Benefits of energy efficiency investment
12th December 2014 13:02 GMT

There would appear to be a common misconception, unfortunately repeated in many official reports and documents, that a significant part of the measures to reduce specific energy consumption and CO2 emissions of ships are cost effective, and being such could offer net benefits to the sector, as the reduced fuel costs ensure the pay-back of any operational or investment costs [1].

Much of the commodity shipping sector is highly competitive, more so at the moment.  A charterer considering taking a ship on charter to carry his cargo will compare the available ships in order to select the most appropriate ship for the business.  The comparison that he makes will likely include all factors, such as draft, beam, length, cargo capacity or deadweight on the available draft, gross or net tonnage (for port charges and canal dues), etc., as well as speed and consumption.

Speed and consumption describe the energy efficiency of the ship, but that description will not always be very accurate, because speed and consumption depend on the draft that the ship will sail at and the trim of the ship, as well as opening the unfortunate but all too common opportunity for the operator to take advantage of predicted bad weather to overdescribe and avoid claims for misdescription.

Speed and consumption are not the only factors that will persuade a charterer that the ship is the most appropriate for the trade.  A ship, however, with a better speed and consumption (or energy efficiency) than other ships, will probably be the preferred ship, all other things being equal.  Unfortunately, being the preferred ship does not result in a higher freight rate, it just means that the more economical ship is more likely to obtain the business.  The most competitive ship will give the charterer an inherent rate that is at least as good, if not better, than the rate obtained by his competitors.

So where do the net benefits end up?  The charterer will pass his more competitive position on to the receiver, who will pass the net benefits on down the chain to the consumer.  The net benefits do not end up with the shipowner, or the charterer, it just makes them more competitive in this highly competitive market, and therefore more likely to get the business.  It is the consumer who gains the benefit.

The Owner of the ship, having spent the money to become more efficient, will end up as having the ‘more preferred’ ship, but will not otherwise be able to recoup his investment.

This does not take into account the proven fact that increasing efficiency will end up in increased demand, nullifying, to some degree, the efficiencies achieved [2].  But that is another story.

[1] Quote taken from the “Proposal for a Regulation of the European Parliament and of the Council on the monitoring, reporting and verification of carbon dioxide emissions from maritime transport”, pp6.
[2] The ‘Jevons Paradox’

Arthur Bowring,
12th December 2014 13:02 GMT

Comments on this Blog
Barry Lucas - Kimberly-Clark Corporation
14th December 2014
Falling oil prices will degrade the economic return on energy efficiency investment.
Caroline Clarke - SCM Services Pty Ltd
15th January 2015
The detail characterises, including the variables inherent in, the nature of the industry. To add in on the stakeholder relationships with all things being equal the benefits of energy efficiency investment and ROI is with perhaps a regard for economic, social and environmental the health and welfare of example Marpol VI to differentiate with all things being equal the benefits all the best thank you for sharing kind regards Caroline
agoetfme agoetfme
3rd September 2016
agoetfme agoetfme
3rd September 2016

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