Page 26 - European Energy Innovation - Spring 2016 publication
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26  Spring 2016 European Energy Innovation


EU Maritime Environmental Regulations
– Who pays?

By Mark Clintworth (pictured), Head of Shipping, European Investment Bank

In line with EU transport policy  However, small and medium                    depending on the abatement
the EIB provides financial                        (SME) sized EU short         technology chosen.
support to the EU Maritime                        sea ship-owners are
sector including for the                          increasingly facing serious  FUNDING CHALLENGES
purposes of this paper, EU         difficulties funding ‘green shipping’       The economic crisis has drastically
commercial shipping. As regards    investments required to meet both           reduced ship values and freight
the EU Shipping sector, the        current and impending environmental         rates making it difficult for many ship
Bank gives particular attention    regulations and reduce harmful              owners to finance either the necessary
to projects that better assist     air emissions. Furthermore, due to          environmental upgrade of existing
the sector in dealing with         the ever decreasing availability of         ships or the acquisition of new vessels
environmental challenges and       commercial funds, which are required        which are required to meet ever more
encourage, in line with EU         to meet these regulations, the EU           stringent environmental regulations.
legislation, the development of    shipping industry is under even             This situation has obvious negative
clean technology and increased     greater financial pressure. This has        effects on short-sea shipping and
fuel efficiency1. This not only    led to requests from the industry and       ferry operators who have with limited
benefits EU ship owners and ship   the EC within the framework of the          funding capacity when confronted with
builders but also supports the     European Sustainable Shipping Forum         substantial investment costs for clean
multitude of SME’s and midcap      (ESSF)³ as to how the EIB can widen         technology investments.
equipment suppliers involved       its financial assistance in order to help
in the EU’s maritime knowledge     to reduce the funding gap required to       In addition, the financial sector is also
economy. In 2012², the EU          meet these increasing environmental         under severe pressure and financial
shipping industry is estimated     demand on the industry.                     assets are ‘on sale’ in some banks
to have directly contributed €56                                               which means that risk appetite is
billion to EU GDP, employed        ENVIRONMENTAL REGULATION                    severely limited for new shipping
590,000 people, and generated      The immediate major regulatory              investments. Furthermore, the
tax revenues of €6 billion.        challenge to the EU Shipping industry       introduction of new European financial
                                   is the 2015 regulation which limits         regulations is expected to render the
                                   the sulphur content of emissions from       financial system even more shipping
                                   ship’s exhaust gases to 0.1%. This          risk averse.
                                   affects all vessels operating in the
                                   North sea, English Channel and Baltic       Various European banks are under
                                   sea areas. These areas are collectively     pressure to reduce shipping
                                   known as Sulphur Emission Control           exposures4 due to capital and funding
                                   Areas (SECA).                               constraints, de-risking, the need to
                                                                               focus more on core businesses and
                                  The effect of this rule has been either      regulatory impacts. Less funding is
                                  the burning of expensive low sulphur         available from the traditional shipping
                                  fuels or the adoption of abatement           banks and this will remain so in the
                                  technologies such as sulphur exhaust         near future. This means that alternative
                                  scrubbers or retrofitting LNG engines        sources of capital will need to be
                                  for example, in order to meet these          found.
                                                                               With regard to the impact of
                                  There are an estimated 5,000 ships           regulations on the sector, Basel
                                  operating in the proposed SECA,              II introduced a rating-dependent
                                  of which 2,000 operate exclusively           approach to capital requirements. For
                                  in SECA waters. Up to 71% vessels            example, the rating of a containers
                                  operating in this area belong to             vessel of 3,500 “boxes”, constructed
                                  European operators. This could mean          in 2007 during Basel II makes 4 on the
                                  a potential overall cost of between          rating grid. In a Basel III environment
                                  10 to 40 EUR billion to the industry         and due to the crisis the rating for

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