broadlands permalink
      August 4, 2022 3:51 pm

      More than doubling of CO2 took place in the late Eocene about 30 Myr-ago and the biosphere thrived. Plant life on land was lush and the carbonate plankton diversified even as the pH of the oceans was about one unit less alkaline. This is not widely reported probably because it doesn’t fit the current narrative. It is they who are in denial?

    • dennisambler permalink
      August 4, 2022 11:36 pm

      https://www.theepochtimes.com/the-big-green-lie-almost-everyone-claims-to-believe_4639112.html

      “The Big Green Lie—that carbon dioxide is a pollutant—is so pervasive that even those considered skeptics—including right-wing NGOs and pundits—generally adhere to the orthodoxy, differing not in their stated belief that CO2 is a pollutant but only in how calamitous a pollutant it is. The other shoe to drop is the lie that carbon dioxide-emitting fuels should be replaced.”

  13. August 4, 2022 3:28 pm

    Ukraine has about 20 million tonnes of grain in silos that will take till the middle of 2023 to shift. This is a very tight schedule because the grain will be starting to rot by then plus it will clog up Ukrainian farmers who want to plant next season’s crop. The deal to unclog Odessa was brokered by Turkey with a number of front-line African states in attendance as interested parties wanting the crops to avoid famine. Sudan and Etiopia are already dependent on the UN food programme. So halving the speed of the boats will guarantee the deaths of millions of Africans will the greens call this a success or will they try and deflect the blame much as they did with DDT.

    • Mike Jackson permalink
      August 4, 2022 6:24 pm

      Which do you think? No prizes.

  14. catweazle666 permalink
    August 4, 2022 7:10 pm

    Nutters…

  15. Gamecock permalink
    August 4, 2022 7:41 pm

    It seems getting goods from point A to point B is NOT the objective. There are more important things to the International Maritime Organization.

    Note that this is the UN, IMO is their agency.

  16. It doesn't add up... permalink
    August 4, 2022 8:22 pm

    Shipping costs really divide between daily costs, which include financing and depreciation and allowance for maintenance, and crew, and fuel costs. When demand for shipping is slack it may be cheaper to slow steam if fuel is expensive. When demand for shipping is high, it pays to cut daily charter costs by paying up to go full steam ahead, thus creating more effective shipping capacity. Of course, high fuel cost means that there is less effective capacity available, and so charter rates will increase. That means that returns to shipowners and the security of banks loans will also increase so long as the ships are still permitted to operate.. Consumers lose out through higher costs and perhaps reduced availability of goods. Bankers only lose out if ship owners are forced into bankruptcy through not being allowed to operate.

    Builders of compliant ships and engines stand to benefit, as perhaps does the scrappage business. Whether the planet benefits from building lots of extra ships while scrapping others is of course a more open question that ranks low down the list of market rigging priorities of the ESG mob.

    • JapanT permalink
      August 5, 2022 1:28 am

      ESG is about absolute control of everything anyone and everyone does. Do as we say or your ESG score will suffer and you will be shut out of everything.

      • StephenP permalink
        August 5, 2022 7:21 am

        Has anyone done an ESG score of Bill Gates, Al Gore and the rest of the Davos/WEF crowd, or do they get a free pass to emit as much CO2 as they like?
        They are the elite and the rest of us plebs must know our place.
        Maybe in addition the elite need to be educated on how to use Zoom and cook Vegan food so that they won’t need to fly across the planet to attend conferences or have such a high CO2 emitting diet.

      • catweazle666 permalink
        August 5, 2022 7:35 pm

        Analogous to the Chinese “Social Credit” system, which controls every aspect of your entire life, and which enables any individual to be ‘cancelled’ on the whim of a computer.

  17. StephenP permalink
    August 5, 2022 7:27 am

    It’s interesting that so few people are using the /s or /sarc tags after their comments.
    Maybe it is an indication of how many of us assume that readers appreciate that many comments, or part of them, need to be taken with a pinch of salt.

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