Allow the market to support the decarbonisation journey: ABS’ Plevrakis

Georgios Plevrakis was keen to discuss the practicalities of carbon pricing when he was interviewed by The Motorship at SMM. Although many of the specific decisions around the scope of regional and international schemes, such as the EU’s Emissions Trading System (ETS) extension and the FuelEU Maritime proposal have not yet been finalised, Plevrakis noted that many of the specific issues had been identified and discussed.

“We’ve been discussing these issues for over two years,” he said, referring to specific issues that carbon pricing had to confront from a maritime perspective, including identifying where the ultimate responsibility for carbon emissions sits from a producer-pays perspective, as well as where the decision-making responsibility for operational decisions lies.

As editor of ABS’ latest publication in its Setting the Course to Low Carbon Shipping series, Plevrakis also noted carbon pricing would play an important role in creating the conditions for the emergence of hydrogen and carbon value chains.

Plevrakis looked beyond some of the short-term discussions to look at how the potential introduction of carbon pricing will affect the operation of shipping markets.

The appeal of carbon pricing for the industry is that it actually creates opportunities for ‘first movers’, and directly benefits operators who champion efficiency and adopt solutions earlier, Plevrakis noted. This will accelerate the adoption of clean technology solutions in the industry.

The rules need to be predictable, transparent and applicable, in order to encourage adoption by the maritime industry as well as the wider industrial complexes upon which the maritime sector will need to coordinate with it.

The success of the introduction of carbon capture use and storage (CCUS) supply chains will depend upon other hard-to-abate sectors, such as cement manufacturing, steel making and other non-ferrous metallurgical sectors, adopting CCUS technology.

Clarity around these issues is vital in order to stimulate the development of technological solutions. “We need a standardised approach towards the sustainability aspects of [these] different areas.”

Taking a broader perspective, such schemes are expected to help to raise funds for both the development of solutions that are at pre-commercial stages of development, and help to support the cost of developing supply-side infrastructure.

Any assistance would be welcomed by the industry in the current economic environment. The annual cost of investing in the infrastructure required for the energy transition was likely to be between USD30 billion and USD60 billion over the next 30 years.

Returning to the issue of regulation, and taking the EU’s regulatory efforts as an example, Plevrakis cited the FuelEU Maritime scheme and the extension of the Emissions Trading System (ETS) to shipping as areas where a carbon price would be defined.

“The ETS creates a delta that can be traded, while the FuelEU Maritime scheme introduces a financial penalty, but both should help to support the transition,” Plevrakis noted.

The Motorship notes that the establishment of financial liabilities and an international pricing mechanism is also likely to accelerate the development of hedging tools to allow larger operators to manage their financial exposure to carbon prices, although the different bases of the ETS and FuelEU Maritime schemes will complicate basis risk calculations.

While the ETS and FuelEU Maritime schemes will help to establish financial liabilities for a carbon price for ship owners and operators in the EU, they will not be sufficient to offset the cost differential between alternative fuels and existing conventional fuels.

Taking into account the differences in energy density between alternative fuels such as methanol and ammonia and conventional fuels, and the higher production cost of producing alternative fuels, “the carbon neutral fuels that we will be producing will still be less cost efficient than the fossil fuels that we are using today,” he added.

Plevrakis concluded by calling for a carbon-based levy to be introduced on to fuels, in order to narrow the price differential between carbon-neutral fuels and conventional fuels.

Depending upon how the rules are framed, The Motorship notes that the effects of such a carbon levy alter the carbon economics of different fuels significantly. Scandinavian methanol suppliers believe that carbon-neutral methanol produced from renewable energy sources with the addition of recycled carbon dioxide from CCUS schemes could be carbon-positive.