When Virgin Group boss Sir Richard Branson brought together a bunch of environmentally aware entrepreneurs in a profit-oriented group to reduce carbon emissions, he grasped a name with Churchillian overtones.
Branson named the organisation Carbon War Room (CWR) after the Cabinet War Rooms in the heart of London where Winston Churchill ran the British government during Second World War, particularly during the aerial bombardment of the blitz.
The British billionaire equated the challenge of climate change with the threat posed by a world war and argued that the best way to win was to deploy private equity and business ingenuity to harness the right technology.
Shipping was quickly identified as an industry that could make big strides in cutting carbon emissions, and in November 2010 Branson was at the microphone when ShippingEfficiency.org was launched at the COP16 UN climate change conference in Cancun, Mexico.
Alongside vessel vetting agency RightShip, Shippingefficiency developed the greenhouse gas emissions rating system ranking 70,000 vessels for efficiency. The scheme is now used by charterers that shift a fifth of the world’s cargo by weight.
Now a recently expanded shipping team at CWR has unveiled an innovative revenue-sharing retrofit scheme for older ships that overcomes one of the biggest barriers to cutting emissions in shipping. Until now, there has been little incentive for shipowners that charter out their vessels to spend large amounts of money on making vessels more efficient.
For the first time the new scheme also promises significant fuel and emission savings.
CWR has overseen a collaboration between Hamburg shipowner Hammonia, New Orleans-based charterer Intermarine and a German bank that will share the financial benefits.
Three 10,536-dwt general cargo ships have been fitted with a package of measures predicted to produce a 25% fuel saving, with Intermarine agreeing a five-year charter deal at rates significantly above market levels. Bank liens on the 2005-built sisterships have been extended to finance the bulk of the $1.2m retrofits.
Improvements include applying a high-quality hull coating, fitting a new bulbous bow and optimisation of rudders and trim as the ships underwent scheduled dry dockings.
CWR provided a $120,000 grant to Hammonia to pay for the monitoring software. After measuring and verifying the fuel and carbon savings to prove how good the improvements are, it will publish the results. Data analysis will be done by University College London.
“This deal showcases how to overcome the split incentive between owners and charterers and deliver hard proof of fuel savings,” says Galen Hon, the shipping operations manager of CWR, who took over the team in late 2015.
Hon, a civil engineer who started his maritime career at the Port of Tacoma, on the US west coast, where he helped build an air-quality programme, adds that the project aims to “increase industry confidence in the profitability of retrofits”. Until now, only one in 10 companies has gone for savings of more than 10% from retrofits, according to classification society DNV GL.
Financing for retrofits has been a barrier too. Shipping banks, used to projects costing hundreds of millions of dollars, are not much interested in deals worth $20m-$35m. “Most of these upgrades are a fair amount less than that, so it is hard to get the banks to understand their value,” says Hon.
A second relative newcomer to the shipping team, James Mitchell, who is point man for the retrofit scheme, adds: “At fleet scale, a bank will have to undertake the same amount of due diligence, whether it finances newbuildings or retrofits to secondhand vessels.”
But the operations associate for shipping efficiency at CWR says banks are seeing the light, particularly when seeking employment for repossessed vessels.
“We are seeing some change in the thinking, particularly by German banks who were burned quite badly by the last market crash and are still dealing with these toxic assets,” Mitchell says. “They see that when they retrofit, it [the ship] is more employable and gets a higher rate.”
Hon says the focus is on current technologies proven to provide savings of up to 30%, not what might be available in the future.
Phoebe Lewis, who is engaged in research and stakeholder relationships for CWR, adds: “The mantra of what we do is profitability — this is what is going to make you money now.”
CWR is not engaged in policy formulation, but Hon does have experience of it. He was at the International Maritime Organization (IMO) when the Energy Efficiency Design Index (EEDI) was made mandatory for new ships in 2011.
