Improving Efficiency and "Creating Climate Wealth" in Shipping

Over the next two days, I will be attending “Creating Climate Wealth,” a conference organized by the Carbon War Room.  If you don’t know the Carbon War Room, they are a non-profit organization that is dedicated to overcoming the financial, political, informational, technical and other barriers to achieving gigaton-scale reductions in carbon dioxide and other greenhouse gases.

By bringing together entrepreneurs, investors, government officials, advocates and others, the Carbon War Room folks hope to come up with strategies to unlock investment and achieve large-scale deployment of pollution-cutting  technologies and ideas that are ready to go.

Last year, they started shippingefficiency.org,a great website that includes efficiency ratings for thousands of ships carrying goods around the world’s seas.   

The premise is simple enough that it’s amazing that nobody thought of it before:  if shippers could choose a more efficient ship to carry their goods, they would try to do so.  Why?  Because a more efficient ship translates into reduced fuel costs that should reduce the overall cost of shipping.

From my work to improve the environmental performance of trucking, I know that commercial operators are unlike most personal car owners when it comes to reducing fuel costs.   When most of us choose our cars, we often ask about fuel economy, but then choose cars that value size, space, comfort and other amenities over fuel economy.  But for a trucker being paid by the container, fuel economy is one of the key operating costs that they have some control over when choosing new equipment.  So, in the trucking world, improved fuel economy can drive sales to or from a particular engine or truck.

Shipping should work the same way, but it usually doesn’t.  Why?  Because when most companies order a container of goods from Asia, they usually have no information about the efficiency of various ships, and therefore no ability to seek out more efficient ships.  No regulatory or policy regime exists to drive the shipping industry towards cleaner, more efficient ships.  Plus, because ships operate for decades, it takes a really, really long time to see industry-wide shifts in fuel economy, even when everybody agrees that it’s good for business to cut fuel costs.

The Carbon War Room experts aim to change this, and their work dovetails with my own work to improve the environmental performance of shipping.

Here’s why:

Every year, 100,000 ships around the world emit a gigaton of CO2, which will increase to 1.6 gigatons/year by 2020.   It has been estimated that these ships could reduce their fuel consumption by 30-60% percent using existing technologies, depending on the age, size, and model of the ship  Over time, the Carbon War Room folks think that a gigaton of CO2 emissions could be avoided.

As I have written many times before, today’s ships typically use an extremely dirty, high –sulfur bunker or residual fuel.  This fuel leads to high emissions of sulfur dioxides, nitrogen oxides, and particulate matter—pollution that triggers health impacts like asthma emergencies, bronchitis, cancer, and thousands of premature deaths in the U.S. every year, plus increased environmental impacts like ground-level ozone and acid rain.

Over the next four years, ships travelling within 200 nautical miles of the U.S. and Canadian shores will have to switch to a lower-sulfur, cleaner fuel and start using effective anti-pollution control technologies.  These are the two key components of the Emission Control Area (ECA) program that was adopted by the International Maritime Organization (IMO) last year (see here).  Implementing the ECA program will have fantastic health benefits, including the elimination of roughly 14,000 premature deaths and $110 billion in health costs annually by 2020.

But this distillate fuel will cost more than today’s dirty bunker fuel – only pennies a gallon more, but multiply that by the millions of containers travelling around the world, and it adds up to a powerful new reason to find more efficient ways to operate to offset their higher fuel costs.  

And we need to succeed at this effort.  Every dollar of implementation cost will yield an estimated $34 in health benefits.  It’s hard to find a better investment in public health, even with rising concerns about the price of fuel.

It will take many interrelated actions to achieve large-scale, global efficiency improvements.  But the Carbon War Room experts think a 30-60 % efficiency improvement is feasible, and I agree.  But here are a few examples of steps that we’ll need to see to achieve this improvement:

• Better information will be necessary.  Ship efficiency ratings can provide credible information to the various stakeholders involved in getting a container from point A to point Z.  Shippingefficiency.org is already helping to do this.
• Better standards and rules will be necessary.  This would provide uniform performance metrics for the various industry stakeholders involved, and consistent market signals that can guide future investment.  That’s why it is so important that the IMO finish its work to create an energy efficiency regime for ships, something that’s on the agenda for its upcoming meeting in London in July.  Ultimately, we need a regime that covers both new and existing vessels, given the long life of today’s ships.
• Investment capital will be needed.  To fully maximize future efficiency potential, shippers need access to capital now to help make upfront capital investments that will translate into reduced operating costs in the future.
• Better use of technology will be needed.  Even something as relatively simple as weather-routing software could improve efficiency by as much as 10 percent.
• Local and regional incentives and programs will need to align with the broader goal of improving overall system efficiency.  US ports, for example, should offer incentives to drive more efficient ships to our shores when the ECA rules go into effect in 2015.  This would reduce local and regional air pollution, car carbon, and help offset any increased per-gallon fuel costs of the ECA program.

Over the next two days, it should be exciting to discuss these, and other, ideas with some of the best minds in the shipping world. 

Stay tuned, as I’ll report back to Switchboard readers as the conference progresses.  Today’s post covered the shipping side of goods movement.  Next, I’ll focus on some of the issues related to the ground-side of goods movement, specifically focusing on trucks.