“Up until the last minute we did not know if it was going to happen. Saudi Arabia was talking to China — ‘Are we going to let this go through?’ It was an electric moment when finally they had the vote and everybody agreed. We knew it was world-changing,” he says.
“Everyone is now looking to IMO, and it needs to act, and act strongly. That energy is going to pick up again, and we need that,” Hon adds of the situation following the 2015 COP21 climate agreement in Paris.
He admits it may take several years to figure out targets and decide how to raise finances for market-based mechanisms — such as a fuel levy — that most people now agree will be necessary to achieve future emissions ambitions.
“When they drew up the EEDI it was put in place as an easy entry to cut off the tail end of the least efficient ships. But there’s no way it alone can meet any of the proposed or imagined [emission] targets for shipping or the rest of the world. The issue for shipping is that the longer it takes to act on greenhouse gases, the more stringent the action will have to be,” Hon says.
It is why the CWR is adamant that its strategy must be to encourage wider adoption of today’s technologies. However, the policy is not helped by a cocktail of depressed shipping markets and low fuel prices combining to allow some owners to believe they can get away with slow steaming to cut emissions.
Lewis says the retrofit policy is not just about overcoming the financial barrier in bulk markets, “but also confidence barriers in the technologies and processes by shining a light on the companies undertaking these technologies [even] in current market conditions”.
Mitchell adds that the team has had discussions with Idan Ofer’s shipping companies (Ofer is a founding partner of CWR) about how they make commercial and what measures can be implement profitably.
It has also engaged with Branson’s start-up Virgin Cruises about adopting technologies identified by CWR. “They are developing very clean-running, efficient vessels,” Mitchell says.
Lewis notes that when CWR was launched, the industry was not sure what to make of it. “There were some assumptions that we were trying to pull the industry down. Actually, we are here to help. From the outset CWR felt this cannot just be about climate change, it has to be about a functional society, and part of that is business, profits and growth.”
It’s a long-haul approach, Hon explains: “When this carbon-constrained economy really does kick in in the 2040-50 time frame, then having moved the fleet towards the efficiencies that can be gained through cost-effective means will put the whole industry in a much better place. It will make the ultimately [more] stringent measures much easier to digest.”
Sounding board offers industry insight
An advisory board comprising six top executives from across the shipping industry was set up by Carbon War Room (CWR) this year.
The board aims to provide support and information to the organisation’s mission to decarbonise shipping profitably by providing insight into the shipowning, chartering, technical, finance and academic sectors of the industry.
“We are hoping it is a signal to industry that we really are trying to listen and work with them to achieve measurable change. Secondly, it is a way to ‘sound-board’ our ideas and see where we can really develop,” says CWR stakeholder relationships manager Phoebe Lewis.
The advisory board, whose members are involved on a personal basis, is:
Jan Dieleman The new president of ocean transport at vessel charterer Cargill.
Henrik Overgaard Madsen President and chief executive of DNV GL.
Mark Cameron Chairman of the International Parcel Tanker Association and chief operating officer of Ardmore Shipping.
Juha Heikinheimo President of NAPA, a Finnish firm that provides maritime software, services and data analysis for ship design and operations.
Mark Clintworth Head of shipping for the European Investment Bank.
Tristan Smith Director of the Research Council UK-funded project Shipping in Changing Climates, and reader in energy and transport at the UCL Energy Institute.
PLUS POINT
Carbon War Room was set up in 2009 as a global non-profit organisation to accelerate the adoption of business solutions that reduce carbon emissions at gigatonne scale and advance the low-carbon economy. In 2014 it merged with Rocky Mountain Institute (RMI), a US-based organisation that focuses on sustainability and profitable innovations for energy and resource efficiency.
The ship retrofit project is funded by the Dutch Postcode Lottery, which gave €1m ($1.3m) to CWR and RMI for their LeaderShip project to expand efforts in the shipping industry, which include collaboration with the Port of Rotterdam. The lottery has been raising funds to support organisations working for a greener world since 1989.
